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The Acquired episode about Costco (https://www.acquired.fm/episodes/costco https://www.acquired.fm/episodes/costco) claims they don't do loss leaders at all.

ButlerianJihad 23d ago
It would be illogical to make gasoline a "loss leader" because, surely, there are people who visit the gas station and then jet out of there without going anywhere else. A loss leader item is something that gets people in the door, puts their butt in a seat, and gets them to make a transaction that will include piling on other stuff. So if your Jumbo Jack is a loss leader, then you can charge $2.00 for sodas and $3.00 for French fries, and the same customer will probably also grab a $6 Oreo shake. Someone who's filling up for gas may or may not go inside the Costco store proper. But the gasoline isn't going to influence their buying habits. If they "just need gas" that's all they'll get. Conversely, I cannot see how a $1.50 hot dog is doing anything but losing money. It's a classic candidate for loss leader.
- cj 23d ago
  In rural America, getting someone into the parking lot isn’t much different than in the front door when the next box store is 10-20+ minutes away. It makes less sense in the suburbs.
- Spooky23 23d ago
  The average Costco ticket is $150 out the door. The retail margin is 11%, or $16.50. Say you fill the car with 15 gallons, and they lose $0.25/gallon. That’s $3.75. If 1/3 of the gas station customers go in the store, they’re making $5.50 from retail, less the gas losses they net $1.75. They make money, deny their competition business, and lock you mentally into saving money on gas and renewing that membership. That membership is half their operating income. I’m probably being pessimistic. One thing with Costco is they are incredibly efficient, so I’m sure they’ve baked out cost and overhead. You can see stuff like how they provide the minimum number of garbage cans.
Spooky23 23d ago
I love that podcast and that episode, but I think they got a little Costco fever. The hot dogs, gas, and chicken are almost certainly loss leaders. In my store they are selling a case of Coke $4 under everyone, which is certainly not making 11%. Which is fine by me, it’s my favorite store by far.
- phil21 22d ago
  Weird. Costco is never the cheapest price for Coke in my area. Or the previous state I lived in. At least if you bought during sales at competing Supermarkets. Where they win my Diet Coke business is that they are consistently a "good deal" - never the cheapest, but never the most expensive. And I don't need to wait for a sale to stock up. I still buy soda from the local grocery stores when I happen by a deal when shopping for other things. But I don't go out of my way. The specials are usually much better than Costco though. By 25% or more per can. Honestly this goes for most things I buy at Costco. Even in bulk, their per-unit costs beat the standard pricing at competitors - but never the sale prices. It just removes mental overhead. And the bulk prices are always better at a restaurant supply store. Where Costco wins in this area is curation so I can reduce mental load, but then again Costco does the bullshit where they stock something for 6mo out of the year and you spend an extra 20 minutes searching the store for it the next time you need it only realizing they stopped selling it. Then it appears randomly a month later. They are a decent middle ground for me. I can buy 10lbs of chicken breast of decent quality for $2.99/lb I can toss directly into the freezer pre-packaged into meal-sized portions. Or I can buy 40lb boxes of bulk chicken breast for $1.39/lb from the supply store and spend a couple hours vacuum packaging it myself. I definitely have a love/hate relationship with the place! I see Costco as the upper middle class consumerism version of nerd sniping.
  - brewdad 22d ago
    I shop Costco because I don’t want to have to chase sales all over town. I did that in my 20s when money was tight but now I value my time more than saving fifty cents on chicken.
  - jonhohle 22d ago

ButlerianJihad 23d ago

It would be illogical to make gasoline a "loss leader" because, surely, there are people who visit the gas station and then jet out of there without going anywhere else. A loss leader item is something that gets people in the door, puts their butt in a seat, and gets them to make a transaction that will include piling on other stuff. So if your Jumbo Jack is a loss leader, then you can charge $2.00 for sodas and $3.00 for French fries, and the same customer will probably also grab a $6 Oreo shake. Someone who's filling up for gas may or may not go inside the Costco store proper. But the gasoline isn't going to influence their buying habits. If they "just need gas" that's all they'll get. Conversely, I cannot see how a $1.50 hot dog is doing anything but losing money. It's a classic candidate for loss leader.

cj 23d ago
In rural America, getting someone into the parking lot isn’t much different than in the front door when the next box store is 10-20+ minutes away. It makes less sense in the suburbs.
Spooky23 23d ago
The average Costco ticket is $150 out the door. The retail margin is 11%, or $16.50. Say you fill the car with 15 gallons, and they lose $0.25/gallon. That’s $3.75. If 1/3 of the gas station customers go in the store, they’re making $5.50 from retail, less the gas losses they net $1.75. They make money, deny their competition business, and lock you mentally into saving money on gas and renewing that membership. That membership is half their operating income. I’m probably being pessimistic. One thing with Costco is they are incredibly efficient, so I’m sure they’ve baked out cost and overhead. You can see stuff like how they provide the minimum number of garbage cans.

Spooky23 23d ago

I love that podcast and that episode, but I think they got a little Costco fever. The hot dogs, gas, and chicken are almost certainly loss leaders. In my store they are selling a case of Coke $4 under everyone, which is certainly not making 11%. Which is fine by me, it’s my favorite store by far.

phil21 22d ago
Weird. Costco is never the cheapest price for Coke in my area. Or the previous state I lived in. At least if you bought during sales at competing Supermarkets. Where they win my Diet Coke business is that they are consistently a "good deal" - never the cheapest, but never the most expensive. And I don't need to wait for a sale to stock up. I still buy soda from the local grocery stores when I happen by a deal when shopping for other things. But I don't go out of my way. The specials are usually much better than Costco though. By 25% or more per can. Honestly this goes for most things I buy at Costco. Even in bulk, their per-unit costs beat the standard pricing at competitors - but never the sale prices. It just removes mental overhead. And the bulk prices are always better at a restaurant supply store. Where Costco wins in this area is curation so I can reduce mental load, but then again Costco does the bullshit where they stock something for 6mo out of the year and you spend an extra 20 minutes searching the store for it the next time you need it only realizing they stopped selling it. Then it appears randomly a month later. They are a decent middle ground for me. I can buy 10lbs of chicken breast of decent quality for $2.99/lb I can toss directly into the freezer pre-packaged into meal-sized portions. Or I can buy 40lb boxes of bulk chicken breast for $1.39/lb from the supply store and spend a couple hours vacuum packaging it myself. I definitely have a love/hate relationship with the place! I see Costco as the upper middle class consumerism version of nerd sniping.
- brewdad 22d ago
  I shop Costco because I don’t want to have to chase sales all over town. I did that in my 20s when money was tight but now I value my time more than saving fifty cents on chicken.
- jonhohle 22d ago