Costco opens first standalone gas station, plans more near warehouses

Gas station built on former Bed Bath & Beyond site in California

Costco opened its first standalone gas station last month in Southern California, about a mile or two from the nearest Costco warehouse, the company said. The station was built on the site of a former Bed Bath & Beyond store, according to local city planning documents.

The new location sells only fuel and does not carry the merchandise that typically drives the bulk of Costco’s profit. The company said the station charges the same discounted prices as its warehouse-adjacent pumps.

Gary Millerchip, Costco’s chief financial officer, said the company is moving carefully with the new format.

“They’re really intended to either alleviate some of the capacity constraints in the gas station that exists at the warehouse today or we just can’t get a gas station on the same premises,” Millerchip said in an interview.

He added that the stations are “still close enough to a warehouse that it’s still providing convenience to the members of that warehouse.” The company has “a couple in the pipeline,” he said.

The strategy shift comes as Costco’s gas sales have surged. In the five weeks ending mid-May, the retailer recorded its highest gas-sales weeks ever, Chief Executive Ron Vachris said on an earnings call. “The high consumer price sensitivity, which fueled these record volumes, also drove many members to use our gas stations for the very first time,” Vachris said.

Costco has reported annual sales growth for nearly two decades. Last week, the company said net sales for the five weeks ending July 5 rose 10.6%, a deceleration from the 13.7% growth in the prior period. Millerchip said May’s results may have been boosted by higher gasoline prices, as members sought discount fuel.

A second standalone station is planned for Honolulu, according to local government documents. The company is also exploring other alternative real estate concepts, such as a vertically built store integrated with a housing development, as land for new warehouses becomes harder to find.

At the Orange County station, regular gasoline was priced at $4.75 a gallon on Friday, compared with the county average of $5.39, according to AAA — a discount of 64 cents per gallon.

Millerchip said the company is “becoming more creative” with its real estate plans as it seeks to maintain membership growth and find room for fuel stations where store parking lots cannot accommodate them.