Why are prices in stores like Costco and Sam’s Club much cheaper than your average grocery store?

Question

Why are prices in stores like Costco and Sam’s Club much cheaper than your average grocery store?

In: 226

Answer 1

Like others have said they make their money on memberships so they can sell things at a much deeper discount.

1. [Costco doesn’t mark anything up over 15%](https://finance.yahoo.com/news/costco-stock-expensive-perfectly-fine-140816790.html) Grocery stores cannot compete with that. Especially with their Kirkland store brand products.

2. As an extension of those deep discounts due to membership fees/profit it also allows Costco to capitalize on “loss leaders”. This means that Costco can sell certain products at a price where they lose money when people buy it. But they do this because they lose a little money in that one item, that one item at the cheap prices brings people in to the store and then people buy other things while they are there, which easily makes up the difference. ([Source](https://www.vox.com/platform/amp/future-perfect/23207301/costco-rotisserie-chicken-poultry-farming-inflation))

For example, Costco sells hot and fresh rotisserie chickens for $4.99. However the cost of the chicken is actually $6-$10 dollars. But if you go in to Costco, where are these cheap, yummy chickens located? In the very back of the store in the middle of the two main aisles. So you have to walk down one main aisle and you see other great deals on other things. You pick up the chicken and the easiest way to the cashiers is walking down the other main aisles past more great deals. The probability that you grab another product or two while you are there more than covers the loss they’re taking from the chicken. Same thing with their $1.50 hot dog + soda deal. It’s a cheap fast way to feed a family with kids, and it is VERY LIKELY that a parent will grab milk, bread or fruit while they’re there.

3. Side note: *”Unlike most retailers, Costco owns most of the land and buildings which house its stores. Thanks to sharply rising land prices, the value of Costco’s owned real estate is appreciating significantly. “* (Source: Same as #1)