Why are prices in stores like Costco and Sam’s Club much cheaper than your average grocery store?
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Most commenters here don’t even understand whats happening or get it wrong on the “why”.
Costco and Sam’s Club are not in the same business as grocery stores, not at all. I know how odd that sounds as they both sell similar, if not often fairly identical items to grocery stores or big box stores (like a Best Buy).
However, Costco isn’t in the same business at all. Grocery stores, etc. companies make their money by marking up goods at significant rates, enough to create a profit for them. Their business model is buying these goods and upselling them. They act more as a middle man for the distribution of household goods. And that middle man makes their profit on upcharging the final customer at fat amount.
Costco is not in that business. Costco is in the subscription business. Its more like Netflix or a phone company than a grocery store. Costco buys goods and sells you them at only a limited markup. They aren’t interested in making profit on these goods, just enough to make their costs. They make their profit on you subscribing to this service. Their profit is from your membership fees. All of this is done just to make the $50-$100/year profit from each customer by selling them a membership for their service.
Now there are some really complicated stuff regarding how Costco pays its suppliers late that allows this to occur more smoothly for them, but thats way beyond ELI5.. but its also again, a totally different business than grocery stores, which do not have this luxury of essentially not paying their bills
So always think, Costco is Netflix, they sell a subscription to be able to purchase goods, they don’t really sell goods. Its not a “bulk” offering. Thats not their model. Their model is subscription. They are Netflix. They sell memberships, not huge bags of peanuts.
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