Why are prices in stores like Costco and Sam’s Club much cheaper than your average grocery store?
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After the membership fee and considering that some items are not even cheaper, plus on the items that are cheap you have to buy a gigantic quantity, plus the quality is cheap as well as the price so after all that it’s thanks but no thanks I’ll pass.
Lower overhead. Their stores are a basic warehouse meaning there aren’t any fancy signs or displays that cost money.
They can efficiently store and move inventory throughout the building.
Stocking shelves is as easy as moving a pallet. No need to depalletize inventory, open boxes and stack individual cans on the shelf. Just move the pallet into position, unwrap it and the shelf is stocked
Smaller variety. Rather than offering chicken nuggets from 10 different suppliers, they only offer one. This gives them the ability to negotiate the lowest price/best value.
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)
They are basically wholesale places no? Where you buy in bulk and at the sort of price grocery stores pay for their stock?
Many good answers but I don’t think any of them covered a key piece.
Let’s talk specifically Costco, I am not too familiar with Sam’s club.
Costco makes almost all of its profits from membership. They have a fixed margin (14٪ I think) as all other costs, that comes from products. If they buy it for $100, they sell it for $114, at most. This covers their operating cost. The $60 or $120 they get from membership is the pure profit.
They also sell so many of the products that a penny on each still generates enough to cover the operating cost.
My experience is limited to Costco. My understanding is that revenue from sales covers expenses and that memberships are where the profit is made. Costco actually carries a very limited number of items and what they do carry is generally packaged in multiples of what would be an ordinary retail size/quantity, members are essentially forced to buy in bulk so Costco’s cost to sell, say, 3 jars of salsa as a single unit is not much more than a grocery store’s cost to sell a single jar. Add to that they don’t have to stock more than one kind of salsa so stocking their shelves is simplified and less expensive.
There are only 2 of us so I don’t think Costco would make sense if it wasn’t that we piggyback on someone else’s membership. I haven’t done a strict cost accounting so I am not sure what we save over the grocery store. We buy a very limited selection of goods so I don’t actually know if the cost of a membership would pencil out. What I do notice is that sometimes I come back with things I don’t need, (3 pack of scissors,) or buy things I wouldn’t normally, (dried apricots,) so I tend to think that their store is not strictly about cost savings but actually a pretty sophisticated marketing theatre that nudges you to buy.
and business are desperate to get their products into costco and will accept horrendous terms from costco to do that (e.g. must buy back any product that doesn’t sell)
Mostly because their core business is selling you memberships. The slightly lower prices are there to lure you into buying memberships. Also, things in bulk tend to be cheaper, and the stuff there may be cheaper versions of the same product.
Sunday at Costco is what hell looks like.
Some of their deals aren’t deals.
Companies might make so much of something that they end up with a projected surplus, so they have to sell it.
Kirkland is the store brand. Costco also sells their own products.
Costco tricks you into buying a lot of stuff with promises of little savings. There’s less variety in products and labels.
Membership fees.
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