How investors could benefit from Costco building its first standalone gas station
Costco is making a new move in a side business like cheap gas, which has traditionally been a way to drive in-store foot traffic to on-site warehouses and increase member loyalty. The retailer is in the process of building its first freestanding, members-only gas station in Mission Viejo, Calif., a roughly 17,000-square-foot facility with 40 pumps and multiple underground fuel tanks, according to city planning documents. Unlike traditional Costco locations, the facility will only offer fuel, with no on-site storage. (There is one a few miles away.) The grand opening is scheduled for late June, according to Cliff Jones, director of city planning and economic development. A second standalone gas station for Costco is under construction in Honolulu, Hawaii, and is expected to be completed in 2027, according to the project’s website. We reached out to Costco for comment on the initiative but did not hear back. For investors, the big question about these members-only gas stations is whether the moves can help re-accelerate membership growth — a high-margin, predictable revenue stream for Costco that has slowed. Jim Cramer thinks the added convenience and visible savings at the gas pump could serve as another entry point to help “attract new members” to the Costco ecosystem. This may be especially true if hostilities in the Middle East continue to keep oil and gasoline prices high over the long term. The current arrangement of gas stations and warehouses on the same site already makes sense for Costco, which tends to attract even more drivers when gas prices are high, hoping they’ll pop their heads into the stores while they’re there. “That was about 10% of net sales in 2025,” said Raymond James analyst Bobby Griffin, noting that the company operates about 750 gas stations and sells more than 8 billion gallons a year. Gas is one of the clearest ways Costco shows value to members. Griffin said prices at Costco’s pumps are about 20 to 30 cents cheaper per gallon; This is a significant stimulus as oil prices rise to four-year highs as the Iran war is in its fourth week. According to AAA on Thursday, the national average for regular unleaded gasoline was $3.98 per gallon; This figure increased by approximately 27% compared to a year ago. This dynamic makes Gas a powerful tool for Costco to increase both in-store traffic and loyalty, while the standalone format departs from the traditional model. Griffen called the initiative “an interesting kind of test,” adding that Costco is likely evaluating whether more convenient gas locations could encourage increased visitation, especially from customers who don’t regularly shop at warehouses. The Raymond James analyst has an outperform rating on Costco than its buy counterpart and a price target of $1,100 per share. Mizuho analyst David Bellinger framed the move as consistent with Costco’s long-standing strategy of reinvesting value in members. Pointing out that comfort and fuel economy are becoming increasingly important in the current inflation environment, he said, “If the member wants it, they will give it to him.” According to Bellinger, the concept could provide a “borderline” moderate tailwind to membership growth, particularly as growth slows from high levels during the Covid pandemic. While renewal rates remain strong (over 90% in the US), new member onboarding has slowed over the years. This is a major concern for investors, as membership growth accounts for 60% to 70% of Costco’s operating profit. Still, both analysts emphasized that Costco is unlikely to aggressively scale its independent gas concept anytime soon. The company is known for its measured approach to new ventures, and gas itself remains a low-margin business. Bellinger noted that Costco only makes “pennies in profit” per gallon and uses fuel primarily to strengthen its value proposition rather than boost earnings. Mizuho has an outperform rating and a price target of $1,065. As a result, if successful, it could over time become another lever in Costco’s membership-focused model; here value at the pump translates into long-term loyalty. We have an equivalent rating of 2 on Costco and a price target of $1,100. Since taking profits on the position in December after a rough patch in the stock, we’ve held enough shares to hold on to the possibility of a meaningful return. On Friday, Jim said Costco was poised for another breakout to the upside. “I think Costco is the winner,” he said at the time. As of Wednesday’s close, the stock had gained 15% since our mid-December correction, while the S&P 500 index had fallen 3% during the same period. COST mountain 2024-03-01 Costco performance since March 2024 (Jim Cramer’s Charitable Trust is a long COST. See here for a complete list of stocks.) When you subscribe to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trading alert before buying or selling a stock in his charitable foundation’s portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after issuing the trading alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH THE DISCLAIMERS. NO CIVIL OBLIGATIONS OR DUTIES EXIST OR SHALL BE RESULTING FROM YOUR RECEIVING ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULT OR PROFIT CAN BE GUARANTEED.
