Here's Why Costco's Gas Pricing Strategy Is Good News for Shareholders

Costco Wholesale (NASDAQ: COST) uses gas strategically to attract and retain its members, offering prices roughly $0.20 to $0.30 per gallon below those of its competitors. Right now, my local Costco has gas prices near $3.60 a gallon, while many nearby gas stations are around $3.80. That said, the company often adjusts prices carefully -- hiking them quickly when costs rise, but lowering them more slowly when they fall -- to stay competitive while protecting its margins.

On top of that, Costco is expanding its gas stations, including stand-alone locations, to drive traffic and add value for members.

Image source: Getty Images.

It's important to note right off the bat that the ongoing conflict involving Iran has caused volatility in global oil and gas prices as traders factor in the risk of supply disruptions, especially through the strategically vital Strait of Hormuz. Just this week, President Donald Trump said he's going to pause strikes after "very good" talks with Iran. Continued uncertainty over the duration and severity of the war has kept energy markets highly volatile, with crude prices repeatedly spiking and easing as all these tensions shift.

How does this volatility relate to Costco? Most retailers treat gas stations as a convenience; Costco treats them as a tool to sell memberships. Right now, with the national average price of gas nearing $4 a gallon, that difference is more important than ever.

Former CFO Richard Galanti described it plainly: The strategy allows Costco to make a little more money while "still be[ing] the most competitive."

Why this practice helps shareholders

All this isn't just a gas story, or an Iran story, or a dollar-savings story. It's a membership story.

Costco's Gold membership costs $65 per year, and its Executive tier costs $130. Economist Alan Gin from the University of San Diego estimates that up to 70% of Costco's profits come from those membership fees -- not from the merchandise itself.

When gas prices spike, search interest for "Costco gas" spikes along with them. New members sign up to capture the savings. Existing members renew because the value proposition has just become more tangible. In other words, during times of economic stress, consumers invest in Costco memberships.

The number of paid members grew 4.8% year over year in the second quarter of Costco's fiscal 2026, which ended Feb. 15, and comparable sales (excluding gas) grew 6.7%. Those two numbers matter together because the membership base is expanding even without counting the tailwind from gas, and that tailwind is now accelerating.

It's simple math. A member who saves $0.30 per gallon and buys at least 300 gallons of gas over the year more than covers the $65 membership fee entirely, just through the pump.

What to watch

The structural picture is clear: Costco is one of the few retailers that has effective ways to mitigate the cost of rising energy prices, rather than just being hurt by them. The gas pricing strategy converts a volatile commodity into a recurring membership driver.

While higher prices could temper discretionary spending, the company's gas strategy provides a stable, disruption-resistant advantage that most retailers lack, making it a rare source of predictable value for shareholders and for the company's earnings.

And unlike most of what's happening in retail right now, that model isn't disrupted by artificial intelligence (AI), tariffs, or supply chain issues in the Middle East.

That makes Costco a strong company to invest in.

Micah Zimmerman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.