Home Payday loans reviews Pain at the pump: Can cheap gas hurt Costco’s bottom line?

Pain at the pump: Can cheap gas hurt Costco’s bottom line?


gGlobal economic conditions continue to drive up oil prices around the world, and buyers across the country are looking for economic alternatives for many key commodities amid domestic inflation. Costco (NASDAQ: COST) offers a balm to consumers stung by pump pain, with low prices and loss leaders on many consumer staples as well as membership benefits unavailable at many other wholesale competitors. These may just be the tools he needs to outrun the bear market, stay strong in a downturn, and even emerge stronger from his endeavors.


Gas, hot dogs and roast chicken might beat the bear

Pump prices have risen 50% in a single year, and recession may be imminent. Costco is urging shoppers to visit, or even drive out, for average savings of up to $0.37 per gallon, which can add up quickly over time. Once there, shoppers can buy hot dogs and drinks for $1.50, pizza for $10, and rotisserie chickens for $4.99, and possibly purchase additional on-going consumer staples. of road.

This combination of basic consumer goods under one roof is helping Costco weather the recession. Gas shoppers need a corporate membership, and this card offers a slippery slope to savings on bulk purchases from many top brands, as well as Costco’s own brand of Kirkland Signature stores, which continues to receive rave reviews. With groceries, alcohol, cosmetics, and other basics under one roof, the wholesale warehouse can quickly meet the one-stop-shop need for consumers looking to save money. and fuel with less travel.

The power of satisfaction

Although it takes a drop from $60 to $120 just for an annual subscription to shop, customer satisfaction with Costco remains very high. The company engendered additional goodwill by announcing that planned increases in membership prices are not happening anytime soon, given the broader economic difficulties.

With higher salaries than many competitors and strong employee satisfaction, Costco has a strong advantage over its close competitors. walmart (NYSE: WMT)which remains a leader in the discount shopping market and challenges Costco with its sam’s club wholesale outlets, fails to capture the same perception of quality with its in-store brands. Costco is moving further away from Walmart with items including a slew of gift card options, found alongside in-store tire sales and even car insurance discounts.

The bear could still eat an investor’s lunch

The future may still present a series of challenges for Costco investors. A recession may not materialize, leading to the downside giving way to bull markets again and putting competitors back on stronger footing. But even the current bear market offers at least some advantages for the company.

Costco might also be overpriced. The company is currently trading at a valuation twice that of Walmart, more than 30 times its estimated earnings for next year. Growth may be slowing, but there’s still plenty of untapped market potential for the company, unlike Walmart, which seems saturated in many parts of the country. Costco continues to grow, adding 22 stores over the past year.

High profile negative press could erode customer satisfaction. Two Costco shareholders recently filed a lawsuit in King County Superior Court, accusing the company of knowing that chickens destined for popular rotisseries may have been abused.

Lower oil costs and fuel prices could similarly remove Costco’s competitive advantage. As gas prices go up, the value of Costco’s rebate on them could go down as well. For example, savings of $0.37 seem much better on $3 worth of gas than on $9. But those same higher prices could sell the value proposition even more.

Costco makes the case for stability, if not growth, during recession

Historically, Costco has done well during recessionary times and typically falls as the economy emerges before bouncing back stronger than ever. The wholesale giant weathered the 2008 recession better than the broader market and shrugged off the effects of the 2020 downturn quickly and effectively.

Costco’s strong customer and employee satisfaction, coupled with its image as a source of savings on gasoline and recession-proof consumer staples, positions it as a smart investment even when the clouds roll in. darken and the specter of recession looms. Its economic resilience and continued growth offer retail equity investors a potential winner – with a chicken dinner.

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Motley Fool contributor Nicholas Robbins has no position in the stocks mentioned. The Motley Fool fills positions and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.