How investors could benefit from Costco building its first standalone gas station

CNBC Finance

5 min read

Costco is taking a new step in an ancillary business that has traditionally been a way to drive in-store foot traffic to on-site warehouses and foster membership loyalty â cheap gasoline. The retailer is in the process of building its first standalone, members-only gas station in Mission Viejo, California â 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 site will offer fuel only, with no on-site warehouse. (There is one a few miles away .) The grand opening is set for late June, according to Cliff Jones, city planning and economic development manager. Costco has a second standalone gas station under construction in Honolulu, Hawaii, with completion there expected in 2027, according to the project's website . We reached out to Costco for comment on the initiative and did not hear back. For investors, the big question about these member-only gas stations is whether the moves can help reaccelerate membership growth â 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 into the Costco ecosystem that will help "attract new members." That could be especially true if the hostilities in the Mideast were to continue to keep oil and gasoline prices higher over the long term. The current arrangement of gas stations and warehouses on the same site is already a meaningful business for Costco, which tends to attract even more motorists during times of elevated gas prices, with the hope that they also poke their heads into the stores while they're there. "It was about 10% of net sales in 2025," Raymond James analyst Bobby Griffin said, noting the company operates about 750 gas stations and sells more than 8 billion gallons annually. Gas is one of the clearest ways Costco demonstrates value to members. Griffin said that prices at Costco's pumps are about 20 to 30 cents a gallon cheaper â an important incentive, with oil prices soaring to four-year highs as the Iran war was in its fourth week. The national average of regular unleaded gasoline was $3.98 per gallon, according to AAAÂ on Thursday , up nearly 27% from a year ago. While that dynamic makes gas a powerful tool for Costco to drive both in-store traffic and loyalty, the standalone format branches out from the traditional model. Griffen described the initiative as an "interesting kind of test," adding Costco is likely evaluating whether more convenient gas locations can drive incremental visits â especially from customers who don't regularly shop at warehouses. The Raymond James analyst has a buy-equivalent outperform rating on Costco 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 back into members. "If the member is asking for that, they'll give it to them," he said, pointing to convenience and fuel savings as increasingly important in the current inflationary environment. The concept, according to Bellinger, could provide a modest tailwind to membership growth "at the margin," particularly as growth has slowed from Covid pandemic-era highs. While renewal rates remain strong â above 90% in the U.S. â new member additions have decelerated over the years. That's a key concern for investors since membership growth drives between 60% to 70% of Costco's operating profits. Still, both analysts emphasized that Costco is unlikely to scale the standalone gas concept aggressively anytime soon. The company is known for its measured approach to new initiatives, and gas itself remains a low-margin business. Bellinger noted Costco earns only "penny profits" per gallon, using fuel primarily to reinforce its value proposition rather than drive earnings. Mizuho has an outperform rating and a price $1,065 price target. Bottom line Over time, if successful, it could become another lever in Costco's membership-driven model, where value at the pump translates into long-term loyalty. We have a hold equivalent 2 rating on Costco and a $1,100 price target. Since taking profits in the position back in December, following a rough patch for the stock, we kept enough shares in case of a meaningful comeback. On Friday, Jim said that Costco was ready for a further break to the upside. "I think that Costco is a winner," he said at the time. As of Wednesday's close, the stock has gained 15% since our mid-December trim compared to a 3% decline in the S & P 500 over the same stretch. COST mountain 2024-03-01 Costco performance since March 2024 (Jim Cramer's Charitable Trust is long COST. See here for a full list of the stocks.) As a subscriber 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 trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

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How investors could benefit from Costco building its first standalone gas station

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