Costco turns pain at the gas pump into a powerful in-store traffic driver

CNBC Finance

5 min read

Rising gas prices drive more people to Costco for cheaper fuel. But the real benefit to the retailer is the additional sales that come from the accompanying in-store traffic boost. With the Iran war in its fourth week and U.S. oil prices soaring to highs not seen in four years, the national average for a gallon of regular unleaded gasoline was $3.91, according to AAA on Friday. While short of the all-time high of $5.02 in April 2022, gas prices over the past month have spiked by roughly $1 per gallon. Gas prices vary widely from state to state, with New York about 13 cents below the national average and California about $1.75 above. "When we historically see increasing prices at the pump, it's simply good for Costco," Jeff Marks, director of portfolio analysis for the Investing Club, said during Friday's Morning Meeting. "People go maybe the extra mile or two to get that lower price, and while they're at the gas station, they'll take a look in the store." During its most recent earnings call on March 5, CFO Gary Millerchip forecasted that Costco would be a beneficiary of higher oil prices. "If gas prices start to increase, then we tend to see our value proposition resonates better with members, just because obviously we want to be the pricing authority on gas." Costco typically offers gas prices at a 9-cent-per-gallon discount versus the top five local competitors and a 24-cent discount versus the state average, according to Gordon Haskett. Those savings are more meaningful as fuel costs rise because inflation-weary consumers start to look for bargains wherever they can find them. According to Gordon Haskett's analysis of weekly and monthly foot traffic trends, visits to Costco gas stations "inflected sharply" in the week ended March 7, and continued to accelerate as prices moved higher. In a Friday note to clients, the analysts said the "cross-hop from fuel customers to in-warehouse remains 50%," meaning half of gas customers also go inside Costco stores. So, more fuel trips mean more in-store traffic. In a separate note Friday, JPMorgan also called Costco a beneficiary of higher gas prices. "Elevated gas prices tend to drive trips to the club," the analysts wrote. The recent surge in oil prices â and subsequently gas prices â stems from massive supply disruptions due to the Mideast conflict, which has resulted in the effective closure of the Strait of Hormuz, a critical oil transport route located just off Iran's coastline. @LCO.1 @CL.1 YTD mountain Brent vs. WTI YTD Brent crude , the international oil benchmark, rose 2% on Friday and about 10% week to date. West Texas Intermediate crude , the U.S. oil standard, also rose 2% on Friday but was relatively flat for the week. Brent and WTI both briefly spiked above $119 back on March 9. Since the U.S. and Israel attacked Iran on Feb. 28, Brent has gained roughly 50%, and WTI has surged 45%. To be sure, oil spikes in the short term add financial pressure on consumers who start to scrutinize unavoidable spending, like gas, and seek bargains at Costco. They also pull back on non-essentials â resorting to value-seeking shopping behaviors (again, Costco) or cutting spending overall. If the conflict drags on, these dynamics could hurt the economy because two-thirds of U.S. gross domestic product growth is driven by consumer spending. Prolonged elevated gas prices could also reignite worrisome inflation. For those reasons, the Federal Reserve held interest rates steady at this week's policy meeting and might make it tough for further rate cuts this year. A slowing economic growth and rising inflation environment would make it tougher for all retailers, though Costco tends to perform better in tough times due to its efforts to keep prices as steady as possible. Bottom line Looking at Costco's stock chart, Jim Cramer said Friday: "This feels breakout to me." While shares of the membership-only retailer have pulled back more than 1% over the past month, Jim said the stock is primed to move higher. Shares have advanced 13% year to date, outperforming the S & P 500 , which was down roughly 5% in 2026, as of Friday afternoon trading. COST .SPX YTD mountain Costco vs. S & P 500 YTD "I think that Costco is a winner," Jim added. Back in mid-December, after a tough slide, we cut our Costco position in half to protect our gains. The sale â around $850 per share â resulted in a 200% gain on shares purchased in early 2020. We kept enough on in case of a recovery in the stock, which is already underway. Shares up are 15% since that trade. We have a hold-equivalent 2-rating on the stock and $1,100 price target, representing 13% upside from Thursday's close. (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.

Get the most out of Gold Price Tracker & Alerts

Join thousands of users. Track progress, stay informed, and succeed with Gold Price Tracker & Alerts.

Download Now

Available on iOS & Android

Get Gold Price Tracker & Alerts

Free on iOS & Android

Install

Costco turns pain at the gas pump into a powerful in-store traffic driver

Read Next

What's at stake ahead of crucial U.S-Iran peace talks as leaders meet in Pakistan

Vance expects U.S. negotiations with Iran on war will be ‘positive'

Get the most out of Gold Price Tracker & Alerts