There is a line of cars at the Costco gas station. There is always a line of cars at the Costco gas station.
People sit in it. Willingly. To save maybe two dollars and forty cents.
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The obvious read is that Costco found a way to sell gasoline cheaper than everyone else.
The actual story is stranger than that.
Because gasoline is a terrible business. Genuinely one of the worst in retail.
The product is identical everywhere. The price is posted on a giant sign readable from a moving car. Your competitor is sometimes literally across the street. The raw commodity swings violently and you do not control it. Taxes are fixed and unavoidable. Refinery capacity is somebody else's problem that becomes your problem.
You cannot differentiate. You cannot hide the price. You cannot mark it up.
So naturally Costco went and built 747 gas stations.
By the end of fiscal 2025, gasoline was roughly 10% of total net sales. And in its own annual report, Costco says the quiet part in plain English: the gasoline business generally carries a lower gross margin percentage than everything else it sells, and selling more of it drags the company's overall margin percentage down.
Read that again. Costco is telling investors that succeeding at gasoline makes one of its headline financial metrics look worse.
And then it builds more stations.
Nobody does that by accident. So what is actually being bought here?