Costco Entering Gasoline Market

Costco, the Issaquah, Wash.-based warehouse-store discounter that is now the nation’s seventh-largest retailer, is getting into the gasoline business.

The chain’s chief executive promised Wednesday to bring deep discounts to the gas pumps - as much as 15 cents a gallon within the next four months.

“I guarantee you,” said President and CEO James Sinegal, “if we get in the gas business, gas prices will come down.”

Sinegal told investors at Piper Jaffray’s investment conference in Seattle that Costco’s first two gas stations, at stores in Albuquerque, N.M., and Scottsdale, Ariz., are underselling comparable markets by 15 cents per gallon. The Scottsdale station, he said, is doing $1 million in business per month.

He said the company is seeking permits to open similar gas stations in Federal Way, Southcenter and Issaquah, all in the Puget Sound region. He said he expects two of the stations to open within the next four months.

Tom Olson, warehouse manager for Costco’s downtown Spokane store, said Thursday he has heard no discussion of plans to sell gasoline in the Spokane market.

“I just came back from a regional meeting and haven’t heard anything real specific for this area,” Olson said.

Currently, he said, the company is probably carefully considering specific markets. In the long run, though, “If we can bring something of value to our members, I’m sure the company will explore anything we can get into,” Olson said.

Costco also has a location in Spokane on North Division.

The Olympia representative of the gasoline dealers, Tim Hamilton of Automotive United Trades Organization, said he didn’t believe Costco could undercut the market by 15 cents.

“The CEO of Costco has to go out and buy gas,” Hamilton said. “The difference between gas at the terminal on (Seattle’s) Harbor Island and the street price of, say, an Arco, is about 6 cents a gallon.”

He said volume couldn’t make up the difference. “You go into Costco and you buy a three-gallon jug of peanut butter, there’s an economy of scale. There’s no economy of scale in gasoline.”

Sinegal declined to tell the investors group where Costco would get its gas, except that it was the same source as for the Arizona and New Mexico stations - and he repeated his 15-cent boast.

, DataTimes