Costco’s membership price hike is nothing to worry about if hot dogs stay at $1.50 — five key reasons the retailer is safe

COSTCO announced that it will increase the cost of your membership, and many shoppers didn’t take the news well.

However, a retail expert assured that Costco has several strong factors working in its favor that will likely prevent any significant loss of membership.

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Costco is the largest wholesale club in the US and dwarfs rivals Sam’s Club and BJ’s.

In August 2022, Costco held the largest share of the club wholesale market at 55.5%, with Sam’s Club and BJ’s trailing behind at 36.2% and 8.3%, respectively.

Costco also has the higher net salesgrossing $192 billion in 2021 – three times more than Sam’s Club’s $63.9 billion in revenue and nearly 12 times BJ’s $16.3 billion in sales.

All three retailers charge roughly the same amount for basic subscriptions.

A Sam’s Club annual membership is $50, a BJ’s Club Card membership is $55, and Costco’s basic Gold Star membership is the highest priced at $60 per year.

Costco announced in its June sales report that it would increase the base membership price from $60 to $65 annually after seven years at the previous price, causing much protest among shoppers.

The US Sun spoke exclusively with retail expert Greg Buzek, president of retail analyst and market research firm IHL Group, about the price increase.

Buzek has 30 years of experience in retail market analysis and consulting for Fortune 500 companies.

The expert said that if any retailer could modestly increase its membership prices and not see a negative impact, it would be Costco.

He noted that the warehouse club would inevitably face a loss of customers, but Costco was not at great risk for five reasons.

1. INCOME DEMOGRAPHICS

Buzek first shared that Costco was less likely to lose members due to price increases because it serves a higher-income demographic than other warehouse clubs.

The average household income of a Costco member in the US is US$100,000, according to consultancy Kantar Retail.

This high level of income is reflected in Costco’s prices, which are higher than those at Sam’s Club and BJ’s.

A study conducted by The news and the observer compared the non-discount prices of 60 items at the three warehouse clubs and found that Costco was the most expensive.

For the 60-item sample list, Costco’s total was $833.08, while BJ’s came in at $795.19 and Sam’s Club was $777.42.

2. CUSTOMER LOYALTY

Buzek also noted that Costco’s $5 membership increase likely wouldn’t lead to a big drop in customers, thanks to its “greater loyalty” than other warehouse clubs.

The most important item Costco sells is your membership card, according to Ron Vachris, Costco’s new CEO.

“Everything we do supports this transaction,” Vachris said.

Costco has several smart strategies to satisfy its members and maintain their loyalty.

For example, Costco is selective about its merchandise and sells a limited number of products.

A typical Costco warehouse sells about 4,000 stocking units, or SKUs, while Walmart offers customers 120,000.

If they raised the price of a hot dog by $1.50, that would have a much bigger impact than a one-time subscription charge.”

Greg BuzekRetail Specialist

Instead of having one item in a variety of brands and sizes, Costco offers customers a limited selection to help them escape the tyranny of choice, for example. Fortune.

The term refers to the phenomenon where having too many options leads to anxiety and indecision among consumers.

Costco also relies on detailed sales data and tests products in multiple locations before rolling them out to all stores, building confidence in the retailer’s product selection.

3. BRAND STRENGTH

The third reason Buzek cites for Costco’s resilience to membership price increases is its “brand strength” compared to other warehouse clubs.

Costco’s Kirkland Signature line was launched in 1995 and includes endless varieties of products, from groceries and housewares to clothing and electronics.

The retailer’s own brand is hugely popular with shoppers, with dedicated groups on social media raving about its products.

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The brand has gained a large following due to its reputation for high quality and value, and shoppers often prefer Kirkland Signature products over brand names.

There are about 550 Kirkland Signature products, which generate about $56 billion a year, or about a quarter of Costco’s revenue.

4. IN-STORE PRICES

The retail expert also pointed out that Costco’s membership prices are less meaningful to shoppers compared to in-store prices.

“Much more concerning for consumers are the prices in the interior, the price of gas and the price at the concession stand,” Buzek said.

“If they raised the price of a $1.50 hot dog, that would have a much bigger impact than a one-time subscription charge,” he added, noting that in-store prices are the most visible area for price changes.

While it acknowledged that increasing the opt-in rate could pose the risk of losing some customers, it emphasized that increasing the opt-in rate involves the least risk.

Considering the average Costco member spends about $100 per trip, or $3,018 annually, an additional $5 for membership is a minimal increase.

5. CROWD CONTROL

Buzek noted that the large crowds that Costco attracts can be a win-win for both members and the retailer in the context of a membership price increase.

“Members believe that stores are too crowded, so this serves them as a way to reduce crowds and most consumers don’t mind,” said the expert.

Costco is gone 120 million members worldwide, with the majority located in the United States.

The US has around 600 warehouses with more than two million shoppers a day.

This immense daily foot traffic highlights the strong loyalty of Costco’s customer base, which is unlikely to waver in the face of a $5 membership fee increase.

US Sun previously spoke to a Sam’s Club and Costco member who revealed why she’s loyal to both.

Plus, a retail expert shared why Walmart is the “world’s most dominant retailer” and how it’s poised to beat rivals with new changes.