Ironically the only store I go to is Costco, or the even huger Costco Business Center.
EDIT: I'm not alone. Revenue is up more than 50%, and profit more than 60% in 5 years at $COST. [https://valustox.com/COST]
EDIT: I'm not alone. Revenue is up more than 50%, and profit more than 60% in 5 years at $COST. [https://valustox.com/COST]
South San Francisco has a Trader Joe's right behind a Costco parking lot: https://goo.gl/maps/ZakBe7FENqr1ybRm9
Not quite as good as an Aldi, but close.
- croissants ($5.99 for 12)
- artisan burger buns
Basically, when I buy something at a regular store, I'm shocked at the recent inflation.
But at Costco, most things have barely budged at all in the past few years. And that's starting at a lower base as well - at the moment it's simply nuts how much cheaper things are there.
In fact, if you look at their financial statements, their entire profit equals their membership fee income - this means you're buying things at cost price on average. And Costco is known to be brutal to their suppliers, using their market position to force lower prices and larger pack sizes onto the manufacturers.
They don't sell everything though - there are some items you have to buy on Amazon or a regular grocery store. But almost (not entirely) every time that Costco sells something, it's the best deal you can get.
Another downside is you have to buy a LOT of what you're buying. So it only makes sense if you're planning ahead somewhat, and if you have room in your fridge/freezer/garage.
EDIT: actually the main drawback is the hugeness and remoteness of the store, and the immense number of other shoppers. But again, this plays into going every couple of weeks and buying ahead. These things are inherent in their model and I accept it. I actually spend less total time shopping now because I do all of it in 60-80 minutes every two weeks.
Another edit: none of this means that the quality is any lower. Somehow, they're delivering excellent meat, produce, and more at a fraction of the cost.
Maybe I should buy shares in this company. They barely have a profit margin though.
E.g. I needed a shredder. There were two, a smaller one and a bigger one. I got the smaller one without needing to think or comparison shop because I know it will work for me (absolutely no issues in 6 years) and it's a decent to great price.
On the very rare occasion I get a dud, they happily take returns. Last winter I returned a two year old fridge and they didn't even ask for evidence of my issue
I currently spend the same there every month as I did 5 years ago. Inflation has barely touched it except for a few items like beef and fish, which have recently come back down in price.
I don’t understand the complaint some people have that it’s hard to shop there because quantities are too large. I use everything before expiration and end up throwing away very little. For short expiration item like meat, just use your freezer.
What city has one downtown?
Not quite.
Costco's gross margin is ~12% of revenue. That means their average markup (including revenue from membership fees) is over 10%. If membership fees are about 2% of revenue, and other income (e.g. commission from the vendors near the exit), then Costco's markup is in the 8% to 9% range.
If we were buying things at cost price on average, then Costco would not have enough money to pay for rent, staff etc.
If that's the case, then you could do even better: don't shop at profitable retailers. Only shop at places with really low net income. Better still, shop at places that are so badly run that, even though they have high gross margins, waste so much money on overheads that they lose money overall.
(I'm not suggesting Costco is poorly run, or is a bad place to shop. Just trying to illustrate why focusing on total costs instead of COGS can lead to absurd conclusions.)
What does low net income have to do with anything? Profit margin tells you how much the middleman is keeping. The lower the profit margin, the lower the prices, for something as fungible as retailing consumer goods.
A business needs at least a minimal profit margin to survive a little volatility. That is why Walmart/Costco/Kroger have 2% profit margins. If anyone could deliver those goods for cheaper, they would, but they probably cannot as evidenced by competitors going out of business.
>Better still, shop at places that are so badly run that, even though they have high gross margins, waste so much money on overheads that they lose money overall.
Businesses that lose money tend to get shut down by the owners, since people generally do not like to lose money.
Please read the comment to which I was replying. My whole comment was written to explain why we shouldn't focus on net income, and instead focus on COGS. You're making the same point I was.
Below average is fine, you just want to avoid horrific.
A pint of pure vanilla extract for $9.99. Dog treats at about half the price of pet smart or online stores. Kirkland brand Flonase is about 75% less than you can get at a pharmacy. Kirkland brand Claritin is ridiculously cheap, 365 tablets for under $20.
You very rapidly get back your yearly fee.
I don’t have to decide between 20 items of same kind, say white bread. There’s usually 1 or 2 of a kind, generally of great quality. You buy it and move on.
We rely on Costco buyers to do the quality due diligence for us.
Also, even if their price is not the best for an item, I trust it’s good enough. Couple that with their return policy, most purchases become a simpler exercise.
Take Fresh Del Monte - I know they do more than just fruit, but their margins are tiny. [https://valustox.com/FDP]
Ironically the bulk store brands also tend to be higher quality. The downside is there’s less variety.
Annual inventory turns: about 12x. (1.5x as fast as Walmart.)
Their profit margin is 2.5% or less for 15+ years. Seems more accurate to use that number, which is also nearly equal their membership cost * number of memberships.
I replied to a comment that said Costco has "barely any markup".
Markup and gross profit measure exactly the same thing. If you know one, you can calculate the other.
A gross profit margin of 12% means Costco's markup is over 10%. (Or 8% to 9% if you don't count membership fees.)
This is low, but it's not nothing.
I've seen this quoted repeated but it's not a useful lens.
While Costco's annual revenue from membership fees is approximately equal to Costco's annual net profit, memberships are only valuable because of the additional services and products Costco offers, which also incur costs and contribute to their overall profits.
So it makes no sense to consider Costco memberships a product with close to 100% gross margin, which is what people normally mean when they say profits primarily come from membership fees.