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Comment by thanhhaimai | Hacker News Reader

And this is exactly why I only shop at Costco. While other retailers try to get me to buy more stuffs, Costco try to make sure I'm satisfied enough that I'll renew my yearly membership (their main profit source). The incentive structure aligns very well.

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Buying in bulk is about having the ability to both afford next week’s food this week and have the means to store it. Not to mention the annual subscription.

Responding to a comment about dollar stores preying on the poor with, “that’s why I shop at Costco” is… a choice.

... and a car to haul all that stuff, and time to drive to the nearest Costco.

It really is a luxury that a ton of people can't afford.

Indeed. And I say this as Costco member. There are lot of factors that make Costco memberships work. And a lot of people won't be able to make much benefit out of Costco membership.

I say this as someone who admires their business model and how they treat customers & employees: your typical Costco experience is drive to the suburbs, spend $500 and load up your car with nice to have food products and discretionary purchases. Poorer people cannot do any of these things.

Why is car a luxury? A clunker car worth $2000 will still work fine for years with minor maintenance that can be done by yourself.

Oh, yeah. Cities. Cars are expensive when you live in a 100 sq. ft. box.

Perhaps that's what is causing problems?

The cost of the car itself is minimal compared to insurance, gas and storage costs.

What "storage"? You put it on your driveway. The minimum liability insurance around here is about $50 a month.

Some people do not own a driveway or a car space. There is an active rental market just for that.

A competently planned city makes car ownership unnecessary.

A competently planned _country_ makes cities that only seem to create generational poverty unnecessary.

Sprawl comes from urban planning. I think you mean to say a certain approach to planning makes it unnecessary.

There's no way to plan a city so most people can walk to a Costco. Warehouse stores are an inherently car-based phenomenon.

They don't require everyone to own a car. At the very least, they can run an efficient delivery service. And there's got to be a way to make a 3 hour rental or single taxi drive once a month much cheaper than owning a car.

The $2000 daily driver died with covid.

Time to go and acquire necessary food stuff is not a luxury in any reasonable framing. What is the alternative, eating drive-thru every day or having Instacart deliver overpriced groceries?

I believe eating food from street vendors was the usual way for paupers until quite recently. Recall that it was common to rent a bed for a few hours and share it with someone who worked different shifts.

The fact that the strategic wedge with which a successful, relatively socially-positive business manages to sustain itself isn't universally accessible doesn't negate its value.

The Venn diagram between people who shop at dollar stores and people who shop at Costco isn't empty.

For me it's very simple: What I save on glasses pays for my membership. I don't go all that often but it's still worthwhile.

This is true, but a valuable - and damning - observation that this variation in business model, that seems to be both decent and profitable, is so rare

not sure your comment is any less insufferable.

> the ability to both afford next week’s food this week

At minimum that's everyone on a normal paycheck, paid every two weeks. There are situations where someone couldn't get together a few days' pay at once, but that's a tiny fraction of situations.

And the means to store most food is a two foot square of space in a room somewhere. And then most of the rest fits in the empty fridge space you already have.

And there are deals there that can be useful for your wallet right away. This isn't something where you have to put up a ton of money for months before you benefit.

The biggest issue is probably that costco isn't easy to get to.

>While other retailers try to get me to buy more stuffs, Costco try to make sure I'm satisfied enough that I'll renew my yearly membership (their main profit source). The incentive structure aligns very well.

This doesn't make any sense. Costco makes a profit on the goods sold as well. They have every incentive to sell you as much stuff as possible. That's why they also engage in the usual retail tactics to increase sales, like having the essentials all the way in the back of the store, and putting the high margin items (electronics and jewelry) in the front. They might practice a more cuddlier form of capitalism than dollar general, but they're still a for profit retail business.

I see you're not terribly familiar with Costco. Membership fees account for the vast majority of net operating income for Costco and they keep markups on items at no more than 14% over cost (15% for Kirkland brand).

So yes, Costco does make most of its profit by ensuring customers are happy and continue to renew their memberships every year.

>Membership fees account for the vast majority of net operating income for Costco

This is financially illiterate because you're mixing revenue ("membership fees") with profit ("net operating income"). While it might be tempting to assume that membership fees is pure profit for them, it's not, because people only buy memberships because they're useful for something (ie. shopping at their stores). Therefore you can't strip that out from the other costs associated with operating a chain of warehouses.

It seems to amount to a similar principle, that their business model depends on repeat customers, and would fail if they lost trust.

I much prefer this to stores that are happy to burn customers, never expecting to see them again.

>It seems to amount to a similar principle, that their business model depends on repeat customers, and would fail if they lost trust.

You think dollar general is making $37.9B (in 2023) of annual revenue from one-off customers? Unless you're operating a tourist trap, or some sort of business that people only need a few times in their lifetimes (eg. real estate agents), most businesses rely on repeat customers.

Note how they tend to have captive customers.

Dollar stores around here pop up in small towns, killing off any locally-owned competition, and are far enough away from the big chains to mean they can charge quite a bit more while offering terrible service.

No, I think they have other advantages that are less attractive to me.

I have money to buy in bulk, care about quality, and am willing to make longer trips to stock up. The membership is trivial relative to annual groceries.

I think think the target market for dollar stores is the opposite

It’s kind of a meme; Costco’s profits are almost exactly the same as their total revenue from membership fees, which leads people to think that the warehouses run at zero margin and the fees are their only profit source. The fees certainly give them room to run the sales at extremely low margins (though large grocers like Kroger only have something like 3% margins), but it wouldn’t take a huge shift in purchasing patterns to change this coincidence. If all the people who don’t use their membership that much dropped them and those who use them were all large-scale buyers, they would have to increase their prices just to give themselves a bit of cushion.

Oh gee aren't you cute. Costco's entire cost of doing business are covered purely by their sale of goods. The memberships are pure icing on the cake. It's not wrong to look at it this way.

Counter example: they sell their dollar hotdog and pop right at the front!

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