As the world’s third-largest retailer, Costco has gained prowess through some distinctive approaches to doing business. Per Statista, the wholesale giant logged about $250 billion in global net sales in 2024, had more than 130 million subscribing members, and operated 890 stores throughout the United States — with the exception of the three U.S. states that don’t have a Costco – and all around the world. One key reason for Costco’s market stronghold is its low prices. While Costco has felt the pinch of inflation pinch at times and has raised prices on popular items, the warehouse merchant continues to be a more affordable place to shop than your neighborhood grocery store.
Costco’s overarching principles prioritize low customer costs, sometimes even at the expense of its own profit margins. While other merchants sometimes scheme to increase their bottom lines, which can result in higher prices, Costco strategizes how to increase savings for customers. Strict guidelines are in place regarding the pricing of goods, too. For instance, the company has ruled that its popular Kirkland Signature-branded products can never go higher than a 15% markup — no matter how justified an increased price point may be.
The resulting low customer costs, along with Costco’s commitment to offering high-quality goods, have put the company in a solid position of dominance. As long as you can avoid the common mistakes members make while shopping at Costco, you will likely notice the savings rather quickly, especially where groceries are concerned.
Costco’s approach to maintaining low prices
Some of Costco’s cost-lowering tactics may seem counterintuitive. For instance, the company has significantly less variety among its items compared to other stores. Most grocery chains stock 30,000 SKUs in their locations, while Costco has only around 4,000 in any given warehouse. The select number of brands on Costco shelves has created an atmosphere of competition for the rather elite privilege of being included among the chain’s merchandise, giving Costco major bargaining power. It’s worth it for suppliers to fight for a spot, as a lot more product per sale is typically moved thanks to Costco’s bulk merchandise format. The limited presence of competing brands also gives products standout status on warehouse shelves, further increasing sales potential.
Keeping things simple is another way Costco cuts its costs, so savings can be passed on to customers. The company’s marketing efforts are minimal, and much money isn’t spent on store design or product displays. Merchandise is simply placed on the sales floor and warehouse shelving stays nestled on its delivery pallets — basic, streamlined, and cost effective.
Because Costco buys product in large quantities, the company is also able to forge better bulk deals with suppliers. Those annual membership fees also contribute to lower in-store prices. Though patrons are charged for the privilege of shopping in Costco, the revenue generated by these fees ultimately converts to cost savings at the cash register, as it offsets some of the company’s infrastructural expenses and enables lowered pricing.
