Ever since Costco opened up a warehouse in Indianapolis about three years ago, we’ve become die-hard fans of the place. No longer content with tiny packages of comestibles and toiletry products, we buy five pound packages of frozen vegetables and twelve rolls of paper towels at a time.
This is guy shopping at it’s finest. You’re buying what you need to buy, at a good price, and once bought you don’t need to go shopping for it again for a while. I’ve never come close to filling up my shopping cart at the grocery store, but I frequently do at Costco, meaning that each trip there is worth 2-3 trips to the grocery store.
Those large packages also make for guy shopping. Some women can’t even pick up some of the items in the store. Hong has never shopped at Costco by herself, and indeed, it’s probably the only grocery store where you’ll find more individual men than individual women. Now that we’ve got two kids, Hong doesn’t come with me any more, making me one of those lone male shoppers.
I go about every three weeks, and continually make a shopping list inbetween those trips. Low on shampoo, raisins, and toothbrushes? Put them on the list. This kind of shopping requires a careful understanding of what Costco carries, and also knowing when the Costco size is too big for your household.
For example, when we used Netflix, we would frequently make a bag of microwave popcorn to eat while we watched the movie. When we saw a box of 24 bags of popcorn for the same price that 6 of those bags would cost us at the regular grocery store, we picked it up. Sadly, the kind we got wasn’t as good as the grocery store variety we were used to, so we didn’t eat it as much. A year-and-a-half later, we’ve still got 10 bags in our pantry. We still came out ahead money-wise but it seems wasteful to me.
As a general rule of thumb, we’ll only buy the Costco size if we think we’ll use it up within a year. This rules out buying the large bottle of dishwashing liquid, the 4 rolls of aluminum foil, the 5 pound bag of pecans. By sticking to the rule, you will rarely fall into the trap of losing money because you bought more than you could ever use.
Speaking of money, how much money do you save by shopping at a warehouse store like Costco? It’s hard to know for certain, although since it’s a public company, we can look at it’s published gross margins (”Revenue – Cost of Goods Sold”) and get a pretty good idea. According to Reuters, Costco has gross margins of 12.35%. By way of comparison, Kroger has gross margins of 24.57% and Target has gross margins of 32.23%. Even Family Dollar Stores has a gross margin of 33%. So it’s safe bet that goods at Costco are at least 12-20% cheaper than at the regular stores, and that’s not including any discounts from the sellers because of the exclusive nature of the warehouse.
Don’t forget that that 12.35% margin also includes the revenue they get from membership fees, which effectively have a 100% margin. So, the actual markup on merchandise is going to be a little less than 12.35%.