It's not magic—but it sure seems like it
Here’s How Costco Is Able to Keep Its Prices So Low
Published on Feb. 27, 2025
From the cult-favorite Kirkland products to the dependable $4.99 rotisserie chicken to the yummy free samples you can snag while shopping, there are many reasons to love Costco. But of course, the biggest reason is the massive discounts the warehouse club offers. That little Costco membership card can help you score cheap groceries, cheap toiletries, cheap home items and even cheap gas for a lot less than you’d pay elsewhere. But how does Costco offer such low prices, especially as prices are rising everywhere else?
That question is bound to cross your mind as you load up on your next shopping trip or even just hear the name Costco. Well, we decided to take our shopping-aisle musings to the next level and actually figure out how Costco works its magic. Read on to find out the genius tactic Costco uses to keep more money in your wallet—and keep you coming back for more.
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Just how low are Costco’s prices compared with other grocery stores?
Costco’s food prices are typically about 15% lower than local grocery stores, according to Kristen Markel, who runs the blog Warehouse Wanderer, where she shares her thoughts on all things Costco. And if there’s a sale, those numbers are even higher. “Sale prices can offer even steeper discounts, sometimes saving shoppers 30% to 40%,” she says.
Even better? Those sales are frequent and plentiful. In fact, Costco has a monthly coupon book that lists special in-warehouse savings, and you can also get instant savings on Costco.com. These deals can be anything from $4 off a 60-count box of Rice Krispies Treats to $700 off an outdoor gazebo.
What is the biggest reason for Costco’s low prices?
Costco is incredibly selective about what products it sells. Despite how enormous those warehouse stores are and how many products they pack in, they carry only around 4,000 SKUs (products) as opposed to the 30,000 SKUs found in the majority of supermarkets. Translation: They have a lot of the same item so you can buy in bulk, but they have less variety than other stores. This keeps prices low on both new Costco items and reliable favorites: By purchasing fewer items but doing so in bulk, Costco is able to negotiate lower prices with suppliers … then pass that savings on to its club members.
FYI, there are two other notable players in the warehouse-club game that follow a similar business model: BJ’s Warehouse Club and Sam’s Club (which is owned by Walmart).
How else does Costco keep its prices down?
While Costco’s main strategy for keeping prices down is being extremely selective about how many items its stores carry and buying in bulk, it does have a few other tricks up its sleeve.
Annual membership fees
Costco operates on incredibly thin margins—meaning that it makes a very small profit off of the units sold. And believe it or not, “most of its profit comes from membership fees, not product sales,” Markel says. Those membership fees are either $65 or $135 per person, per year, depending on the membership tier you choose.
Direct sourcing
In an effort to offer customers the best prices possible, Costco works directly with manufacturers instead of going through a third-party group to order products. “By limiting the number of products, Costco can dedicate more shelf space to each item and negotiate better deals with suppliers,” Markel says. “Some brands even offer exclusive pricing to members—if you see a price ending in .49, .69 or .79, that’s a special supplier-set price.”
Limited store hours
Costco recently announced it is extending the hours for its fuel stations, which was a major boon for club members. However, you’ll notice that Costco warehouses typically don’t open until 10 a.m. (or 9 a.m. at some lucky locations). Costco’s late opening times help save money on both labor and overhead operating costs like utilities.
Private-label brand
Kirkland, Costco’s private label, makes everything from diapers to prosecco, which the warehouse store sells at lower prices than name-brand products. It can do this because there aren’t any advertising or marketing costs involved with Kirkland products, something that’s involved for comparable brands.
“Costco rarely advertises at all except for the occasional new membership signup offers,” says Melissa Cid, a consumer-savings expert with MySavings.com. “Kirkland-brand diapers and wipes are the best prices that you will find anywhere. Plus, as a mom of four, I will tell you that the Kirkland diapers are some of the best-quality diapers, even better than Huggies and Pampers.”
More ways to save big at Costco
Get the most out of your Costco membership with some smart ways to save even more.
- Look at the unit price of items. “Since Costco sells in bulk or larger sizes, you have to look at the unit price to compare it to other stores,” Cid advises. “Costco almost always comes ahead unless you catch a BOGO [buy one, get one free] sale at your grocery store for an item you need that week.”
- Check out the clearance merchandise. This is where the real savings are, says Hope Ware, owner of Under the Median, a frugal-living YouTube channel. Look for price tags with an asterisk in the top right-hand corner; this means the item is either near the sell-by date or end-of-the-season clearance. “Prices that end in the number seven or a zero also mean that the item is discounted or will be discontinued,” she adds. “I scored eight large packages of ravioli being offered for 97 cents each. They were regularly priced at nearly $9 each!”
- Grab a meal at the food court. “If you’re looking for a cheap meal, the Costco food court offers a nice selection of fast family favorites, like hot dogs, pizza, soda and salads,” says Ware. That hot dog, by the way, comes with a soda and costs just $1.50—a price Costco says will never go up. “Although we would like to believe that he enjoys our company, we secretly know that our 16-year-old asks to go with us to Costco just so he can grab a bite to eat from the food court,” she says.
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Sources:
- Kristen Markel, blogger at Warehouse Wanderer; interviewed, Feb. 26, 2025
- Melissa Cid, consumer-savings expert with MySavings.com; interviewed, Feb. 26, 2025
- Hope Ware, blogger at Under the Median; interviewed, Feb. 26, 2025
- CNET: “Thinking About Getting a Costco Membership? Here’s How Much You Can Save”
