Gas retailers worried about being guzzled up by Costco’s cheap prices
In Guelph, drivers’ spirits are high as gas prices reach unusually low levels.
Ever since Costco opened its doors last month, its gas station has offered fuel at significantly cheaper prices than Guelphites had been paying.
For retailers like Mike Black, the owner of a Global Fuels gas station, that left no choice but to lower their prices to match.
In Black’s case, that meant selling gasoline below cost for two weeks now – and even after doing that, he still saw what he terms “a dramatic drop in business” due to the big-box competition.
“We’re probably off (by) close to 70 per cent of our normal daily sales,” Black said.
According to gas price expert Dan McTeague, Costco is selling gas at less than it’s buying it for – something it’s done in other new markets.
“Costco is deliberately cross-subsidizing its profits from its grocery (business) as a loss leader,” McTeague said.
Both Black and McTeague admit that the move appears to be good for consumer for now, but question what it will mean if the low prices stick around for a lengthy amount of time.
Black says he doesn’t see how retailers like himself will be able to keep their doors open for long if they have to keep selling gas below cost for a prolonged period.
McTeague says he expects Costco to start ramping up its prices in the next few months, and be at a more normal profit margin by 2015.