Is there a more passionate group of people than Costco devotees?
To the uninitiated, people's love for the store can border on being downright creepy. Sure, it's a big store with lots of stuff. Buying in bulk certainly has its benefits. But many are put off by having to pay for a membership, by how busy the stores are, or perhaps they live far from a warehouse.
One thing is for sure. Costco is steadily gaining momentum in Canada. The first location in Canada opened in Burnaby in 1985 when people had to own a business or work for the government to be members.
These days the chain has more than 10 million members across the country, 107 different warehouses, and approximately $25 billion worth of sales. It has quickly become one of the largest retailers in the country and one of the fastest-growing, too.
Costco isn't just a place to get groceries, either. Stores feature all sorts of other perks for members, offering things like optical services, hearing aids, pharmacies, gas stations, and much more. It also partners with various other companies to get members' deals on those services.
Let's take a much closer look at Costco in Canada, including its history, what exactly you get with your membership, the cost of a membership, and a lot more.
History of Costco in Canada
Costco began in 1976 when Sol Price introduced the retail warehouse concept in San Diego, California. Price Club introduced key tenets that later made Costco successful, including paid memberships, limited SKUs, and a relentless quest to deliver value to members.
Seven years later, Price's executive vice president Jim Sinegal went out on his own, partnering with Jeff Brotman to open the first Costco warehouse in Seattle in 1983. The two companies realized the market would be easier to conquer if they merged, so they combined in 1993.
Costco's main competition
Costco has historically competed with both Sam's Club and BJ's Wholesale. Sam's Club was launched by Wal-Mart back in 1983, with the first store located in Midwest City, Oklahoma.
Named after Wal-Mart's founder Sam Walton, Sam's Clubs have grown to almost 600 locations across the United States and Puerto Rico. BJ's, which was launched in 1984, is a more modest competitor with 238 locations.
Costco, meanwhile, has 855 locations spread out over 14 different countries. After 587 locations in the United States and 107 stores in Canada, major countries include 40 warehouses in Mexico, 32 in Japan, and 29 in the United Kingdom.
The expansion of Costco in Canada
Costco's story in Canada starts with the Burnaby warehouse in 1985 when business memberships cost just $25. It then quickly expanded into Alberta, opening a store in Edmonton a short while later.
In 1986 it expanded to Calgary, and it opened its first Quebec location in Saint-Laurent. By 1988 it started to conquer the Ontario market, opening its first location in Mississauga. The chain's first store in Atlantic Canada opened in Halifax in 1992.
Note that the original concept in Eastern Canada was the Club Price banner, while Costco focused on expansion in Western Canada -- at least at first. Stores in Canada kept separate branding even after the two companies merged, finally amalgamating under the Costco banner in 1997. At that point, 13 locations in Eastern Canada changed from Club Price to Costco.
The history of membership restrictions in Canada
As mentioned, only business owners and government employees were allowed to buy Costco memberships when the first location opened in Burnaby in 1985. By 1992 (when the Halifax Club Price location opened), membership restrictions had been eased to include business owners, civil servants, union members, people who worked in media, and members of any professional organizations. Costco then eased its membership standards to let anyone join, a policy adopted by Club Price when the two chains merged.
After the merger, Costco's popularity took off in Canada. Locations were opened in every province except PEI and the three territories. Eventually, the chain brought its Costco Business Centres to Canada, a concept that caters more to business owners rather than regular consumers.
Costco has also introduced online shopping in Canada, where customers can make purchases online and deliver them to their houses or business.
Canadian Costco location breakdown
Ontario - 39
Quebec - 23
Alberta - 19
British Columbia - 14
Saskatchewan - 3
Manitoba - 3
New Brunswick - 3
Nova Scotia - 2
Newfoundland & Labrador - 1
What are the main benefits of a Costco membership?
One common criticism from non-Costco members is there's no reason to pay to shop somewhere, especially when you can buy those products somewhere else. But Costco is about a lot more than just well-priced food -- although that's certainly a big reason why millions of Canadians are members.
Let's look closely at some of the other services Costco offers.
- Low grocery prices
- Prepared food
- Ear and eye clinics
- Gas bars
- Full service pharmacy
- Tire centres
- Alcohol sales
- Costco Travel
- Costco credit cards
- Insurance, cell phones, vehicle purchases & more
Low grocery prices
As mentioned, a big reason so many people love Costco is the low price of groceries. The deals are often substantial compared to similar items at a regular grocery store. So how does Costco do it? How can it offer the same stuff at such a discount to its peers?
There are several reasons why Costco's prices are so good. It only offers products in bulk sizes, cutting down on packaging costs. Products come in on display-ready pallets, which can be handled in a fraction of the time compared to a regular grocery store. Costco orders pallets at a time—traditional stores order by the case.
Costco also takes a much lower margin than the competition. Everything in the store is marked up 13%, compared to 30-40% in a typical supermarket. Costco can operate on lower margins because it does significantly more volume than a conventional grocer and charges for memberships.
The volume difference is an underrated advantage. A Costco cashier can easily scan through thousands of dollars worth of merchandise in just a few minutes. Combine that with ultra-quick merchandising, and Costco's employees are much more efficient than the average grocery store's.
This employee efficiency is one reason why Costco can afford to pay its employees better than most other retailers. However, Costco's management says treating their staff well is just good business.
Costco's grocery items selection is much more limited than a typical supermarket. It only has a few thousand SKUs, compared to about 30,000 different items in a large grocery store. This limited selection may annoy people who like a wider variety of items, but the simplicity helps keep the operation simple, which ultimately plays a role in keeping prices low.
A typical warehouse has a large electronics section as you come in, followed by a big general merchandise department. It also has produce, meat, bakery, and deli departments, each stocked with only the most popular items.
Costco's grocery department features an extensive refrigerated section, including dairy and frozen items. Finally, each store has large selections of seasonal goods, clothing, and various health and beauty items.
Costco has its private label brand, called Kirkland Signature, named after the city where Costco had its original headquarters. Costco is extremely careful in choosing products for the private label; a Kirkland product must meet or exceed the brand name's quality to gain space inside a Costco store.
Costco's best-selling Kirkland products include cheese, bacon bits, frozen pizza, granola bars, and bathroom tissue. Costco's toilet paper is legendary for quality and value, with many devotees refusing to buy another brand.
But Costco doesn't just offer your typical grocery store items. It also delivers great value for members through other parts of the business.
Costco's prepared food
Let's start with prepared food. Every Costco location has a food court (excluding business centers), offering a basic prepared food selection at fantastic prices. The $1.50 deal for a hot dog and a 20oz. soda is one of the best values in the market today and has been offered at the same price ever since Costco first started making prepared food in the 1980s.
Other items provided include pizza, chicken wings, fries, chicken strips, and soft-serve ice cream. Costco also sells poutine in Canada (and France), which it doesn't offer in the United States.
Full service eye and ear clinics
Costco also offers full-service eye and ear clinics, where customers can get everything from an eye exam (or hearing test) to glasses or contact lenses, all for much lower prices than competing shops.
Costco's hearing aid centre is consistently noted as a great value, with both hearing aids and replacement batteries offered at much better prices than most traditional hearing centres.
Costco gas bars
Most Costco locations also offer gas bars where members can fill their tanks. Costco gasoline is generally five to ten cents cheaper per litre than competing gas stations.
A typical Costco gas station has long lines and does huge daily volumes through its 16 pumps. You must be a Costco member to fill up, and Costco's gas stations only allow you to pay at the pump.
Full service pharmacy
Costco's services also include a full-service pharmacy. Costco's pharmacy is the only part of the store that can be accessed without a membership, a perk offered because Canadian law says a pharmacy can't exclude members of the public who want to use it.
The only downfall is all pharmacy purchases are rung in there, rather than being allowed to take it through the front with the rest of your groceries. Costco's pharmacy is an excellent choice for prescriptions, consistently offering customers a better deal than most competitors.
Most Costco locations also offer a tire centre, which installs tires purchased only at Costco. Customers go to their neighbourhood Costco to buy tires (or purchase them online), set an appointment when their tires are scheduled to be in-store, and can shop while the tires are installed.
Costco can often save a member a few hundred dollars on a new set of tires compared to a similar product at their local garage.
Costco warehouses in the United States have extensive alcohol selections in the middle of the store. The rules differ by province in Canada, but many locations do offer alcohol via a separate liquor store located just off the main entrance.
Costco's liquor store is famous for offering great deals on large bottles of spirits or extra-large cases of beer. It also offers greater savings for customers willing to buy large quantities at once.
Non-store benefits of a Costco membership
All the benefits mentioned above are available for Costco members at each store. But Costco also has a number of non-store offerings, mostly partnerships with other companies willing to give special deals in exchange for access to the 10 million Canadian Costco members.
Perhaps the best-known of these services is Costco Travel. Millions of members use Costco Travel to book deals on hotels, vacation packages, all-inclusive deals, cruises, and rental cars.
The savings can often be hundreds of dollars compared to similar travel sites, but many choose Costco travel products because they know Costco wouldn't recommend a cruise or a resort if it wasn't a good value.
Costco credit cards
Costco members are also eligible to apply for one of the best credit cards on the market. Costco has a branded credit card and a partnership with CIBC in Canada. You can check out a review of the credit card here.
This Mastercard has great perks, including 3% cash back at restaurants and Costco gas stations, 2% cash back at non-Costco gas stations and on most purchases made at Costco.ca, and 1% cash back on all other purchases, including those made at Costco. It also doubles as a membership card, a lifesaver for those who often forget their Costco cards.
Insurance, cell phones, vehicle purchases & more
Other perks offered to Costco members include special pricing on new vehicle purchases, various discounted insurance premiums such as pet insurance, cheap cell phone plans, deals on business cheques, and much more. The company will also sell you a wide option of unlocked phones in Canada so that you can pick the phone provider you'd like to work with.
It also offers discounts on various installation services, including heating and cooling systems, window coverings, flooring, garage doors, bathroom remodels, electric vehicle chargers, and synthetic grass. Members know they're getting a solid deal from a reputable company, or Costco wouldn't recommend it.
How much is the membership fee for Costco?
There are two Costco membership types -- Gold Star Membership and Executive Membership. The Gold Star Membership will cost you $60, while the Executive Membership will cost you $120.
Lets get into the details.
Is the $60 Costco membership worth it?
This is Costco's cheapest membership tier and is by far the most popular, giving members access to all of Costco's warehouses -- including the business center concept. It doesn't offer a whole lot of extra benefits, though. Costco Gold Star membership includes a Costco card for you and another household member.
Many will recoil even at paying even $60 to shop at Costco. But the savings are there. Many new members will say their Gold Star membership paid for itself in just one or two visits.
Is the $120 Costco membership worth it?
Yes, a Costco Executive Membership costs $120 per year but comes with a couple of excellent bonuses to help offset the greater annual membership fee. Executive members get 2% of their Costco purchases as cash back at the end of the year (up to $1,000), qualify for special in-store deals, and are offered additional value on member services like insurance plans, residential telecommunications, and credit card processing.
Naturally, this higher tier member gets a free household card for another member of their family.
How to get Costco membership for free
Many people want to shop at Costco without paying the membership fee, so enterprising people have developed various workarounds. One trick that continues to work is to enter with a Costco Shop Card since using a gift card doesn't require a membership.
But there are two things wrong with this plan. Firstly, non-members can't buy gift cards, meaning you'll need a member to keep buying your gift cards. And secondly, any non-members must register for a one-day pass at the customer service desk, a process that can take a while if the store is busy.
The other common trick folks use to get around the membership requirement is to borrow a friend's membership card and use it to go through the self-checkout, the one area of the store where no one has traditionally checked your ID. Costco is aware of this trick and has begun randomly cracking down on these shoppers, asking them to verify their identity.
Do people really save money at Costco?
Overall, a Costco membership is excellent value for most people. After all, some 10 million Canadians are Costco members, which seemingly grows yearly. Strong membership growth fuels additional store growth, as one of Costco's biggest criticisms is that their stores are too busy.
However, that doesn't mean every Canadian should be a Costco member. It's a poor choice for lower-income Canadians who can't spend enough to make the membership worthwhile. It's also hard for someone struggling to afford the base necessities to justify spending money shopping elsewhere.
Is Costco membership worth it for one person?
A Costco membership isn't really a great deal for single Canadians, either. These people simply don't consume enough for a membership to be worth the additional cost, unless you're buying an extensive amount of electronics or food every year.
Even many families find Costco to be a lacklustre deal
Some say buying perishable items in bulk increases food waste, negating savings. Others say Costco encourages them to spend more than usual, resulting in greater food costs at the end of the year. And many more will claim they can get as good deals at Walmart, Real Canadian Superstore, or one of Canada's various no-frills grocery chains. Others are content to shop flyers, cherry-picking unprofitable items at Costco's competitors.
Costco has other disadvantages, too
A limited number of items means that very few Canadians can do all their shopping at Costco. They're forced to go to another grocery store, which takes up more of their precious free time.
Most Costco warehouses are also extremely busy, bringing out the worst in many Costco shoppers. This author has witnessed shouting matches in the parking lot (which is always a zoo), fights over the last item on sale, or hurried customers cutting the line in an attempt to leave a little quicker.
Costco also checks all purchases as customers leave, assuming they want to ensure you haven't forgotten anything. This move is for the store's benefit; they want to ensure you haven't swiped any merchandise. This seemingly innocent policy leaves a bad taste in many members' mouths, especially considering they pay to shop at Costco.
Is a Costco membership worth it?
Most Costco members agree. Paying $60 (or $120 for an Executive Membership) per year to shop at the store is well worth it. The most obvious reason is the savings, of course.
Overall, Costco's prices are much better than its competitors. The key to this is high volume, bulk packaging, and Costco making most of its profit on the membership fee. Other retailers must profit from selling, so they must charge higher prices to keep the lights on.
How much do you have to spend at Costco for it to pay for itself?
Many Costco members report they save more than the membership fee on their first visit alone, especially families or people buying many staples. Costco also has consistently lower prices on meat, which enterprising shoppers will buy, divide into smaller packages, and then freeze it. It is not hard at all to witness $50 or $60 in savings during a single visit to the store.
If members can save enough to pay for their annual membership in just one visit, each subsequent visit just puts money in their pocket. Even a once-monthly visit will save some pretty serious money over a year.
The benefits don't just stop at groceries
And then there are the many other things Costco offers. Costco Travel offers comparable travel packages at sometimes thousands of dollars less than competitors. Even if you aren't getting a great deal, Costco members can still sleep well at night, knowing their Costco-arranged travel package will be a good experience. This assurance is worthwhile to people too busy to plan their vacation down to the tiniest detail.
Costco's eye and ear doctors -- not to mention its pharmacy -- can also provide more value than the membership fee in just a single visit.
Costco's business model works for them, and likely you
Ultimately, Costco doesn't have millions of members simply because it offers lower prices or can save you a few bucks on your next cruise. No, Costco's competitive advantage is based on trust, which has been earned by the company consistently putting customers above its profits.
Let's face it. At this point, Costco has enough volume coming through its doors every day that it can take a few liberties when it comes to pricing, knowing it will still offer the lowest price on a particular item. It could take slightly higher than a 13% markup on its merchandise.
Or it could raise the price of the rotisserie chicken or the hot dog combo, two ridiculously popular loss leaders. But it doesn't, because the company relentlessly puts its customers' best interest ahead of short-term profits.
This creates a flywheel effect that benefits both members and stockholders. As Costco gets bigger, it can attract better deals for its customers. By passing on these deals to its members, Costco then attracts more members, which, in turn, lets it attract even better deals for members. Eventually, Costco will reach a critical mass, and the deals simply won't keep improving, but at that point, the value proposition already created will remain.
Costco stock has been an outstanding investment as well
This flywheel effect is what makes Costco a great investment, too. Costco shares have been a long-term winner as investors figure out that a company that relentlessly cares for its customers is an excellent investment. Steady membership growth translates into more sales, which means more profits. It's also a concept that can work worldwide, inevitably leading to more profits as the chain expands. And there's nothing investors like more than steadily increasing profits.
The bottom line? There are millions of satisfied Costco members. These people get value from their membership. Yes, Costco has downsides; like any business, it isn't for everyone. But, on the whole, it has succeeded because it puts the customer first. Not management, shareholders, or staff, but customers first. This is what elevates Costco in a crowded retail market.