Costco opens first standalone gas station in Mission Viejo, undercutting Orange County pump prices

Costco has opened its first standalone gas station, in Mission Viejo, California. No warehouse attached, and the street price is below the Orange County average. Operators near the site should take a hard look at it.

Until now, Costco fuel was a traffic driver for the box. You bought the membership, you filled up cheap, and you shopped inside. The gallons were close to a loss leader and the store made the money back on the basket. A station with no warehouse behind it has no basket to subsidize the pump. Costco has not said why it is willing to run one that way. Whether the membership renewal covers the discount on its own, or the company will accept thin pump margins to get into a dense retail market, is the open question.

Either way, the neighbors feel it the same. A retailer running a below-market street price with no c-store behind it is a pure price competitor, and the nearby operators are working on thin margins that still have to cover credit card fees and labor. Chasing the price costs them margin and holding costs them volume. The sites with real foodservice and a reason for a customer to walk inside have the most room to hold.

Watch whether this is a one-off or a format. If Costco builds a second and a third standalone, that is a national fuel retailer expanding without the capital cost of a warehouse, and it can go into infill sites that a full Costco could never fit.

Succession

CStore Decisions this month put Good Oil's Nikki Earp and Wyatt Good on the cover, the third generation of a family that started the company under their grandparents. Earp is CEO, Good is president, and both came up through the business from the bottom, wearing whatever hat needed wearing. They give credit to the second generation for setting them up.

What to watch

Whether Costco files for more standalone fuel sites, and where. Whether Orange County street prices move over the next few weeks or the discount stays contained to the Costco lane. And whether more family-owned chains hand the business to the next generation or sell instead.