Don’t read this column if you don’t want to save as much as 50 bucks the next time you go grocery shopping.
That is the sum I estimate many Ottawa families save each month by paying an annual fee to shop at one of the area’s growing number of Costco stores.
Costco is North America’s most successful shopping club, with millions of members, including thousands in the Ottawa area. Costco was in the news earlier this year for its decision to raise the regular annual membership fee by $5, plus tax.
And Costco – never very strong on public relations – did a poor job in informing its members of the fee increase. I am a member. Several weeks after hearing a news report of the fee increase, I visited an Ottawa Costco for details. Staff said Costco was still not ready to make a formal announcement, but they confirmed that the fee increase had been correctly reported.
For the past six years, regular Costco members have paid an annual membership fee of $55, plus tax, for a total of $62.15. Since June 1, the annual membership is $60, plus tax, for a total of $67.80.
Why pay an annual fee of $67.80 to go shopping? As the late comedian Groucho Marx liked to wisecrack: “I don’t want to belong to any club that will accept me as a member.”
But if Groucho were alive today, I would advise him to make an exception to his rule by becoming a member of Costco. I have no doubt that Costco’s annual membership pays for itself.
Do the math. The annual membership fee works out to about $1.30 a week, or less than half the cost of a Starbucks coffee. I saved more than twice that when I filled up with gas recently at a Costco not far from my home. Only members can shop at Costco.
Not all Ottawa-Gatineau Costco stores have a gas station, but the new one in Barrhaven does. It’s a 10-minute drive from my home. I save several dollars – sometimes as much as $8 – every time I buy a tank of gas. Of course, I don’t make a 10-minute trip just to save a few dollars on a tank of gas. I usually do some grocery shopping, too.
Another thing: Costco’s gas prices are far more consistent than most stations’ prices. Costco appears to keep to a slender but profitable margin over what it pays wholesale for gasoline. Most other stations adjust their prices frequently, not because of changes in the wholesale price but to gain an edge over other stations nearby.
But the big savings at Costco are not just on gas – they are on hundreds of items that consumers need on a daily, weekly or monthly basis.
My wife and I have been in the habit of shopping at Costco once a month on average. But now I plan to pay the shopping club more frequent visits.
What changed my mind?
That increase in the membership fee got me thinking: Is it really worth paying $1.30 a week for the “privilege” of shopping at Costco? The answer: You bet it is!
I drew up a lengthy shopping list and compared Costco’s prices with those of three of its leading competitors – two big supermarket chains and a smaller chain that specializes in fresh produce.
I was startled by what I found. Costco had the lowest price for the majority of items on my list. On several expensive items – such as costlier types of meat and fish and large containers of household products – the price difference for each item was sometimes $10 or more between Costco and one or more of the three competitors.
If I had actually purchased all 30-plus items, the bill at Costco would have come to about $350. A direct comparison with the other three stores was not possible. For one thing, no other store had all the same items I priced at Costco. For another, Costco sells many products in large sizes. It’s standard practice among retailers to charge more – per litre, per pound or per kilogram – for items purchased in small quantities.
Highly competitive industry
In estimating my savings in shopping at Costco, I started with the price and quantity of each product at Costco. Then I calculated how much it would cost to buy the same quantity in another store, using that store’s price per kilo or price per litre.
I concluded that it’s impossible to know exactly how much one can save by shopping in one supermarket over another. But my guess is, that $350 shopping spree at Costco might have cost at least $50 more in most other supermarkets.
The Ottawa supermarket scene is highly competitive. Retail analyst Barry Nabatian of Shore-Tanner and Associates estimates the Loblaw-Your Independent Grocer group has the largest share of the Ottawa market.
Among major food stores, Mr. Nabatian says his “rough estimate” is that the Loblaw group has 40 per cent market share. By his estimate, it is followed by Metro and Food Basics (25 per cent), Costco (15 per cent), Farm Boy (10 per cent), Walmart and Sobeys (each five per cent).
But why does Costco need to charge a membership fee? Good question. I suspect the answer is an odd way of encouraging us to be loyal: Having paid a membership, we feel duty-bound to shop there. One thing I am certain of: The more I shop there, the more I save.
Michael Prentice is OBJ's consumer affairs columnist.