Home > Cutting Spending > Succeed where others have failed: Saving Money at CostCo

Succeed where others have failed: Saving Money at CostCo

When retailers talk about how you can “save money”, you can be sure that in fact, just the opposite is true.  There’s no such thing as a free lunch, so you know they wouldn’t be doing it if it didn’t increase their profits.  However, by understanding why these discounts exist, we can truly succeed at saving money, even though the average customer will fail.

How do they trick us?

I like to think about each of my purchases from the point of view of the person on the other side of the counter.  What does CostCo get out of our arrangement, and who is really benefiting?

So let’s not even worry about the”membership” fee yet.  The whole idea is that this retailer can offer you lower prices because you are willing to buy items in bulk.  This concept certainly has some merit.  Let’s say I’m a farmer selling corn. I’d way rather sell all my corn at once for a price of $1/bushel, than sell my corn at $1.10/bushel one bushel at a time to individual consumers.

But CostCo turns this notion on it’s head.  Instead of actually leveraging economies of scale by selling in greater volumes, they have found a way to maximize profits by making you think they do this without doing it.  Just look at the giant bottles of ketchup sealed together in 2-packs.  That’s not selling things whole-sale, that’s creating a whole new market by pretending to sell things wholesale.

I’m envious of their marketing skills.  They are masters of convincing suburban consumers that they should, in fact, impulse-buy 12 lbs of mayonnaise.  It’s all about building up a “myth” of savings and then letting American consumers do what they do best: Over-spend!

Why savings do exist?

So why does everyone believe that CostCo actually sells things at lower prices than it’s competitors.  First of all, they have GREAT marketing, and secondly, they do sell some stuff cheaper than competitors if you are willing to plan ahead and buy in bulk.

But selling in bulk isn’t why they pull in $88 Billion a year.  They make money because most of the stuff they sell isn’t cheaper than it is at other stores (even on a /weight basis).  By offering proof that a few items are actually cheaper, they lull consumers into a false sense of security, until the consumers actually buy the items that are bad deals.

Don’t get me wrong, I don’t think there’s anything ethically wrong with what CostCo does, but it just feels a little off that most shoppers there don’t quite understand how the whole system works.

Here’s what makes my list

So now that we’ve ydiscussed the fact that many items for sale at CostCo actually cost more, let me tell you what types of products make my list.

As far as I can tell, the whole left side of the store (I think they are all the same layout) holds electronics, alcohol, as well as unnecessary appliances… so we’ll move past all those aisles.  I’ve never seen a particularly good deal in these aisles, but I’d imagine they do exist if you do happen to need a package of 6000 pencils.

Moving to the back of the store, the fresh produce, meats, and cheeses tend to be rather overpriced on a /weight basis.  There are some good looking pizzas and pre-made meals available in this section that you should probably just figure out how to make on your own…  The Dairy section has our first true winner.

  • Milk: priced at $1.50/gal the last time I was there which beats anyone else by a dollar!
  • Frozen Stuff: If you have a need for large quantities of frozen chicken or berries, you wont find a better deal.  My problem is that I would never go through that much food…
  • Dry Goods:  This is where I save most of my money compared to Target.  How much cheaper? (Granola = 38%, Almonds = 43%, Cheerios = 45%, and Coffee = 31% cheaper)
  • Liquids: Peanut Butter, Spaghetti Sauce, Olive oil, and dish detergent are all cheaper at CostCo than shopping at competitors
  • Pharmacy section:  The only thing you should ever buy here is the shampoo and soap.  They are a pretty good deal on a /weight basis and you don’t have to keep buying new containers of shampoo because these are gargantuan.
  • The middle:  Don’t every buy anything in the middle of the store.  As far as I can tell; the socks, the books, the enormous snacks, and the lawn furniture is there to encourage impulse buys.  You need none of it!

Return on Investment

So what is my return on investment so far for this project?  Well I became a member on 6/27/12, and since that day, I have purchased $131.87 at CostCo.  When compared to buying the same amount of food at Target or other grocery stores (and I eat all of what I purchase), I calculate that so far I’ve saved $63.27.

So the $55 investment has paid for itself, and now I will see pure returns.  If I annualized my savings, it comes of to $187 – $55 = $122.  So by investing $55 I’ll actually earn 240% on my investment.  That’s way better than you’ll ever see in the stock market.

So was it worth it?  I get a free $122/year over what I would have spent.  I don’t have to go to the store as often because the quantities are huge, there’s less packaging, and I didn’t even touch on the gas prices (they are consistently the lowest in my area). Heck, I’m a single guy.  I wonder how much a family that actually needs “family sizes” could save?

Categories: Cutting Spending Tags: ,
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  1. December 27, 2012 at 7:03 PM
  2. January 16, 2013 at 4:36 AM

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