My brother recently paid me a visit and while he was out here, I told him about my plans to buy a large wooden play set for our backyard so our daughter and her friends can have a place to play without us having to trek across town to the nearest playground. I’ve been researching the play sets and so far I’ve found some nice models at Menards, Lowe’s and Home Depot. The first question my brother asked me was if I had a Costco membership.
Nope. Didn’t have one.
So we hopped in the car and he took me to Costco for my first visit. My perception of warehouse clubs is based upon my childhood experiences of visiting Sam’s Club with my parents. I was one of four children, so buying in bulk was both convenient and cost effective way for my family to shop for many items.
My wife and I are the parents of two very young children and we aren’t at the stage where we buy much in bulk. So I put the notion of joining a warehouse club on the side burner – that could wait until our children were older and we “needed” that 5 lb bucket of peanut butter and the 150 ct. package of frozen pops (you know the ones in the little plastic packages? I grew up eating those!).
But I decided it would be fun to check out Costco and see if they had a play set that would meet our needs.
Big Packages, and Big Savings
Costco had a nice play yard, but it was much bigger than my wife and I were looking for. But I didn’t want to waste the trip, so my brother and I spent the next 45 minutes walking around the store and checking everything out. He showed me a lot of the items he and his wife buy when they go to Costco, and how it saves them money.
For example, they buy a large cut of pork that has tenderloin, chops, and a roast in one package. It isn’t already butchered, but it’s a lot less expensive than the cuts at the supermarket. If you have a sharp knife and can follow the directions on the back of the package, you can get five or six meals out of that package – which costs about 2/3 of the supermarket price.
Do you have children still in diapers? If you aren’t using cloth diapers, then you need to check out the diaper prices at Costco. They are consistently cheaper than most other stores. Sure, they only sell them in packages of 200 or so, but if your child isn’t going to outgrow his diapers soon, you can save a lot of money. These are rough prices and diaper counts (I didn’t take exact notes), but the Kirkland Brand (Costco’s signature brand) of diapers was around $30 for 216 disposable diapers. Huggies were around $36 for 228. (From what I understand, prices and availability can vary by location). The only place I’ve seen that sells diapers at a comparable savings is when you buy them via a subscription through Amazon Moms.
Kirkland brand paper towels and toilet paper are among Costco’s biggest sellers – both of which rang in at roughly 33% cheaper than the comparable national brands. Note: Toilet Kirkland brand toilet paper is actually Costco’s #1 selling item – they sell over a billion rolls a year – over $400 million worth.
Here is an excerpt from a recent CNBC special on Costco:
You Never Know What You’ll Find…
One of the small problems with Costco is also one of the things that makes it unique: you never quite know what you will find there. Costco is able to sell items at lower costs for several reasons: they buy in massive quantities and enjoy economies of scale, they don’t stock as many items as many supermarkets and department stores (less money tied up in inventory), they operate on more limited hours than most other stores (69 hour weeks), and they don’t spend much in the way of furnishings or displays – it’s a warehouse with items placed on large shelves, pallets, coolers, etc.
But it works. Costco is able to pass on a lot of savings to their customers, and still enjoy a healthy profit. Check out their stock ticker for more info on their company – COST.
Costco also offers more than bulk groceries and related items – the warehouse by us has furniture, home and garden, electronics, a pharmacy, clothing items, small appliances, an optical center (eye exams and glasses), tires, wedding dresses, jewelry, vacation plans, car buying service, and more. They also contract with local businesses and contractors to offer savings on other items, such as air conditioner installations/repairs, painting, and similar home improvements. They also have an online store, where you can find items they don’t carry in their warehouses.
How Much Does a Costco Membership Cost?
Costco and other warehouse clubs have one thing in common: you need a membership to shop there. In fact, the membership fees is one of the primary profit drivers for Costco (with hundreds of thousands of members, that translates into millions of dollars of profit).
There are three membership levels:
- Gold Star Membership ($55) which is a basic household membership with two cards, the
- Business Membership ($55) which inclues two cards, and the option of adding more cards to your membership, and the
- Executive Membership ($110), which comes with two me.
Each of these membership plans comes with two membership cards, and the business card has the option of adding additional members to your plan at the rate of $55 per two cards. You don’t need to be a business owner to apply for the Business Membership; many people get that card so they can add family members to their membership. The other benefit of the Business Membership is the ability to purchase items at wholesale, so you can avoid paying tax on the purchase if you plan on reselling it.
The Executive Membership is twice as much as the other two membership plans, but it pays a 2% annual reward in the form of a Costco credit. So you would need to spend $2,750 over the course of the year ($229/mo) to break even on the Executive Membership (there are a few other small benefits including additional savings on certain purchases or services, but the rewards is the big one).
Is it worth it?
There are several ways to look at a membership. If you run the numbers, you will see that all you need to do is save $5 a month by shopping at Costco to pay off the membership fee. But the savings can go far beyond that – provided you don’t change your shopping habits too much and spend more than you otherwise might.
CNBC recently did a special on Costco and they ran the numbers on the big warehouses:
According to a Consumers’ Checkbook survey published by the not-for-profit Center for the Study of Services, BJ’s prices were on average 29 percent lower, Costco’s 30 percent lower, and Sam’s 33 percent lower than the largest supermarket chains. The survey found that a family that spends $150 a week at a conventional supermarket could save $2,270 a year when shopping at BJ’s, $2,344 a year when shopping at Costco, and $2,571 when shopping at Sam’s Club.
Of course, you have to buy the right items to make those numbers work – but with those savings, it’s not difficult to pay off the annual membership fee at Costco or the other warehouse stores. And these savings are just on groceries. If you buy other items, you can easily hit the $2,750 to make the Executive Membership worth it.
Payments Accepted by Costco
One more important thing – Costco doesn’t accept all forms of payments. They accept cash, checks, VISA or MasterCard debit cards, or American Express credit cards. Take note of that again – they don’ accept VISA or MasterCard credit cards – only debit cards.
Costco also accepts the American Express True Earnings Card from Costco, which is a co-branded credit card that will also double as your Costco membership card. It offers special cash back when shopping at Costco, including 3% on their gas – which is consistently $0.10-$0.20 cheaper per gallon than most other gas stations in our area (yet another reason to join!).
I thought about getting the American Express True Earnings Card from Costco when I got my membership, but I already have the American Express Blue Cash Preferred Card, which is accepted at Costco, and offers better cash back on purchases made elsewhere, so I’m keeping my current card for now.
Verdict – Big Savings at Costco
Overall, I was impressed enough with Costco that my wife and I decided to join the club, and we’re now card-carrying members of Costco. I think we will save a lot of money there in the long run, but we will also need to adjust the way we shop for certain items. It makes sense to buy essentials like toilet paper and paper towels in buk, but some items, particularly perishable items, are best bought as needed.
I should also note that we have a Costco reasonably close to where we live, and shopping there isn’t out of our way and doesn’t force us to drive a cross town or change the way we shop (I’ve know people who were members of warehouse clubs that were located close to an hour away, so when they went shopping there, they would “load up” and probably spend more than they might otherwise have).
Do you belong to any membership warehouses, such as Costco, Sam’s Club, or BJs? Do you think they are worth it?