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Costco: Membership Fee Hikes Ahead?

RJ Hottovy
Sep 30, 2022
Costco: Membership Fee Hikes Ahead?

Key Costco Metrics

Last week’s fiscal 4Q22 update from Costco led to speculation as to whether or not the warehouse club operator is planning to raise its membership fees in the near future. We’ve used our visitation data to review the last time the company raised its membership fees, as well as other notable visitation observations.

  • Is Costco planning a membership fee hike? Historically speaking, the warehouse club operator has raised its base membership fees every 5-6 years, with the last increase taking place in June 2017. Costco typically sees little pushback from consumers or member attrition when it has raised membership fees in the past (typically a $5 hike for its basic Gold Star membership and $10 for an Executive Memberships; assuming a similar increase next year, it would take annual fees to $65 and $130, respectively). June 1, 2017 marked Costco’s last membership fee hike, and while there was subtle drop-off in visitation trends relative to the months preceding the hike, visitation trends had fully recovered by the end of the year (below).

Costco CFO Richard Galanti acknowledged that a membership price hike was a "question of when, not if", but also noted that the industry should not automatically expect fee increases in January 2023 (which would be five years and seven months after the last increases, the average time period between the last three increases). Galanti also acknowledged that headlines about inflation and concerns about a recession would play into the decision. We suspect that, with visits to its warehouse clubs remaining well ahead of pre-pandemic levels (below), the company is comfortable with membership fees as they currently stand and will not look to make an increase until we start to see food inflation at more manageable levels for consumers.

  • Visitation trends and category performance. For its most recent quarter (fiscal 4Q22), Costco reported that transactions (both club and gas stations) increased +5.2% in the U.S. with the average transaction size up +10.0%. During the quarter, the best performing core categories were candy, frozen food, tire, lawn and garden, jewelry, toys, bakery and deli (which aligns with commentary we’ve heard from home improvement retailers about the rebound in lawn and garden following the late start to the spring selling season due to weather as well as positive visitation trends in the auto parts retail sector). Costco also saw strong sales results from its ancillary businesses like gas and food courts as well as travel and business centers. Below, we’ve presented YoY visitation trends for Costco’s warehouse clubs and gas stations.

  • Light at the end of the inflation tunnel. With respect to inflation, Costco management notes that it is still experiencing pressures from higher commodity prices, higher wages and higher transportation costs and supply chain disruptions, but that they're "seeing just a little light at the end of the tunnel". At the end of the third quarter (ending in May 2022), overall price inflation was about +7% the company, which rose to +8% during the fourth quarter (with food and sundries running higher, fresh food running a bit lower, and a mixed bag for non-food categories. The company called out gas, steel, and beef as commodities where they were starting to see relief, as well as decreases in container pricing.

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RJ Hottovy

Head of Analytical Research, Placer.ai

R.J. Hottovy, CFA has covered the restaurant, retail, and e-commerce sectors for nearly 20 years as an equity analyst and strategist for Morningstar, William Blair & Co., and Deutsche Bank.

R.J. also brings a wealth of experience with early-stage investments as an investment committee member for the IrishAngels / Vitalize venture capital group. Over the past three years, he has advised over 50 foodservice and foodservice tech companies on more than $200 million in early-stage capital raises and M&A transactions.

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