The Important Reasons Why Costco Is Cheaper Than Other Retailers

published Sep 14, 2023
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Indianapolis - Circa April 2023: Costco Wholesale Location. Costco Wholesale is a multi-billion dollar membership retailer.
Credit: Jonathan Weiss/Shutterstock

It’s no secret that Costco offers the most cost-effective way to stock up on all of your favorite groceries, bakery items, household products, and toiletries, not to mention furniture, electronics, and just about anything and everything else under the sun. If you don’t mind buying in bulk, Costco is the cheapest place to shop by a mile. 

But have you ever stopped to wonder why? How can Costco afford to offer prices so much lower than its competitors, like traditional grocery stores and other retailers? The answer is surprisingly simple.

Why Are Costco’s Prices So Low?

At Costco, a no-frills approach keeps marketing and merchandising costs from being passed down to customers. While other stores feature elaborate displays and pristinely maintained shelves, Costco is simply a warehouse. Customers fill their carts from pallets of products piled on basic, industrial shelves. Packaging is simplified and goods are sold in larger quantities, all of which serve to drive costs down.

Costco has relationships with its vendors that allow the company to place large orders while receiving a much lower price, and Costco may also work with vendors to make adjustments to product packaging that help lower the cost all around. 

While Costco has a relatively limited selection of products when compared to more traditional grocery stores, the trade-off is better pricing on the products the store does carry. With an extremely low markup on products, retailers like Target and Walmart struggle to even come close to matching Costco’s everyday prices.

Where Costco has historically paled in comparison to other major retailers is the world of e-commerce. After all, Costco’s entire business model operates around the concept of a warehouse, so it makes sense that the retailer was late adopting new technology. However, over the last years, Costco has started to offer same-day delivery by way of Instacart and has even made some shelf-stable products available online. 

As online ordering with in-store pickup has proven costly, Costco is unlikely to bring those shopping options to stores any time soon. If there’s one thing Costco’s decision-makers abide by, it’s avoiding passing unnecessary costs down to its customers.

If you’re not a Costco member yet, and you love shopping in bulk to get the best prices, there’s no time like the present to start saving big on all of your favorite grocery items and household products. Just make sure you don’t try to share a Costco membership