Gas prices are down by about 10 cents per litre across Prince George in the last week or so and more than a few residents are saying we can thank the opening of the Costco gas bar for that.
There's no question the arrival of any new major competitor in the local market, whatever the product, will have a positive effect on prices (from a consumer perspective) and a negative effect on prices (from a retailer perspective).
As Nicholas Fedorkiw pointed out in his Tuesday column in The Citizen, the retail marketplace for gas isn't the only factor to consider. The price of crude oil on the world market and the cost of refining provincially and nationally also determine what consumers pay at the pumps. While many Prince George residents have pointed to the local Husky refinery as a reason why gas should be cheaper here than in other markets, like Kamloops, Fedorkiw notes the local operation is the smallest refinery in Canada, so drivers shouldn't expect a huge benefit as a result.
One way to gauge how much Costco is driving local gas prices down is to imagine if prices had dropped 10 cents over the last week or so without the opening of the Costco gas bar. First of all, that kind of sudden and substantial decrease has happened from time to time over the years, so it's not a freak occurence. Second, most people would have pointed to the calendar and noted September means kids are back to school and the summer tourism traffic season is over, driving demand down and prices with it.
Fedorkiw made one other interesting observation in his column. Costco isn't a typical retailer when it comes to setting prices. It sets some of the lowest prices in the retail sector to put the screws to their competitors but also to attract memberships. In the end, Costco is no different than any other retailer when it comes to the bottom line but unlike many of its competitors it has two streams of revenues - sales and memberships.
Costco is betting on the idea that consumers are willing to pay an annual membership fee for the privilege of buying gas for two or three cents less per litre than the going local rate . In other words, it's asking consumers to run a deficit in the short term (the cost of the annual membership) on the assumption they'll make up the cost of the membership and then some during the next 12 months.
Currently, Costco charges $55 for a basic membership. If Costco is charging a discount of three cents per litre to members, the savings from putting 100 litres in the tank are $3. It would take 19 visits to the pump before the consumer is actually saving money and that's with 100 litres going into the tank each time. The payoff comes much sooner for someone driving a full-size truck and much later for someone driving a small car.
Obviously, the card pays for itself sooner for the consumers who also go inside the store to buy their groceries, their clothes, their appliances and so on.
This is not to say Costco's gas bar hasn't helped drive down gas prices. It has but it's not the sole contributor.
Furthermore, it's important to note that Prince George gas prices have been below the provincial average for the last three months, even when they were at 136.9 just a few weeks ago, before the opening of the Costco gas bar.
At the end of the day, drivers love complaining about gas prices and wrote letters to the editor 10 years ago when they were paying the ghastly sum of 85 cents per litre.
The solution to high gas prices is for everyone to drive smaller vehicles less often, of course, but that's about as much fun as saying the extra helping of vegetables, not the second slice of chocolate cake, is better for our health.