It’s the petrol station with prices so low its nearest competitor drops theirs every morning when it opens.

But the head of Costco’s Australian operations says their ability to offer such cheap fuel in Canberra comes back to their members.

 Costco Wholesale Australia managing director Patrick Noone said its membership model helped to offset its low retail margins. Photo: Jamila Toderas

Analysis from the NRMA showed the average unleaded price in Canberra was 8.1 cents per litre dearer than Sydney last financial year – though the average operating costs and margins accounted for 19.4 per cent of Canberra’s average unleaded fuel price, compared to 15 per cent in Sydney.

However, unleaded fuel cost 131.7 cents at Costco’s Majura fuel station on Wednesday – about four cents lower than the next cheapest petrol in Canberra.

Costco Wholesale Australia managing director Patrick Noone said the bulk discount retailer’s strategy was to drive high sales with the lowest margins they could, with margins that “generally don’t go above 12 to 14 per cent”. Their Canberra station ranks in their top three for petrol sales in Australia and more pumps will soon be built to keep up with demand.

 Costco will expand its Canberra fuel station in response to high demand. Photo Elesa Kurtz

“The more sales we drive, the more value we drive into members pockets, which means when the time comes to renew your membership you’ve got value from your membership,” Mr Noone said. 

“That’s our core strategy on everything we do – on the hotdog at the food court to the hearing aids to the champagne.”

Costco also saves by buying only three grades of fuel in higher quantities to “maximise our buying potential and maximise value”, and by having customers pay at the pump for their fuel, Mr Noone said.

But the $60 membership also helps to subsidise Costco’s wafer-thin margins.

“The membership income helps us with our profit and loss for the whole company, it’s a very important part of our business,” Mr Noone said.

Mr Noone was speaking at an ACT parliamentary inquiry into Canberra’s historically high fuel prices.

The NRMA’s senior policy manager Carlita Warren said Canberra’s fuel could sometimes be up to 30 cents more expensive than other capital cities.

The company said the ACT should introduce real-time fuel monitoring, but also prioritise independent retailers when approving fuel stations near current or future land developments.

However Caltex’s head of retail fuel strategy and pricing Prasad Kholkute told the committee 85 per cent of fuel prices came down to the strength of the US and Australian dollar and government taxes. 

He said Caltex’s 20 ACT stations operated as competitively as they would in any other market but planning restrictions meant Canberra had a lower number of petrol stations per capita than Sydney or Melbourne – 7500 versus 5500.

“We welcome competition and we welcome price transparency,” Mr Kholkute said.

“Different businesses have different business models [but] we believe in our product.”

Extracted from Canberra Times