The Reason to Come BackNarrow moat

A membership is renewed by a habit, not by a calculation, and habits are made of trips. That is why the least glamorous parts of Costco matter more than they look, and why this facet is rated below the other three: none of it is defensible on its own, and all of it exists to protect something that is.

The 10-K says so almost in passing. Warehouse ancillary businesses "operate primarily within, next to or near our warehouses, encouraging more frequent shopping"¹. Gasoline, pharmacy, optical, food court, hearing aids and tire installation are not adjacencies chosen for their returns; they are chosen because each one gives a member a reason to drive to the car park on a day they were not planning to buy groceries — and once they are there, they go in.

Gasoline is the largest of them: 747 stations at the end of fiscal 2025, about 10% of total net sales. It is sold at a gross margin so thin that Costco tells investors "a higher penetration of gasoline sales will generally lower our gross margin percentage"². That is the trade stated openly. The company accepts a worse-looking margin in exchange for a queue of cars, several times a month, from members who would otherwise visit once.

The health services do something subtler. Pharmacy, optical and hearing aids are among the very few reasons a person returns to a specific place on a schedule set by somebody else — a prescription, a lens replacement, a fitting. They also skew toward exactly the older, higher-spending households the Executive membership is built on.

The food court is the cheapest advertising in retail. The hot dog and soda combination has cost $1.50 since 1985, a price Costco's own chief financial officer has said publicly will stay there "forever"³. Adjusted for inflation it would be several times that today. Nothing about it makes money; everything about it says, in a way no marketing budget could, that this is a place where you are not being worked over.

And then the digital layer, which is the newest and the fastest. E-commerce was about 7% of net sales in fiscal 2025 and digitally-enabled sales — anything initiated on a device, however fulfilled, plus Costco Travel — about 10%. Digitally-enabled comparable sales grew 21% in the third quarter of fiscal 2026 against 7% for core merchandise⁴. This is the piece that could either deepen the habit or replace the trip that the habit is made of, and it is genuinely too early to say which.

This facet is tested by the frequency component of comparable sales. In fiscal 2025 shopping frequency contributed 5 points of the 6-point comparable increase and average ticket 1⁵. In the third quarter of fiscal 2026 the split was 2 and 7, and most of the ticket increase was a 20% rise in the average price of a gallon of fuel. Growth carried by price is growth that does not renew a membership.