Pharmacy, Optical and the Hearing Aid CounterNarrow moat

Inside every large Costco warehouse are several regulated healthcare businesses: a pharmacy, an optical department, a hearing aid centre. The 10-K files them under warehouse ancillary alongside the food court and tire installation¹, which understates what they do.

Their distinctive property is that they set the schedule rather than the member. A prescription runs out on a date the member did not choose. Spectacles are replaced on an optometrist's advice. A hearing aid needs fitting, adjusting and eventually replacing. Each is an appointment, and an appointment is the most reliable form of footfall there is — far more so than an intention to shop.

The demographics compound it. These are services used disproportionately by older, higher-income households, which is the same population that upgrades to the $130 Executive tier and fills the largest trolleys. A pharmacy is therefore not merely a traffic driver; it is a traffic driver aimed at the most valuable third of the membership.

They have also stopped being small. Pharmacy was named as one of the two businesses driving a 29% increase in warehouse ancillary and other business sales in the third quarter of fiscal 2026, and ancillary businesses — "primarily pharmacy and e-commerce" — were the largest positive contributor to gross margin in the quarter at 14 basis points², while core merchandise categories subtracted 29.

That growth carries an obligation. Costco disclosed in January 2023 a Civil Investigative Demand from the United States Attorney's Office for the Western District of Washington, in a False Claims Act investigation concerning whether the company presented false claims to the federal government relating to prescription medications³. It is also a defendant in the consolidated national opioid multidistrict litigation.

Track warehouse ancillary and other businesses at $51,170 million of net sales in fiscal 2025⁴. Growth in that line driven by pharmacy volume rather than fuel prices is the healthiest growth Costco reports.