If you love shopping at Costco, get ready to shell out a bit more for the privilege. Starting September 1, the beloved membership-based warehouse club will increase its annual membership fees in the U.S. and Canada. The standard membership fee will rise from $60 to $65, while the “Executive Membership” will jump from $120 to $130 a year. This marks Costco’s first membership rate increase since June 2017.
Fee Increase Details
Costco’s announcement affects around 52 million memberships, with a little over half of these being executive memberships. The news has already had an impact on the stock market, with Costco shares rising about 2% in extended trading on Wednesday.
Why the Increase? Blame the Hot Dog
According to Costco’s CFO, Richard Galanti, the decision to hike membership fees rather than increase the price of the iconic $1.50 hot dog meal was a no-brainer. “People are so attached to that $1.50 price point that raising it would cause more uproar than just adjusting the membership fees,” Galanti explained. “It’s easier to increase the cost for everyone’s membership slightly rather than mess with our beloved hot dog combo.”
Timing of the Increase
Historically, Costco has raised its membership fees roughly every five and a half years, which would have put the next increase around late 2022 or early 2023. However, the company delayed the hike. CEO Craig Jelinek and CFO Galanti have both stated in interviews and earnings calls that it wasn’t the right time to raise fees, given the high Inflation rates consumers were already dealing with.
Membership Fees: A Pillar of Revenue
Costco relies heavily on membership fees to drive most of its revenue and to help keep merchandise prices low. This business model allows them to offer the great deals and bulk-buy savings that members love. The decision to finally increase the fees comes as a necessary move to continue providing these benefits without touching the sacred hot dog price.
Competitors and Comparisons
Costco’s main competitors, Sam’s Club and BJ’s Wholesale, have also adjusted their membership fees in recent years. In 2022, Sam’s Club increased its fees for the first time in nine years, making its membership still cheaper than Costco’s. At Sam’s Club, annual fees are $50 for club members and $110 for “Plus” members. BJ’s Wholesale charges $55 for club members and $110 for its higher tier.
Membership Enforcement
In addition to the fee increase, Costco has also stepped up efforts to ensure that only paying members use their services. Last year, they added an extra check for memberships in self-checkout aisles to prevent non-members from sneaking in on someone else’s card. This move is reminiscent of Netflix’s crackdown on password sharing.
Market Reaction and Future Outlook
The fee increase, while not entirely surprising given historical trends, comes at a time when consumers are already feeling the pinch of inflation. Yet, the market reaction has been positive, with Costco shares getting a boost. For members, the increase might sting a little, but for many, the benefits and savings from shopping at Costco still outweigh the cost.
Conclusion
As inflation continues to impact consumer prices, Costco’s decision to raise membership fees instead of increasing the price of the beloved $1.50 hot dog meal underscores the delicate balance businesses must strike to keep customers happy. Whether members will continue to see value in their membership remains to be seen, but for now, it looks like the bulk-buying bonanza at Costco will continue, just at a slightly higher price.
