Do You Overspend or Save at Costco?

July 15th, 2009 · 12 Comments

There’s been a bit of buzz going around because of a recent report by two professors, Michael Norton of the Harvard Business School and Leonard Lee, of the Columbia Business School, that studies the impact of warehouse stores on consumer behavior. Basically, it seems to boil down to: do you spend more at Costco, Sam’s, or BJ’s because you perceive that you are saving money since they charge membership fees and you have been trained by the warehouse stores to think that the items won’t necessarily be there next week so you have to buy them now.

There’s only one article that I’ve read on this, where I think the author actually realizes that you are just as apt to buy unplanned items at a regular store because once you’re buying stuff, it is the store’s goal to get you to buy more. And a lot of those stores, aren’t giving you the deals you get at the warehouse stores, so you will most certainly be overspending. As this article points out, the authors do point out in their report that you can save money at Costco, but this has been largely ignored or overlooked in most of the stories about this report. Here’s a great quote from the report:

Indeed, when we visited both a Costco store — which charges a fee — and a Wal-Mart store — which does not — in New England and recorded the prices of a selection of 20 common consumer products ranging from Lipton tea bags and Goldfish crackers to regular household products such as Duracell batteries and Tide laundry detergent, we discovered two things. First, the two stores generally did not offer the same sized products. Second, when we extrapolated prices to calculate the volume discount, Costco had an average price advantage of 9.5 percent per unit across these product categories compared to Wal-Mart. Thus discount stores like Costco do allow consumers to enjoy lower unit prices due to volume discounts compared to other regular stores that do not charge a fee.

This falls right in step with my own findings when I’ve done my Grocery Store Comparison; Costco is actually saving you money.  However, I’m not going to be so silly as to say that you’re not going to buy some stuff that you might not have purchased at a different store.  I’ve done it on several occasions when I have seen things that I have been thinking about getting but they weren’t necessarily on my list for the week.   Or, more likely, I didn’t know I could get it at Costco.   That’s one of the things that keeps shopping at Costco interesting: you’re going to find new items quite often.  Plus, if you have much experience shopping with Costco, you’ve probably grown to trust their quality and value.  Not to mention, you know that if you don’t like it or the item turns out to be a dud, you can bring it back because of Costco’s awesome return policy.

Now, does all of that make you a naive shopper?  And is this any different than people that shop at someplace not a warehouse club, that doesn’t charge a membership fee, but they still buy stuff they didn’t intend to buy?  Are you lulled in to a false belief that you are saving money at Costco because of the membership fee?  I say that the answer to all of these is a resounding ‘no’.

After writing this blog for over a year now, I think I’ve got a pretty good handle on how Costco shoppers act, and it isn’t in blind trust in Costco to always have the best price or that you must buy everything today even if you don’t want it or can’t afford it.  I think it’s sad that shoppers are oversimplified like this by the media covering this report. Most of the people I know that shop at Costco are really astute about price checking and comparisons to a variety of other stores.  And as I well know, Costco shoppers love to take advantage of the coupon offers and rebates that Costco often has going and will wait to buy things until there is an offer.  I also have several examples on my blog about saving way more than the cost of the membership fee by buying just one single item at Costco; glasses and bookcases most immediately spring to mind.  This might sound completely ridiculous and illogical, but it is what the report’s results claim: you think you save at the warehouse store because you had to pay a membership fee.

I feel like I am getting good value when I shop at Costco, not because they charge me a membership fee which would be preposterous, but because of my past experiences there and my own knowledge and comparisons of prices at other stores.  My belief is that there are several kinds of shoppers, including those that are careful about what they are buying, those that make and stick to lists, and those that overbuy and overspend.  These habits are just part of the your personality and happen regardless of where you are doing your shopping.

And there’s just one last thing, I’m really sick of reading comments like ‘you have to buy 50 boxes of cereal’ or a ’10 gallons of mayonnaise’ when you shop at Costco.  Do the people saying these things actually have any experience shopping at Costco?  Or are they just making this stuff up as they go along to make the story more entertaining and funny?  What do people have against shopping at Costco anyway?  Okay, I need to stop now or I am going to completely start a rant about this weird anti-Costco mentality from people that have never even been in a Costco.

Places you can read more about this report:


Tags: Costco in Blogs · General · In the News Share

12 Responses so far ↓

  1. 1 Pat // 2009.07.22 at 2:54 pm

    I agree with all of the comments. First and foremost, know your prices and use the coupon book. I shop for myself and I definitely save money at Costco. I don’t buy fresh foods in bulk there, because I can’t finish them myself. But there are plenty of other products I can get such as household products and toiletries. A few years ago, I didn’t shop a Costco and was buying stuff at Target. Now, I rarely go to Target and discovered that I don’t spend nearly as much as I used to! Yep, it’s true. I guess every time I go to Target, I always pick up things I don’t need…my excuse was to try new products…totally unnecessary. So even though I may spend $100 at a monthly Costco trip, it’s less than what I was spending my weekly Target trip $30-50 each trip.

    • 2 Kimberly // 2009.07.28 at 6:21 am

      Thanks everyone for the great comments on this story. I knew my fellow Costco shoppers were wise enough to look at prices and know the difference between a good deal and a bad one. This little bit of ‘research’ did us all a disservice and assumed too many things that they had no proof or information about. Bad researchers, bad!

  2. 3 Tiff // 2009.07.22 at 12:53 am

    I live with my boyfriend so that is a meager family of two that I buy the groceries for. I noticed that I was spending $100 a week at our local grocery store and usually by the end of that week I would realize we needed something. (We are a young couple so beer is factored into the $100 – lol!) Anyway, after realizing I had a perfectly good freezer in the house and food was not lasting more than a week I decided to get the Costco membership. My first two weeks I stuck to my $100 budget. The first week was slightly brutal – While I was paying less per ounce for a staple food item, I had to bite the bullet and realize I was paying 9-10 dollars for x ounces instead of my normal smaller dollar price for lesser quantity. However, by my second trip, I needed so much less to buy, the 100 was so much more exciting to spend. The second trip was spent less on food and mostly the toiletry items. By my third week/trip, I only spent 75 dollars because we had plenty of the snack foods, beer and meats/cheese that we would need. This week is going to be my 4th trip and I am so excited I can grab those items like softsoap and shampoo because the food is covered for at least another 2 weeks. Crackers, cheese, chicken breast and sausages, steaks, we are sooo covered with food for a while. I am more than pleased with costco and as long as you have the patience to divide and freeze when you get home, you will see savings immediately, no doubt.

  3. 4 W // 2009.07.20 at 9:23 am

    Ditto H. We are also executive members which gives us addtional rebates, I don’t think we have paid for membership since we first joined!

  4. 5 H. // 2009.07.16 at 8:55 pm

    I wonder if they also considered the Costco advantage of a free American Express card that provides a rebate at the end of the year? Not only do I NOT have to pay to have an AMEX card, the rebate at the end of the year (based on all my purchases, not just those at Costco) more than covers the cost of my membership. I actually make money by belonging to Costco and using the card everywhere!

  5. 6 Marco // 2009.07.16 at 11:27 am

    My wife and I love Costco. We have made spreadsheets much like the one foudn on the comparison reports on this website and find we save hundreds of dollars buying from Cotso. Not to mention their Gas prices is always 10-15 cents cheaper per gallon. Factoring that alone over a year easily affords you the membership fee’s dues. Plus, can you place a $ amount on the cleanliness of say a Costco to a Walmart?

  6. 7 Rickie M // 2009.07.16 at 9:22 am

    Costco is my favorite store, period. I go there every Saturday morning and it is doing shopping mainly for just my wife and I so those people who complain about having to buy ridiculous quantities of stuff are nuts. True, some of the products do come large (I normally don’t buy fresh meat or fish there because of that) but those kinds of things are in the minority. I guess if you live in a cubicle it would be hard to store the larger size packages, but otherwise Costco is a real moneysaver. And you don’t have to be buying for an army to enjoy it, either.

  7. 8 Jenna // 2009.07.16 at 6:30 am

    I love Costco & truly believe that I save money & time. We don’t buy everything at Costco, but with three growing boys who eat a lot of food – it saves a lot of money. Milk, bananas, generic Zyrtec, yogurt (Chobani Greek yogurt is a fraction of what I can get anywhere else), and many other things are frequently in my cart. I love the generous return policy. I love their general quality of products – I feel like I can cheat on shopping around a little bit because I have had great success. I think that I really do save money by shopping here – if I was a super couponer, I could definitely do better at Publix, but I don’t have the four hours per week that it took me to clip & organize & coordinate sales & flyers.

  8. 9 Protocol Snow // 2009.07.15 at 7:17 pm

    I wish my Costco was just a bit closer to my house because sometimes it’s a hassle driving half an hour when the chain supermarket is 5 minutes away. So I plan my Costco trips wisely. Not only do I find that Costco is cheaper overall, but their quality products is a big plus. The quality is something that people not familiar with Costco don’t really understand. I buy all my steaks from Costco because the meat is so much better compared to the supermarkets.

  9. 10 Jonathan // 2009.07.15 at 5:39 pm

    I routinely see shoppers at my local Costco with iPhones or other gadgets checking prices on the internet or checking in with home base to verify that the Costco price is a good one. I’ve tried to keep as much price data as possible in my head so I can gauge whether Costco is a good deal or not. For example my benchmark for orange juice is below $2.50 per half gallon container at the grocery store, and Costco doesn’t always get there (although their organic orange juice at $3.50 per half gallon container is a good deal). I can get yogurt for just under 40 cents per container at the grocery store on sale with a coupon, so if there are no sales coming up I go for the Yoplait variety pack (about 32 cents per container) or the Kirkland Swiss Style variety pack (about 35 cents per 8 oz container). Just know your prices, and you won’t overspend at Costco or anywhere else.

  10. 11 Kathryn Hill // 2009.07.15 at 5:23 pm

    I’m a Costco lover. And when I had a baby, it only took 1 item to dram me in. Not even diapers, although that helped. Formula. The Kirkland brand was comparable to the high-end formula everywhere else, and saved me at the very least $15 a can (and that’s if I was to buy the cheapest formula available at Target). My kid was going through a can every 4 days! It didn’t take me anytime to slap down that membership fee once I realized this. I think at some point my husband calculated that we saved over $700 on formula. They might have my business forever for this reason. 🙂

  11. 12 Brenda // 2009.07.15 at 4:28 pm

    I couldn’t afford not to shop at Costco. Even if I shop at stores like Target I can’t beat the savings on certain items I buy all the time. It’s cheaper to buy five pounds of ground beef at costco, than five individual one pound packages of ground beef at my local Stater Bros. grocery store. The same for toiletries, OTC meds., paper products…
    I might need cinnamon, so instead of paying three dollars at the grocery store, for a small bottle, I pay less than three and get a hugh bottle. Since I can’t use all that cinnamon before it expires I’m able to share it with my sister or my mom. I love Costco and the money it saves me. When we go on vacation we always buy paperback books. I can pay $6.50 at a store, or 4.50 at Costco. Either way I’m buying a paperback, but I know at Costco I’ll save two dollars and be able to choose from the most recent top sellers. I could go on and on. There are so many items in my house, pantry, and garage right now that I buy at Costco, on a regular basis, because I can afford to. We don’t have a lot of money, and live basically on one income, so I watch what I spend very carefully.

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