Grocery retailers are dealing with big price declines in products like eggs, meat and dairy. Lower prices can mean lower sales.
Costco, which sells a lot of groceries, isn’t immune. But it’s got a not-so-secret weapon: its membership fee, which starts at $55 a year.
“About 75 percent of its operating income comes from the membership fee,” said Piper Jaffray analyst Sean Naughton.
According to Naughton, in the U.S. and Canada, Costco’s membership renewal rates are north of 90 percent.
“I consider that to be a very good number,” he said.
But there’s another subscription service nipping at Costco’s heels: Amazon Prime.
Timothy Campbell, an analyst at Kantar Retail, said Costco’s low prices had previously inoculated it against competition from Amazon. But now a growing share of Costco members are becoming Prime members.
“So I think the question for Costco becomes, when is one membership enough?”Campbell said. “When do they need an Amazon Prime membership or a Costco membership, but not both?”