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Wednesday, July 19, 2000

By Ken Sakamoto, Star-Bulletin
Aggressive pricing by the new Costco station in Waipio is
forcing nearby dealers to drop prices or narrow their margins.

Costco’s gas
prices squeezing
isle dealers

The new station in Waipio
is charging from 8 to 20 cents
below its competitors

By Rob Perez


James Yanagida normally goes to the Chevron station in Wahiawa to fill his car's gas tank.

But yesterday the retired Pearl Harbor worker for the first time tried the new Costco station in Waipio. He saved about 20 cents a gallon, or about $1.50 on a purchase of 7.5 gallons of regular unleaded gasoline.

Even though the station has been opened only a few weeks and sells to Costco members exclusively, it already is sending ripples throughout the Oahu gas market.

Gasoline-Paying the Price The main reason: regular and premium gas prices are roughly 8 to 20 cents a gallon below those of most competitors. Since opening June 30, Costco has sold regular unleaded for $1.666 a gallon; premium yesterday fetched $1.869.

Costco's aggressive pricing strategy has prompted dealers in surrounding areas to drop prices or narrow their already thin profit margins. This also puts pressure on stations outside those areas to cut prices too.

And while business at the Costco pumps is not expected to boom until the company's store on the same site opens tomorrow, some dealers from as far away as town already are feeling the fallout.

Frank Young, operator of K&Y Chevron in Kakaako, said his station's volume this month could slip below 100,000 gallons, something that has not happened in two years. Young blames the Costco effect.

"There's a definite impact on the market," he said.

It's not hard to see how dealers are being squeezed.

Costco is selling regular unleaded gas for roughly 10 cents less a gallon than what Oahu dealers pay when taxes are included. That means dealers would have to sell gas at a considerable loss to compete with Costco.

"It might not necessarily be good for us, the (gasoline) retailers, but it's going to be good for consumers," Young said.

Some dealers who were struggling even before Costco entered the market now face tougher times.

"You have some dealers on the fence right now. This could be the final nail in the coffin for them," said Barnaby Robinson, who operates two Chevron stations on Oahu.

The Costco station has four rows of pumps and can serve 16 cars at a time, making it the largest retail gas facility in the state. Industry observers expect the station to become Hawaii's top seller, based on volume.

Yanagida said he expects to become a regular customer because of the money he will save filling up at Costco. "That's one thing" that will lure me back, he said.

Just like with its groceries, Costco is able to charge lower gas prices because it purchases in huge volumes. Costco officials could not be reached for comment yesterday.

Costco has entered the market in a period of rising prices.

Oahu dealers have seen their wholesale prices increase by about 35 cents since the beginning of the year.

But retail prices here still are below some markets on the mainland. The average price for a gallon of regular unleaded in Northern California, for instance, was $1.88 yesterday, according to AAA. On Oahu, that same gallon cost less than $1.80 at many stations.

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