One gift my wife and I gave ourselves after paying off our mortgage was a Costco membership. We didn’t get one before we paid off that debt, just in case it wasn’t worth it. I’d carried a Sam’s membership for years but found I didn’t use it much. So is a Costco membership worth it?
I think Costco is worth it, with caveats.My wife and I eat whole-grain bread without trans fats or high fructose corn syrup. It’s hard to find anything that meets that criteria. At grocery stores, only a couple of national brands make the grade, and they cost $4 per loaf. We go through one a week, on average. Costco’s house brand makes the grade, and two loaves cost $4. So buying bread at Costco every other week saves us $104 a year, plus about $6 in sales tax. For us, that covers the $50 membership.
I recently read some advice from Andrew Tobias. Johnny Carson asked him what the best investment for $1,000 would be, and Tobias said non-perishable consumer staples. Everyone thought he was kidding, so he clarified. Buy $1,000 of nonperishable necessities (stuff like toilet paper, toothbrushes, shampoo, soap, and the like) on sale, and the return on investment is tremendous.
And you beat inflation. Let’s say inflation continues at 10% annually for a couple of years, which seems likely. By that measure, a toothbrush that costs $3 today will cost $3.63 in 2010 if I’m doing the math right. So if I behave and use four toothbrushes a year, I automatically save $2.56 by buying them today instead of 2010.
Needless to say, I feel pretty good about getting that 10-pack of Oral B toothbrushes today for $9.99 minus a $2 coupon. I saved $20 over buying them one at a time at Kmart. And I got a 20% return on investment.
About those coupons: Costco sends out coupons every couple of weeks. They don’t make substitutions when a hot seller runs out, so get there early. Today we spent $122 and used $15 worth of coupons. We only bought things we knew we’d use: shampoo, baby wipes, coffee, toothbrushes, bar soap, and laundry detergent.
Looking at it from an investor’s viewpoint, $68 worth of the stuff we bought had coupons, so we saved 22%. Where else am I going to get a 22% return on a $68 investment?
So when the next batch of Costco coupons comes in, we’ll look them over and buy anything that we’ll be able to use. I don’t know if $15 is a typical savings over the course of two weeks, but that would be $390 a year if it is.
As for the savings of the regular prices over retail, I looked into that too. The toothbrushes cost $3 if purchased singly, but slightly less in larger quantities. The laundry detergent gives 110 loads for the price of 64 loads purchased most other places. The shampoo isn’t a great deal, basically giving you a name brand for the price of a generic on an ounce-for-ounce basis, but with a $2 coupon it’s a good deal. Coffee is in essentially the same boat, but when you can get Maxwell House for the same price per pound as Chase & Sanborn, do it. If you’ve never had it, Chase & Sanborn makes Folgers taste like your favorite $5-a-cup coffee.
I don’t remember the specifics on how baby wipes and bar soap compared, but the prices were favorable. Even without a coupon, I would have saved something.
The two things I don’t like about Costco is that if they run out of a product with an active coupon, they won’t substitute a similar product. I also don’t like the hard sells on the executive membership. As you wait in line at the register, an associate will hound you to upgrade to the executive membership, which costs $50 more per year. The benefit is a 5% rebate at the end of the year on your purchases. Once I heard them tell one person, “Well, you’ve already spent $3,000 here, so you would have paid for the executive membership three times over.”
I just publicly analyzed to death what I spent this week, so I guess I don’t care much if my line-mates know what I’ve spent at Costco this year, but I know some people will resent that. Personally I don’t resent that, but I do resent the tone I usually get. I’m careful with my money and I’d like to think I’m pretty good at handling it.
Right now I know we’re spending $100 a week there, but I don’t know how long that will last. This week we bought a 170-ounce bottle of laundry detergent. A couple of weeks ago we bought 250 ounces of dishwasher detergent. Once we have a Costco-sized quantity of everything like that, will we still spend $100 a week? Maybe. But it could just as easily drop to $35. I don’t think it would drop to $19, which is the point where the membership doesn’t pay for itself, but I don’t know that yet, and if I don’t know that, there’s no way a Costco employee can know that either.
What I do know is that it’s become pretty easy for us to justify the $50 membership. The key is to buy things only because you need them, not because it’s a good deal. It’s not a good deal if it spoils. And use the coupons they send you. So far, storing Costco-sized quantities of shampoo and toilet paper isn’t a problem, but maybe you should talk to me in a year about that.
David Farquhar is a computer security professional, entrepreneur, and author. He started his career as a part-time computer technician in 1994, worked his way up to system administrator by 1997, and has specialized in vulnerability management since 2013. He invests in real estate on the side and his hobbies include O gauge trains, baseball cards, and retro computers and video games. A University of Missouri graduate, he holds CISSP and Security+ certifications. He lives in St. Louis with his family.
