Tuesday, January 4, 2011

Budget Musings: Is Costco Worth it?

Costco used to be the kind of place large families went to buy bulk products at low prices. However, one glance at the Mini Coopers parked in the Costco parking lot can tell you that the Costco clientele has changed. These days many people with small families use Costco the same way they would use a supermarket. This has profound implications for the merchandise and pricing. 

Is Costco still worth it? The answer is yes. And no. Costco can be worth it for certain items if you make sure to avoid common pitfalls and follow some simple tips to get the most out of your membership. For some people the bulk purchasing will never justify the membership fee.

Costco pitfall #1: Buying more than you need. Costco sells things in bulk. Including produce and other perishable items. A family of two is not likely to eat their weight in oranges before half the bag spoils. No matter how cheap each orange was there reaches a point when you are throwing out all of your savings. Solution: Know your consumption habbits before you head to Costco. Do not buy more than you know you can eat or store.

Costco pitfall #2: Increasing your Consumption because you buy in Bulk. Remember what happened the last time you sat down in front of a huge bowl of chips and said you would eat just one? Well, think of that the next time you go buy that giant bag of chips at Costco. A normal human who eats 10 to 12 chips per week suddenly starts wolfing down handfuls of chips a day when faced with a gigantic bag. Your kids will start scarfing chips, inviting their friends over to scarf chips and generally eating chips just because they are there. Chip consumption in your house will double. The same principle can be applied to many items. When you have many you start using/eating more than you need or even want thus losing all your savings and possibly putting on pounds. The Solution: Portion things into smaller containers rather than eating out of the giant bag. Do not buy things you do not normally use just because they are there. And hide the candy from your kids.

Costco pitfall #3: Assuming things cost less at Costco. When you see a price at Costco you see the price for the entire container. Since you normally buy much smaller containers comparing prices per container is not a good idea. Instead you need to look at the unit price on each item (how much does a lb cost). This is easily compared between sizes. Sometimes you will be surprised to find that you get a better unit price at the supermarket on sale. The Solution: Always look at unit price before purchasing.

If you avoid these pitfalls you are well on your way to becoming a savvy Costco shopper. To maximize your savings you may want to try these tips:

Tip #1: Split the membership with a family member. Each membership comes with two cards. By splitting the membership fee with a friend or family member you can each have a card for less. There is one instance when this card is not worth it: If you buy so much that your cashback on a premium card will cover the fee it is worth it to go on your own. Otherwise splitting the cashback between households could be tricky.

Tip#2: Go with a friend. Some items at Costco are just too huge for one family. Take a friend with and split these items. This way you each get the per unit savings without the waste of  spoiled items. Stash some ziplocks in the car for this purpose.

Tip#3: Buy generic. Costco Kirkland brand is usually the best deal and the products are high quality. Costco carries very few choices in terms of brands for any particular item and the name brands are often not a good deal.

Tip#4: Use the return policy. Costco has a great customer service department. So if you buy something and it breaks or is not high quality, bring it back. They will replace it. The potential for loss is huge when buying produce in bulk: a sack of bad apples is 20 or 50 apples down the drain. However if you bring them back to the store you can recoup the losses. I have seen them replace a watermelon when someone brought it back to the store in two halves and complained to them that the inside was not pink.

The other concern with Costco is that they do not deliver. So you must have a car to transport your items home. Stores do not provide bags but they do put out their used boxes for customer use. Sometimes the savings justify a cab ride home, but often they do not.


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