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The Honolulu Advertiser
Posted on: Saturday, June 15, 2002

Iwilei Costco store plans to sell gasoline

By Andrew Gomes
Advertiser Staff Writer

Costco opened its Iwilei store this week with additions such as seafood poke and fresh roasted coffee. Now the members-only retailer said it plans to begin the application process in the next few weeks for another item guaranteed to be a big seller: discount gasoline.

The Issaquah, Wash.-based company said it plans to build a 12-nozzle station that it anticipates could be open adjacent to the new store early next year.

"We're eager to get that process moving," said Paul Latham, Costco's vice president of gas operations. "We want to get that gas station open as quickly as we can."

When the gas pumps do begin to flow at the Costco on the outskirts of downtown Honolulu, it likely will create intense competition for area dealers — and lower prices for consumers in one of the most densely populated areas on O'ahu.

Outside the new Iwilei Costco yesterday, shoppers were enthusiastic about the planned addition.

"If it's here and it's cheaper, we'll definitely come," said Laura "Buffy" Gonzales, a Waikiki resident and entertainer at the Hale Koa Hotel.

To prove a point, Pearl City resident Harolyn Morgenstein pulled out a gas receipt indicating that a week ago she paid $1.42 per gallon at the Waipi'o Costco — nearly 20 cents less than the Honolulu average. Like Gonzales, she said she'd gladly drive to Iwilei to fill up.

Costco is able to sell gasoline for less than most dealers because of volume. The company does not disclose figures, but dealers estimate that the Waipi'o Costco sells close to 800,000 gallons a month, compared with 80,000 to 100,000 for a typical dealer in the state.

Gas also helps Costco expand membership and, in some cases, increase the frequency of shopping visits, according to analysts.

The company began selling gasoline in 1997. It opened its first Hawai'i station two years ago in Waipi'o and opened a second in Kona on the Big Island in March 2001.

Costco operates 163 stations throughout its chain and anticipates having pumps at about 70 percent of its 286 U.S. stores, including Kahului, Maui, but not Hawai'i Kai on O'ahu because of space limitations, Latham said.

Costco is not alone. Retailing gas has become a trend for mass-merchandise retailers and supermarkets. Even Home Depot is testing the concept on the Mainland. Safeway also has rolled out filling stations at select markets on the West Coast, but has no immediate plans to sell gas in Hawai'i, according to a company spokesman.

Wal-Mart, which sells gas at about 500 of its roughly 3,200 stores, opened 117 stations last year and said it will add pumps to some Hawai'i stores though there is no timetable for that.

"Our plan is to take gasoline everywhere our customers want it," said spokesman Bob Mcadam.

The desire for gasoline that's more affordable is particularly strong in the Islands because Hawai'i drivers routinely pay among the highest average prices for gas in the nation.

The price gap has narrowed, especially earlier this year following passage of a bill that would regulate local gas prices beginning in 2004, but the state per-gallon average of $1.69 for regular unleaded as of Thursday is still higher than California, at $1.60, and the national average of $1.38 reported by the AAA road club.

Deidre Calhou from Pearl City figures that if Costco can help bring prices down, then she'll become a member and drive to the Iwilei store. "Gas is very expensive you know," she said. "I spend a lot of time looking for the best price."

For dealers with stations near Costco gas pumps, some have lowered prices — and in a few instances matched or beat Costco prices — but others have resisted.

At the Kona Costco last week, members could fill their tank for $1.66 a gallon. At the nearby Tesoro, the price was $1.95 a gallon. Frank Young, president of the Hawai'i Automotive Repair & Gasoline Dealers Association, said sales have fallen off as much as 30 percent for some dealers near Costco gas stations.

"It hits the dealers big time," he said. "Especially on the Mililani side, there's been detrimental effects to gas dealers."

Young, however, said that competing with Costco shouldn't put dealers out of business, though in some cases it can be the final straw.

A year ago, John and Lynn Pahk closed Sunset Beach Chevron, the lone gas station in the community at the time, after 27 years in business. They cited as a major factor a dramatic sales drop that persisted after Costco opened its Waipi'o gas station.

Advertiser staff writer Dan Nakaso contributed to this report.

Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.