The Costco effect: An east ender's guide to changing gas prices

With all of the news of falling gas prices, it would make sense to look forward to paying less at the pump.

However, as many drivers in the east end of St. John's found out Thursday morning, that isn't necessarily the case.

The Public Utilities Board announced that gasoline would be going down to almost six cents per litre on Thursday.

So, it's only logical that it would be cheaper to fill up your vehicle on Thursday, right?

As it turns out, many stations actually raised their prices on Thursday morning.

So why is this? 

The answer has to do with staying competitive with Costco.

The Costco effect

The world's third-largest retailer boasts the cheapest gas in the city, which means stiff competition for other stations in the area.

In what some call the 'Costco effect', many stations in the east end are forced to lower their prices to compete.

However, Costco doesn't change its prices until 8:30 a.m., which gives other stations a narrow window in which they can charge the maximum amount before Costco posts the newer price and undercuts them.

The maximum price on Thursday in St. John's was 103.5 per litre, which is what most gas stations were charging in the east end when they opened in the morning.

Many of those same stations had their prices below a dollar on Wednesday, which is why many drivers get confused when they see prices go up at the pumps, despite news that gasoline has gone down yet again.

As standard business practice dictates, stations will charge the maximum amount they can until they are forced to go lower to stay competitive.

Usually, that gradual price decline happens throughout the week, which means that by next Wednesday drivers should see prices way down to where they expected they would be when they woke up Thursday.

Even Costco gets in on the maximum price game, as they also raised their prices Thursday morning.

At the close of Wednesday, Costco in St. John's was charging 92.9 cents per litre, but raised that to 95.9 when it opened Thursday.

As the day and week moves along, other stations in the area will gradually decrease their price so that they are closer, but not equal, to Costco.

Costco will then lower its prices even more throughout the week, which will continue the cycle of other stations lowering theirs.

Hurting the little guy

The big chains like Irving, Esso, North Atlantic and Ultramar aren't the only ones who are feeling pressured to keep up with Costco.

Smaller independent gas stations are perhaps the worse affected, as they don't have the resources of a large corporation to back them up.

Ed Sharpe, who owns an independent gas station in St. Phillips, said the price war hurts his bottom line.

"I can't drop my gas like other retailers," he said.

"I make three lousy cents for a litre."

So for drivers looking to save as much as possible when they fill up their vehicles in the east end of St. John's, the general rule seems to be to do it on Tuesday or Wednesday, before stations shoot up their prices.