Which Warehouse Club Is the Best?

Cecilia Streit Used to pay no attention to her grocery bills. But then the price of everything from a gallon of milk to a package of her favorite coffee beans started going up, forcing her to cook up something new: a food budget for her family of four. Now — although she'd rather not have her neighbors know about it — the Montclair, N.J., sales executive sneaks away to Costco (COST) every two weeks or so to find bargains on groceries. As other shoppers stuff their carts with a year's supply of pickles and enough detergent to clean 95 loads of laundry, Streit sticks to basics like chicken nuggets, lettuce, sugar and eggs. And though it takes her five minutes to find a space in the crowded parking lot, she figures it's worth the trouble: She saved nearly $40 on a recent trip, with bananas alone costing half the price she'd pay at her grocery store.

Welcome to the club. As retailers of all stripes struggle to survive in a tough economy, one group is doing just fine: warehouse clubs, those cavernous, members-only stores that sell food, gas, electronics and just about anything that can be loaded into their oversize carts. They've been growing for years, of course, but with a new crop of customers looking for bargains, the Big Three — Costco Wholesale, BJ's Wholesale Club (BJ) and Sam's Club (WMT) — are in a sweet spot. Even after a recent pullback, the stock market value of industry pioneer Costco is now greater than that of General Motors and Ford Motor combined. Same-store sales at Costco and Sam's Club have grown about 7 to 10 percent in recent months, while sales have increased as much as 17 percent at BJ's.

Behind the growth spurt: sticker shock at the gas pump and supermarket checkout line. The cost of groceries was up 4 percent last year — the biggest jump since 1990. This year the increase is running at about 5 percent, according to the Department of Agriculture. Even the well-to-do are feeling a little poorer these days. A recent report from the Food Marketing Institute found that 57 percent of households earning $100,000 or more say the cost of food is very important when choosing a place to shop.

Figuring that we can pile up savings as well as the next guy, SmartMoney set out for an unscientific survey of a Costco, BJ's and Sam's Club in northern New Jersey. Our goal was to find the cost of a basket of 10 comparable grocery items purchased at each of the three stores, while checking out the selection and service along the way.

The first stop is BJ's, the smallest of the chains, with 178 stores in 16 eastern states. We briefly consider getting a day pass, but that would mean a hefty 15 percent surcharge on our grocery tab. Thinking we could save more than the $45 membership fee after another visit or two, we go for the full-year membership. As we push our cart past the $330 kayaks and head toward the food in the back of the store, infomercials blast from TVs at the end of the aisles, hyping cordless sweepers and a bladeless hair-removing razor. "It's part of the entertainment value," says a BJ's spokesperson. No one is watching, but customers are paying attention to signs that mark what can be found in each aisle.

We're impressed by BJ's wide selection, allowing us to compare prices among 11 brands of coffee, 23 types of sliced bread and 30 kinds of cereal. We go for the cheapest of each and find surprisingly friendly service. One food station attendant twice steers us to the correct aisles, and a baker walks us to the apple pies (they're a day old and "usually" made fresh every two days, he says). Michelle, our cheerful cashier, lets us use the express lane even though we're two items over. We're pleased with the modest price for the 10 items we purchase — $55.35 — but less so with the direct view into the men's washroom, where the door has been left wide open. "That would not be attractive," says the spokesperson, who promises to put in a call to the store.

Moving on to one of 593 Sam's Clubs, we can't help but feel like Big Brother is watching. A sign in the parking lot warns us that security cameras are in use, while another at the member-services counter notes that the place is "monitored by closed-circuit television systems and antitheft measures." (The company says it wants customers to feel safe.) Sam's $40 membership fee is less than BJ's, as is its 10 percent surcharge for a day pass. (Yet we're told day passes are no longer offered in person; customers must go online and have one e-mailed to them.) We opt for the membership, but the long line means it takes 20 minutes — more than three times as long as at BJ's. A spokesperson for Sam's, which is owned by Wal-Mart Stores, says the company tries to "move people in and out as quickly as possible."

At least Sam's gives us more elbow room. In the deli, the lanes are twice the width of those at BJ's, where we had to back up our cart to let a fellow bargain hunter pass. Some exotic (though frozen) options pique our interest, like lobster tail at $25 per pound and a bag of seafood paella mix with shrimp, squid, octopus and mussels ($10.67 per pound). But there's far less selection: 4,000 to 6,000 items at the typical Sam's Club, compared with 7,300 at BJ's. "We really try to pick the best of the best," says the Sam's spokesperson.

We do manage to find one feature that BJ's lacked: a wine section, with choices ranging from a "medal-winning" Chilean cabernet sauvignon ($6.68) to a bottle of red amarone from Ca'Florian, Italy ($60.24). Hoping to get a recommendation, we approach a clerk wearing a Sam's Club tag and working at a stand with three wine bottles from Cameron Hughes. She can't help us, she says, as she works only for that vineyard. But she does mention savings of 65 to 70 percent on a 1998 sparkling wine, exclusively at Sam's. "Only $19.88." Sold. Well, almost. There are no express lanes and just half of the 18 lanes are open, so we first must wait 20 minutes in the checkout line. It's almost worth it: The bill, not counting the wine, comes to $55.66, just pennies more than BJ's.

The last stop is Costco. Famous for its bare-bones look and concrete floors that are more than double the size of two football fields, the 393-store chain acquired Price Club in 1993, which itself opened its first warehouse store nearly 20 years earlier in an old airplane hangar. Membership ($50) is pricier than at either of its competitors, and the store doesn't offer guest shoppers a day pass. Another difference: There are no signs to tell us just what's on those gargantuan shelves. Some signs point to the bakery and deli, but on our way we're distracted by the Beatles song "She Loves You" — accompanied by live piano. We've run into a Costco special: limited-time offerings of big, expensive items. This one features a row of Yamaha pianos, including one that plays a CD and moves the keys automatically. A "music educator and product specialist" gives us a demonstration and says we can get this model for $19,600 — more than 25 percent off the regular price. We decide to pass. After all, we've already splurged on that bottle of wine — which is too bad, because Costco has more high-end choices than Sam's, including a 2004 Joseph Phelps Insignia cabernet for $140.

Checking off items on our grocery list, we find that Costco offers fewer brands than BJ's but slightly more than Sam's Club. It also has the freshest apple pie of the bunch, the only one baked that day. But there are drawbacks, at least at this store: Milk from multiple cartons has spilled in the refrigerator and dripped onto the floor, dirty napkins and crumbs litter the tables at the food court, and our call for a recommendation in the baked-goods area goesunanswered by three employees busily chatting over a stack of photographs. To make matters worse, our bill comes to $62.31, the highest among the three stores.

Richard Galanti, Costco's chief financial officer, says that while the company doesn't always have the lowest prices, it aims for the best value and quality. He also says that despite the problems we encountered, Costco works hard to have "clean places" and "great service." Maybe so, but for our money, the best of the bunch was the one with the lowest prices, widest selection and friendliest service: BJ's.