> Costco derives the majority of their revenue from the membership fee […]

Costco derives the majority of their profits from the membership fee:

* https://en.wikipedia.org/wiki/Costco#Business_model

> Costco derives the majority of their revenue from the membership fee,

Costco revenue is about 2% membership fee and 98% sales of merchandise and services (most of which is merchandise, not services.)

Now, the membership fee is its main source of profit (because the merchandise sales are extremely low margin), but not its main source of revenue.

The price is so low that it makes no real difference at this point. I barely go to my local CostCo (on the edge of being worth the annual fee myself!) because it's so incredibly crowded at all times that the savings are only worth it for more expensive items. In contrast, there are several BJ's nearby and the closest one to me is often blissfully sparse. No idea how they manage to stay in business in that location, but it's really nice.

There is no such thing as a free rider in this context, only a fee rider. After all, other supermarkets do fine without a fee. This is not Amazon Prime with free shipping that we're talking about. Charging for just the item still works.

right, it buys Costco people. my local Haggens is a veritable paradise by comparison to the overcrowded warehouse that's too far away and closes too early to shop at after work. don't get me started on Fred Meyer clientele

Most people can do even better with the executive membership if you spend ~$550 a month you'll get the $130 fee back in your rebate. That may seem like a lot but not if you buy most of your groceries there, or things like tires or book a vacation.