On the contrary, the fact that they exclude free riders is what makes the whole thing possible.

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.