Costco vs. Safeway: Which Is Better for Groceries?

Founded in 1915, Safeway is one of the oldest grocery chains still operating in the U.S. and reportedly one of the most innovative. According to its website, we can thank Safeway for introducing us to parking lots, unit pricing, and the "sell by" tags on perishables. Not bad for a grocery chain that was founded as a family business.

Safeway might be one of the oldest grocery stores in the U.S., but Costco is the fifth-largest retailer in the world by international revenue. Costco might not have as much history (it was created in its current form in 1983) but it has taken the country by storm with its uber-low prices and bulk buys.

So which one is better for your personal finances: the legacy grocery chain or the warehouse wholesaler? Let's take a closer look at both grocery stores and see.

Price comparison

Costco's prices are slightly cheaper than Safeway's for most grocery items. This is the case when we compare Costco's Kirkland Signature products with Safeway's generic brands (such as Lucerne and Signature), but also true when we compare brand names, like La Croix. For perspective, here's how the two grocery stores compare for six common grocery items:

Keep in mind Costco's items come in bulk, which involves spending more upfront but in theory making fewer trips to the grocery store. However, if you're a household of one or two people and don't want to buy in bulk, Safeway may be the better grocer. This is especially true for perishables, as you may not consume them quickly enough to warrant buying them in bulk.

It's also important to note you have to pay at least $60 annually to purchase items at Costco (the cost of a basic membership), whereas Safeway is free. Most shoppers earn that $60 back in savings, but if bulk shopping doesn't translate into savings for you, Safeway may be the better option -- even if Costco's prices are technically cheaper by the unit.

Rewards programs and discounts

Both Safeway and Costco offer shoppers discounts and programs to earn more. All in all, Costco's system is easier to understand, but Safeway's program is free and could help you save if you shop there frequently.

First, let's look at Safeway's free loyalty program -- "Safeway for U." When you sign up for the program, you can earn 1 point for every $1 you spend, or 2 points on gift cards. Every 100 points equals 1 Reward, and these Rewards can be redeemed for cash discounts or additional savings, such as the following:

• 5 Rewards = $7 off
• 10 Rewards = $15 off
• 12 Rewards = $20 off

So, if you're buying groceries (not gift cards), you would need to spend $100 to get 1 Reward. In this way, you would need to spend $500 to get $7 off, $1,000 to get $15, and $1,200 to get $20 off your bill. If we turn these into percentages, then here's how much "cash back" this system will earn you:

• 1.4% back, when you redeem 5 Rewards for $7 off
• 1.5% back, when you redeem 10 Rewards for $15 off
• 1.67% back, when you redeem 12 Rewards for $20 off

One caveat: Safeway only gives points for whole dollars. So, for example, if you spend $10.35, you won't earn 10.35 points; you'll earn 10. This is different than, say, a cash back credit card, which would earn a percentage of the full purchase price.

Now let's look at Costco. In addition to its $60 membership, the wholesaler also offers an executive membership. It costs $120 annually but gives you 2% cash back on Costco purchases (up to $1,000 earned for a 12-month period). If you spend more than $6,000 annually at Costco, then you would earn enough to pay for the membership itself (2% of $6,000 is $120).

One potential drawback to the executive membership is that you can't claim rewards regularly throughout the year. Instead, rewards will come to you as an annual certificate approximately three months before your membership renewal date. Safeway's loyalty program, however, offers a bit more flexibility. At the end of each month, Safeway will turn every 100 points you've earned into a Reward, which you can then redeem for cash back savings (if you have enough). This could be better for shoppers who want to save smaller amounts of money on groceries on a more frequent basis.

Customer service

When it comes to customer service, Costco clearly has the upper hand. The company offers full refunds on most items with few restrictions on what you can return, and it will issue a refund even if you don't have a receipt. It also has a price adjustment policy and will refund the difference if an item has changed prices within 30 days. In addition, it offers Costo Shop Cards to veterans and students when they purchase a membership.

Safeway allows returns on most items, but it may not offer a cash refund if you don't have a receipt (each store handles returns differently). It doesn't have a price adjustment policy, however, and also doesn't offer discounts to veterans or students.

So, which is better for groceries?

Because of its lower prices, Costco is likely better for medium-sized and large families. Buying in bulk will help you save money, and an executive membership could mean earning enough in cash back to pay off your Costco membership. And if you have a Costco Anywhere Visa® Card by Citi, you could earn another 2% back, effectively getting 4% on Costco purchases.

That said, I wouldn't rule out Safeway. The grocer is a good choice if you're buying small quantities of food, and its free rewards program can help you save on grocery bills. Its prices are only slightly higher than Costco's, and you can use a number of grocery cash back credit cards to earn even more than the Costco Visa.