I study the interaction of two forces in the formation of social groups and clubs: the preference for high quality peers and the desire for status among one's peers. While equilibrium groups generally exhibit some form of assortative matching between individual type and peer quality, the presence of status concern reduces the potential degree of sorting and thus acts as a force for greater heterogeneity within groups. I analyse the effect of status concern for the provision of groups under different market structures and particularly focus on the implications for segregation and social exclusion. I find that status concern reduces the potential for and benefit from segregation - both for a social planner and a monopolist - but the interaction of preference for quality and status can make the exclusion of some agents a second-best outcome. The paper also highlights a novel channel for positive welfare effects of transfers: price discrimination and redistribution can be necessary to overcome the limitations imposed by status concern. In contrast to models without status concern, such transfers can lead to more rather than less segregation and outcome inequality.