Grocers Look to Gas Up Business
By George Anderson
Shop ‘n Save is the latest seller of groceries to announce it is installing gas pumps on its premises to drive traffic in its stores.
The Pittsburgh-area supermarket chain expects to have gas stations operating at two stores by early in this summer with others to follow.
Customers at the two stores will be eligible for discounts on gas through Shop ‘n Save’s Pump Perks program.
Shop ‘n Save president Lee Armbuster told the Pittsburgh Post-Gazette that he expects pumps will eventually be installed at all 20 company-owned (Supervalu) stores, as well as many of the 60 locations managed by independents.
Moderator’s Comment: Do gas stations at supermarkets, supercenters, warehouse clubs, etc., effectively spell the end of the independent gas station?
How do retailers that are limited in their ability to subsidize discounts on gas with the sale of other products compete in this environment? –
George Anderson – Moderator
The situation in the UK seems to be almost the opposite. First off, we have few independent gas stations left in any case. They are virtually all owned by a handful of major oil companies. Secondly, there are not all that many (relatively speaking) supermarkets selling gas. But what we do have is a rapidly expanding range of convenience stores linked to gas stations. Expanding in number, size and range of products. Which makes the result sort of similar to what you have in the US but coming from the opposite direction i.e. first the gas then the store.
The prediction of the end of independent fuel stations is as likely as the end of supermarkets that has been being predicted for seemingly decades now. They likely will change just as supers are being forced to change.
The addition of gasoline to a supermarket, warehouse club or superstore is simply expanding the offering. The numbers are quite substantial nationwide in these types of retailers adding fuel to their offerings. Ron is right; it is a convenience item, but in adding fuel along with another point in which you stop potentially 2 to 2.5 times per week is making it convenient. Add to that the potential to discount from the pump to the store and from the store to the pump. With this level of capability, it offers both the consumer incentive and convenience.
It’s become such a substantial part of the business that Costco announced a potential earnings reduction this week due to the recent spike in gasoline prices and their ability to maintain margin.
Kroger’s plans for adding fuel stations this year are also very aggressive. They have been very competitive in promotions, as well. Other regionals like Giant-Eagle have done so also. It is showing itself to be an area where retailers of various sizes can enter and be successful, albeit shifting dollars from other offerings and promotions. The impact, however, can be as much as a 10% boost to the locations’ volume due to the added convenience and as a result of the cross-promotional capabilities. All that being said, it does offer operational challenges as these are very different from existing operations and different models apply in every area of operations. A willingness to accept the differences and be willing to learn and adjust is a prerequisite.
Location; service to its customers; and offering a convenience store outlet with drinks and food will keep independents in business….just like the strong community-oriented independent grocers!
It seems like there are two major factors acting on where most people buy their gas, location and price. If someone is in a hurry and needs gas, convenience or location may be the most important factors. Another consideration may be who is actually paying for the gas, the individual or their company, if it is a company furnished car. If the company is footing the gas bill, then convenience may be the only consideration.
For anyone concerned about price, the supermarkets and club stores are an easy decision. Usually, they are a little less convenient, but not enough to be a major deterrent. I’m not sure how much their gas traffic helps overall store sales; it can’t hurt. At the least it should reinforce a low price image, whether deserved or not. I say that because, in Jewel’s case, in Chicago, they have the lowest priced gas and the highest priced groceries.
Independent gas stations have to be hurt by this new competition and will have limited ways to fight back. I guess that they can sell bread and milk at a loss as a means of retaliation, but that may not be enough.
I agree with Ron. This should serve as an ongoing wake up call, though, to c-stores, to improve their offerings, service, and cleanliness.
I think convenience becomes a less compelling factor in gas purchase decisions when the price of gas reaches the point of consumer discomfort. I started going out of my way to buy gas at Costco when the pump price went over $2; last fill-up cost $2.07 when the going rate at the Conoco around the corner was $2.29.
FYI: I never go into Costco when buying gas, and I never buy anything more substantial than a Diet Coke at convenience stores. I do miss the chance to get a car wash, though. Maybe c-stores could make up for lost sales to big chains by offering free car washes with every fill-up.
Gas is still a convenience buy. If a shopper is going to the supermarket, club or supercenter, then, yes, those retailers will capture sales from g-stores. But shoppers are much less likely to pass a g-store to go to a supermarket selling gas. Even if there is a discount offered at the supermarket or club, the convenience factor, which also includes hours of operation and service speed, is going to keep that g-store in business.
Grocers started looking at gas sales to give an immediate impact to their comp store sales numbers. Now that Wall Street has gotten wise to that trick they are looking at the grocery chains with even closer scrutiny.
Gas isn’t usually a planned purchase – you buy it when your car is empty. If you drive the same amount of miles each week, you may be able to plan that purchase but a majority of us can’t. Going to the grocery store is different. You plan in advance what you will need for the next several days.
In order to capitalize on gas stations, grocers need to treat the small box store just like the big box store with category management and data analysis. Convenience stores just started getting into this program in the last few years and are struggling to catch up. Those chains that embraced the concept in the beginning are solid competitors now.
Will more giant chains in the gas business hurt the small owner? Yes and no. It will hurt the smaller owners if they stick to the “this is the way it always was” mentality and refuse to adapt. It won’t hurt the smaller owners if they manage their categories better, develop a signature program and treat the customer right.