newmarketbuilders exclusive: Adding Fuel to the Fire

Fuel sales have become a hot spot for supermarkets and big box retailers of late, and the independent and small chain gas stations that are being pushed out of the market are not too happy about it. An independent gas station owner has filed suit against Safeway, claiming that the retailer is selling gas below cost in violation of California’s Unfair Practices Act. Meanwhile, Kroger is backing a bill that will make it a whole lot harder to bring such suits to court in the future.

If Kroger has its way, potential litigants would have to determine the price of every item that is sold in conjunction with a fuel purchase and factor in the costs involved in selling the items in order to prove that the fuel was sold at a loss. This would make it practically impossible for anyone who values their time and money to pursue a lawsuit.

A growing number of retailers, including Costco, Sam’s Club, Safeway, and Kroger, offer deals that either tie fuel purchases into those made in the main store, or link them to club and loyalty card membership. Safeway’s Club Card program, for example, offers three cents off each gallon of gas to holders of the card, and additional discounts kick in depending on grocery purchases. 

Whether wrapping fuel into value-loaded schemes or using fuel as a loss leader to lure customers to the main store, the field of fuel sales has become a battleground and now, a global retail game-changer.

In the UK, supermarkets now account for almost half of gasoline sales, with Tesco’s 15 percent share leading the pack. Brian Madderson, chairman of RMI, which represents petrol retailers, claims that unfair and predatory pricing is forcing the closure of 250 to 300 independent operators each year. Madderson is fed up with retailers using gas as a loss leader and stated in this week’s Telegraph that his organization wants “to stop supermarkets from selling petrol as if it was a can of beans.”

But why should anyone give a can of beans how retailers market gas? Protecting fuel retailers by making gas promotions off-limits for everyone else is like prohibiting Wawa, Sheetz, and other convenience retailers from promoting their food offerings lest they steal market share from grocers, or quick serve restaurants, or, these days, even drug stores.

And what about alternative fuel solutions?

A growing group of non-fuel retailers including Walgreens, Giant Eagle, Kohl’s, Ikea and, yes, Kroger, have installed electric charging stations in their locations. Walgreens plans to install them at roughly 800 locations nationwide this year, with the goal of becoming the biggest retail host of chargers nationwide. Walgreens charges for their chargers – In Florida, for example, the stations will impose a rate of about $2.49 an hour, which is more than the cost of charging up at home but still less than half the cost of gas for comparable mileage, according to the company. Kroger, on the other hand, is making its recently-announced North Texas charging stations free for the first year, and then converting to a pay system in 2013. That would seem to be the epitome of a loss leader, and yet no one is protesting.

Do you think that retailers should be able to tie gasoline prices to other purchases?