Record gasoline prices have sparked a resurgence in fuel-rewards programs at food retailers, creating opportunities to win more loyal shoppers.
In the past month alone, several supermarkets launched new gas-discount programs:
Food Lion begins its “Gas Guzzler Giveaway” in time for the July 4th holiday weekend.
K-VA-T's Food City is running a $1 fuel/pharmacy promotion on selected purchases through July 19.
Stop & Shop Supermarkets is using gas discounts as part of its Real Deal promotion, aimed at helping shoppers save money every day.
A Sweetbay Supermarket in Tampa, Fla., is offering a gas voucher for every $50 spent in the store.
Roundy's is piloting a Fuelperks! rewards program at select Pick 'n Save stores.
ShopRite is offering a free $25 Shell or BP gas card with the purchase of $75 worth of products from Kraft, General Mills and Procter & Gamble.
Supermarkets and mass merchants aren't the only formats that have jumped on the gas discount bandwagon. Drug stores, convenience stores, nonprofits and auto makers are all offering gas incentives to motivate consumers. The challenge for supermarkets will be to break away from the pack and distinguish themselves with their gas incentives, said industry observers.
“There is not a product sold in this country that has more of an emotional connection to consumers than the price of gas,” said Jeff Lenard, vice president of communications, National Association of Convenience Stores, Alexandria, Va.
Karen Meleta, spokeswoman for Wakefern Food Corp., Elizabeth, N.J., the cooperative that supplies the ShopRite chain, said it's the first time she can remember that ShopRite has offered a free gas card. “The price of gas is really high, and $25 of free gas is certainly a value for our customers,” she said.
Taryn Jones, retail marketing manager for Sweetbay Supermarket, Tampa, said the chain was working with Catalina Marketing to test its first free gas promotion at a store in Sarasota, Fla. “We are looking for a way to help consumers stretch their dollars,” she said.
Vivian King, a spokeswoman for Roundy's Supermarkets, Milwaukee, said that company's pilot program has been restructured from last year's coupon discount gas program that rewarded customers who reached certain spending levels. Discounts in the Fuelperks! program, which is from Excentus, an Irving, Texas-based fuel-promotions and technology company, are cumulative.
“Gas prices are causing budget problems for our customers, and on top of that, rising fuel costs are leading to food-price issues across the country,” she said. “We recognize that and are trying to provide some relief for our customers and employees as well.”
“We know that more Americans are feeling the pinch of higher prices, and our new gas offerings are one way to help them save,” said Robert Keane, spokesman for Stop & Shop, Quincy, Mass.
While these gas discounts are in part a public relations ploy for the retailers, said Jim Hertel, managing partner at Willard Bishop, Barrington, Ill., they can be very effective in building traffic and market baskets.
“It works in a two-step process, and depends upon how many in the marketplace hop on and try to defend [their positions] with these promotions,” he explained.
Hertel noted that such promotions, combined with the increasing number of on-site fuel centers at supermarkets, provide consumers with additional benefits by enhancing the one-stop-shopping experience and minimizing gas mileage.
In its 2008 U.S. Grocery Shopper Trends Study, Food Marketing Institute reported, “While the number of stores featuring gas operations has not changed compared with prior years, a much larger percentage of people are crossing two errands off their list these days, namely groceries and gas. Up from 13% in 2007, 22% of patrons fill up their cars while shopping for groceries at least once a week. It appears that various fuel rewards programs are paying off for retailers.”
In last week's first-quarter earnings announcement, David Dillon, Kroger chairman and chief executive officer, attested to the success of Kroger's discount gas offering. “Kroger continues to help customers stretch their budgets in a number of ways, including lower prices and our expanded generic drug and gas discount programs. Through these kinds of price reductions, our customers are saving $1 billion annually,” he said. Kroger's identical-store sales were up 9.2% with fuel and 5.8% without fuel.
Kroger rewards customers with a minimum of 10 cents off per gallon of gas for every $100 spent in a store. Shoppers can use their loyalty cards or they can use Kroger's 1-2-3 Rewards MasterCard to earn discounts up to 15 cents off per gallon of gas as well as free groceries at participating stores.
“These types of programs and our associates' exceptional ability to execute them well are just some reasons Kroger's business is growing,” Dillon said during the first-quarter conference call. “We've built the ultimate one-stop shop for customers in thousands of communities we serve.”
There appear to be few downsides for retailers that invest in these promotions, as long as they can drive traffic. However, Rick Ferguson, editorial director for loyalty-marketing consultant and publisher Colloquy, Cincinnati, warned about the dilutive effect that has plagued airlines' frequent-flier programs. Programs that offer pennies off a gallon of gas are easy for competitors to duplicate, he noted.
“All this does is erode margin on the price of a gallon of gas, and retailers are finding they have to do it to maintain parity with their competitors. That is the danger,” he said.
He said what makes such programs effective is using the data that is collected to make the fuel discounts relevant for shoppers. Kroger is one retailer that is doing just that, said Ferguson. “They know everything you buy at the grocery store, and they have become much more sophisticated in the types of offers they send out.”
Scott Wetzel, vice president of marketing, Excentus, noted the growth of retailer partnerships with third-party convenience gas operators in driving traffic and sales with fuel incentives, made possible by advanced technology.
“Grocers don't have to build and operate their own stations. They can partner with others to redeem discounts. That has removed a huge barrier because it is really expensive to build and operate fueling centers, especially when gas prices go up,” he said.
Wetzel said redemption rates on fuel discounts are running between 55%-85%.
He said he sees retailers shifting promotional funds to help fund the fuel promotions, which can be costly. For example, retailers may pare back buy-one, get-one free offers. The focus is on rewarding total basket size based on total in-store spending, and adding special offers on top of that, Wetzel added.
Loyalty Fuel Discount Trends
WESTMINSTER, Colo. — Energy Analysts International, which services the petroleum industry, has been tracking fuel discount promotions at retail for its upcoming 2008 “The U.S. Fuels Business & Hypermarts in Retail” study, to be released later this year. Mike Lopez, market research coordinator, views gas as a gateway. “It is kind of a loss leader, to try and realize the real profits, which are in-store,” he said. Here are some preliminary findings on fuel promotion loyalty trends from EAI's data:
- Progressive thresholds
Discounts used to kick in at some purchasing threshold — $100, for example — and then offer a flat discount for fuel. EAI data reveals increasing discounts matched with increasing in-store purchases. For instance, Price Chopper Supermarkets, Schenectady, N.Y., offers a 10-cent-per-gallon discount with $50 in purchases, 20 cents for $100, and then a more robust 30 cents with $150 in purchases.
- No limits
More and more stores are offering discounts with no cap. In essence, if a shopper bought enough groceries, she could conceivably fill up with accrued rewards alone. Fresh Encounter, Findlay, Ohio, offers 10 cents off per gallon with gas stations. Some gas stations are partnering with grocery chains to offer fuel discounts related to grocery purchases. Administering loyalty programs can be expensive. The shared cost and customer base should add a beneficial premium in this type of program. Shoppers at Bi-Lo, Greenville, S.C., earn a gas token with every $50 spent. Eight tokens may be redeemed for a $25 gas card at area BP or Shell stations. Price Chopper has partnered with 150 Sunoco sites in the surrounding areas of its 95 stores. EAI believes that cross-merchandising with gas stations could be one of the most easily realized ways to improve market share for both involved.
- Directing the purchases
Smart grocery stores can direct customers to designated goods in order to earn fuel rewards. This can be a method to control overstock. It can also involve the store's private label, usually a line of goods where a higher profit margin exists. The purchase of gift cards in order to get fuel discounts is another recent trend.