SUPERMARKETS FUEL CROSS-MERCHANDISING OPPORTUNITIES WITH GAS BUSINESS

CHRISTINE BLANK

NEW YORK (FNS) -- Supermarkets' foray into the gas business is speeding up as major retailers add fuel centers to stores and take advantage of cross-merchandising opportunities.

Some trade observers think that currently in this country there are several hundred supermarkets that offer fuel stations, many of which are driven by a customer-service strategy.

"We're increasing units because it is a service customers appreciate and support and continue to ask for," said Sam Anderson, director, publication relations, Brookshire Grocery Co., Tyler, Texas. The 133-store chain has 23 fuel centers at its stores and plans to add about nine units by the end of the year. Albertson's, Boise, Idaho, which currently has 26 stores with fuel centers, some with well-stocked convenience stores, is building Albertson's Express fuel centers like "gangbusters," says Harry Hammond, a Pollock, Texas, consultant to retailers adding gas units. The chain has said it plans to add 600 fuel centers in the next five years.

"They are doing phenomenally well right now with the kiosk configuration at their pumps and cross merchandising," Hammond added. Albertson's Express gas pumps print out coupons good for cents-off on groceries in its stores. Some of its pumps also have interactive "Touch-N-Go" features that allow users to select fuel type and payment method by touching a computer screen.

The most effective merchandising tool the chain is using, however, is convenience stores at some of its fuel centers, according to Lexi Hutto, director, marketing, MPSI Systems, a marketing research firm in Tulsa, Okla., which has studied the non-traditional gas retailers' business for the National Association of Convenience Stores.

"They're taking the consumers' needs more into mind than other retailers, with a c-store that has a deeper selection and has the items that people typically run out of in the middle of the week," Hutto said.

Although Albertson's c-stores are about half the size of large convenience stores (Albertson's says its kiosks and c-stores range from 70 to 2,000 square feet), they feature items that consumers in a hurry look for, such as bread, milk, soda, candy and cigarettes.

But the convenience items retail for less than a typical convenience store, according to Hutto.

"If a gallon of milk is on sale for $1.99 in Albertson's main store, it will be $1.99 in the c-store, whereas when you go to a traditional c-store, you might pay $2.50," she said. In MPSI focus groups, Albertson's gas customers said they would buy more than one of certain items, such as several cookies on their way to work, because of the effective pricing.

Shoppers are also noticing Albertson's fuel centers, according to Hutto, because they are attractive and painted to match the main Albertson's stores.

Other supermarkets, such as H.E. Butt Grocery Co., San Antonio, Texas, have designed all gas units the same, even if the store is painted differently for a different customer mix, she added.

H.E.B. has had both successes and failures in the gas business, according to MPSI research. Rapidly expanding into the gas market with 70 of its 250 stores featuring fuel centers, H.E.B. sales averaged 150,000 gallons per store per month in 1997. And nearly 50% of H.E.B. gas buyers in focus groups said the gas was less expensive than other stations. Although shoppers said they were satisfied with H.E.B.'s clean, well-stocked stores, they were not entirely happy with the quality of H.E.B. gasoline and marketing programs. Customers felt "gypped," according to Hutto, when the retailer abruptly abandoned its gas-loyalty program at the end of 1997 without warning or explanation. Customers had been adding stars to frequent filler-type cards and believed they would ultimately be rewarded with discounts on gas, MPSI found.

"That seemed to cause a little bit of bad will, but they [focus-group members] still loved shopping there," Hutto said.

In addition, one-person kiosks where gas buyers could purchase cigarettes, candy and other convenience items are not well-received by H.E.B. shoppers, according to Hutto. Only 22% of gas buyers had ever purchased items at the "impersonal" kiosks and some did not even know they existed.

"At the H.E.B. booth, money is going in and out through a slot. You [the customer] are in the heat, and [the attendant] is in the air conditioning," Hutto observed.

The limited-assortment kiosks and were also not well-stocked, MPSI found. "Even though their stores were very well stocked, one or two people complained that kiosks were not stocked, like they were an afterthought," Hutto said.

At least one executive in the traditional gas business is warning supermarkets about the negative effect of fuel-center problems on the entire chain's reputation.

"If the newcomers can't maintain a high quality of product and service in their fuel operations, they will compromise their brand image. And if selling gas doesn't work out for them, it's not like pulling some slow-selling cookies off the shelf," said James Carter, vice president, marketing, Exxon Co., Houston, Texas.

In some cases, supermarkets could partner with well-known gas brands that have been in the business for years, Carter pointed out. "We're open to talking to supermarkets, as long as there are not Exxon locations in the same trade area," he said. Indeed, Exxon formed a partnership with Tesco last year when the United Kingdom supermarket chain began opening its Tesco Express fuel locations.

At the same time, most supermarkets and mass merchandisers are already successfully marketing gas without a traditional gas brand tie-in, according to Hammond.

"Grocers actually have a better name in the community than oil companies do. Smart grocers are realizing their name is more valuable, then they control it [the gas business]," he said. In addition, they are immune to public relations problems that have occurred with some major oil companies.

The primary advantage that supermarket fuel centers have over convenience stores are grocery chains' loyalty programs, according to Hammond. Loyalty cards can be scanned or swiped at the pump and print out discounts off items in the store or vice versa, he pointed out.

The types of promotions supermarkets feature include $1.00 off an eight-piece chicken dinner with gasoline fill-up, or 5 cents off gasoline with the purchase of a six-pack of soda.

"Of supermarkets that have loyalty programs and have gas, 100% integrate the two," said Mike Zahajko, manager-new business development, Wayne division of Dresser Equipment Group, Austin, Texas. The equipment supplier is working with Catalina Marketing, St. Petersburg, Fla., to launch a system that gives immediate discounts on gas to customers who purchase groceries with loyalty cards.

The equipment, which will read bar codes on loyalty cards and loyalty key chains and issue printouts, is "80 to 90%" field ready, Zahajko said.

"It creates a way of not having to show your [discounted] price on the street, and the price at the dispenser changes in front of your eyes," Zahajko said.

Food suppliers can also get in on promotions that offer shoppers discounts on gas when they purchase a certain brand, pushing cross-merchandising sales.