By OGJ editors
HOUSTON, Aug. 20 -- In many US markets, branded gasoline stations are losing market share to high-volume retailers (HVRs), such as mass merchandisers, supermarkets, and warehouse clubs, said NPD Automotive Products Group, a market information company. The overall gasoline market share of HVRs has increased from less than 1% in 1998 to 5.5% for the first half of this year.
This shift in consumer behavior corresponds to the volatile retail gasoline pricing that began in February 1999 when the average price was about $1/gal and peaked in May 2001 when gasoline averaged $1.80/gal.
The Motor Fuels Index, which surveys over 200,000 gasoline purchasers annually, indicates that, for the first half of this year, 95% of HVR gasoline customers and 63% of all consumers cite "price" as the main reason for choosing a brand of gasoline. This is particularly true in areas with high vehicle-dependent populations. In five states, "big-box" retailers accounted for more than 10% of gasoline sales.
Why HVRs are gaining
Although the profit margin of traditional gasoline service stations is gasoline-dependent, HVRs can operate at much lower retail prices. "It's not uncommon for HVRs to sell 500,000 to 1 million gal/month (whereas) the average retail gasoline facility. . .may sell 100,000 gal in the same period," said David Portalatin, spokesperson for the NPD Automotive Products Group.
HVRs benefit in a number of ways from selling gasoline:
-- The additional traffic boosts "cross-purchase" sales significantly.
-- A gasoline operation that pumps 500,000 gal/month at $1.40/gal can inflate same-store sales by $8.4 million/year.
-- Customers purchase gasoline an average of five times per month, meaning more frequent visits to big-box stores and away from smaller outlets.
Consumers cite three main reasons for preferring HVR gasoline:
-- Aggressively low prices—often 10¢/gal or more lower than traditional brands.
-- Store-wide reward programs and other cross-promotional opportunities.
-- Satisfactory car performance using gasoline offered at HVRs.
"Traditional gasoline facilities must learn to either institute very lean operations, such as unattended pumps, or evolve to provide other means of generating profits, such as large convenience stores," said Portalatin. "Major oil companies should prepare their facilities to operate on thin gasoline margins, be price competitive, and leverage the increased traffic that is generated as a result," he added.