PHOENIX - As the number of traditional gas stations in Arizona continues to decline, the number of non-traditional gas retailers is increasing, with membership clubs, supermarkets and general merchandise stores adding pumps to their premises, The Arizona Republic reports.
Costco, Fry??s, Walmart and Safeway are luring customers from traditional gas stations, using gasoline sales as a loss leader and perk for loyalty-card holders. They are tolerant of low margins and price volatility, far more so than traditional gas stations that need to pass rising wholesale prices on to consumers.
Tim McCabe, president of the Arizona Food Marketing Alliance, a trade association for grocery retailers, said the membership clubs and supermarkets typically don't make much of a profit from gasoline sales, but it generates store traffic and sales of more profitable items.
"It's all about convenience and one-stop shopping," he said.
Onsite pumps enable retailers to offer fuel discounts to frequent shoppers, which have been a significant lure, especially with gas prices on the rise.
For instance at Fry??s, V.I.P. loyalty card holders receive a 10-cent per gallon discount on their next fill-up, up to 35 gallons, for every $100 they spend on groceries. And because not all Fry??s stores have pumps, the company partners with Shell, enabling its customers to claim the discount at participating Shell stations.
"It makes it convenient for customers whose Fry's store doesn't sell gasoline," said Ann Reed, head of merchandising and advertising at Fry's Arizona stores.
Fry??s is Arizona??s fourth-largest gas retailer, with 51 locations, behind Circle K (522 stations), QuikTrip (83 stations) and Diamond Shamrock (62 stations).
Safeway is offering a 10-cent per gallon discount for customers who spend just $50 on groceries.
Fry's parent Kroger Co. doesn't report sales monthly, but noted fuel sales were up significantly in the fourth quarter.
"Fuel is a big part of our strategy going forward," Reed said.
Gas sales haven't worked for everybody. Albertsons LLC found the stations detracted from its core grocery business and sold all 72 of the stations, including many in the Phoenix area, to Valero Energy Corp. in 2008.