Whither the Hypermarket Gasoline Threat? Part 1 of 3

Costco, Sam's Club, others were expected to usurp 25% of market. What happened?

Melissa Vonder Haar, Freelance Writer

[Editor's Note: As the petroleum-retailing industry entered the new millennium, a crowd of high-volume retailers (HVRs) extended their interpretation of value and grabbed what they saw as an easy cash cow: fuel. Some predicted doom for convenience stores in the face of the HVR's low prices. More than a decade later, in this three-part series, CSP Daily News takes a look at how the threat panned out.]

OAK BROOK, Ill. -- The number of club stores, mass merchants and supermarkets experimented with the fuel business in the early 2000s was overwhelming: Sam's Club, Costco, Walmart and more. The threat level to c-stores elevated to outright warnings. Was the death of the convenience channel just a decade away? Several analysts predicted HVRs could account for as much as 25% of fuel sold in the United States by 2015.

More than a decade has passed since those gloomy forecasts, and the c-store channel has more than survived. It's modestly thriving amid an extended economic malaise and expanded virtual world that combined have injured many in the FDMx (food, drug, mass) sectors and plunged a knife into big-box formats. As a result, the best--such as Walmart--are investing in smaller formats, and forcing other previously top-flight operators to question their future.

Yes, the battle for fuel is still being waged between c-stores and HVRs. But for every Sam's Club or Safeway success, there is a Lowe's or Home Depot that ultimately failed at the gas game or pulled the plug on the idea.

"Right now, that idea of convenience is really going head to head with the idea of savings and discount," said Mike Lopez, a marketing research coordinator for Denver-based Energy Analysts International (EAI). "Value seems to be more and more in the front of people's minds."

With so much opportunity for success and an economic climate on the side of value, it seems that HVRs should have easily reached that quarter of U.S. fuel sales benchmark. But they're not even close: As of July 2012, NACS reported that the 4,893 HVRs selling fuel accounted for only 12.4% of U.S. fuel sales.

And by most interpretations, the percentage isn't likely to grow substantially.

"The way trends go is that usually there are a small number of first adapters," said David Nelson, a 30-year petroleum industry veteran and president of Study Groups/Finance & Resource Management Consultants Inc. "Following their success is a huge wave of new entrants until market saturation is approached and the curve flattens out."

While EAI has not yet released its most recent U.S. Transportation Fuels and Retail Outlook study, Lopez said the data seems to suggest that hypermarket fuel-site additions are slowing down from 50 to 70 per month in the high growth period to less than 10 per month now.

"We are seeing a tremendous slowdown in this," Lopez says, citing that it's been several years since a major hypermarket announced a new fuel venture. "I really have not seen any hint that any other companies are going to jump into this."

Coming in Part 2: Fuel Successes & Failures, and in Part 3: Fighting Back. And for more on the subject see "Hyper Inflated" in the April issue of CSP magazine.