ATLANTA -- Home Depot is eyeing new avenues for growthincluding sales of gasoline, beer and snacks. As reported in CSP Daily News, the nation's largest home improvement retailer will open the first of four gasoline c-stores, called Home Depot Fuel, in the Nashville area next month.
The first location, in Brentwood, Tenn., will open around February 1, with the others set to open by June, according to details reported by the Atlanta Journal-Constitution. If the concept is deemed a success, Home Depot predicts it will open 300 fuel stations in the next [image-nocss] five years, said Frank Blake, the company's executive vice president of business development and operations, during the chain's analyst and investor conference.
"Unlike many other retailers with gas stations," Blake said, "we can offer a convenience store that doesn't compete with the 'host' store."
Each station is expected to ring up from $5 million to $7 million in sales annually. C-stores could add $1.5 billion to the chain's total sales by 2010, said the report.
"Every retailer is looking to generate more trips," retailing analyst Neil Stern with McMillan/Doolittle, Chicago, told the newspaper. "It's certainly not a profit driver; it's being used as a traffic driver."
While retailers look to generate more store traffic and sales by providing gas and convenience items, they are also able to cross-promote, such as offer discounts on gasoline, if store items were purchased, which gives shoppers additional incentives to stop in, the report added.
For example, BJ's Wholesale Club promoted regular gasoline for 99 cents a gallon during a three-hour event on Wednesday at Atlanta stores. While such a big drop in price is highly unusualgasoline goes for well over $2 per gallonit demonstrates how retailers will go to great lengths to generate more foot traffic.
Anecdotal evidence suggests that adding gasoline can lead to a 2% increase in traffic, Stern said. That could mean big bucks for Home Depot, which generates 1.3 billion transactions per year with an average tab of $58. Adding an additional 2% to the store traffic count could be "meaningful," he told the paper.
Supermarkets, discounters and warehouse operators began selling gasoline and convenience items in the late 1990s. Last year, 3,580 supermarkets, discount retailers and warehouse clubs captured nearly 8% of total fuel sales, compared with 75% sold by 110,000 c-stores, according to the Journal-Constitution, citing Energy Analysts International.
By 2008, that 8% market share will about double to nearly 15.5%, the energy group predicted.
NPD Group, a consumer research firm, reported that discounters, supermarkets and warehouse clubs garner more than 20% market shares in the Denver, Houston and Seattle areas, the paper said.
Sears and some supermarket chains experimented with selling gasoline in the 1960s and 1970s. But the idea failed to catch on or generate consumer interest, said the report. That was also before the self-service phenomenon.
Spokesperson Jeff Lenard of the National Association of Convenience Stores (NACS) said that a sizable move by Home Depot into the market would take a bite out of the c-store industry. "Home Depot is particularly of concern to convenience stores," Lenard told the paper. "You can't walk down the street and not see some house undergoing some kind of construction. That means the local convenience store is going to lose business."
Contractors are big customers of c-stores because they fill up and get coffee and breakfast sandwiches each day, said the report. They are also big customers of home improvement stores. Home Depot reports that the construction contractor is 25% of its customer base. "We think the economics here will be attractive," Blake said. "Pro customers are the heaviest weekday users of convenience stores."
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