EL DORADO, Ark. -- As a closely linked partner of Wal-Mart Stores Inc., Murphy Oil USA Inc. has benefited from the additional traffic Wal-Mart draws. A 2004 traffic study by the Institute of Traffic Engineers estimated that a typical discount superstore such as a Super Wal-Mart brings in more than 76,000 trips in a week, while a discount store sucks in more than 40,000 trips.
This relationship is expected to sweeten as the current economic funk places discounters such as Bentonville, Ark.-based Wal-Mart in a favored position among consumers looking to save money. Wal-Mart's first-quarter 2008 [image-nocss] profits rose 6.9%, despite Commerce Department figures showing a 0.2% dip in April retail sales.
"Wal-Mart is well positioned to capitalize on the weak economic environment," said Frank Badillo, senior economist with TNS Retail Forward, Columbus, Ohio. "Consumers are becoming very value-focused and are looking toward retailers such as Wal-Mart where they could get good buys and consolidate purchases in a one-stop shopping environment."
In addition, the government tax rebates hold potential. "Those rebates are skewed toward middle- and lower-income shoppers," said Badillo. A recent TNS ShopperScape survey revealed that 40% of recipients expected to spend their tax rebate either on everyday purchases or one-time big purchases, "and so again, those tax-rebate recipients [are] looking for ways to stretch those dollars even further," he said.
George Rosenbaum, chairman of Chicago-based Leo J. Shapiro & Associates, concurs. About 85% of households shop at a Wal-Mart during the course of a year, he said, with the average Wal-Mart shopper visiting a little more than once every two weeks.
"There is an important trend taking place right now in response to gasoline prices and escalating prices—that trend is that…people are making fewer shopping trips, and trying to bundle shopping," Rosenbaum said. "The other thing is people are not only bundling shopping but they, in many purchasing categories, are downsizing to lower-priced stores. All of which, getting back to gas, means that Wal-Mart will, in this present environment, increase its share of shopping trips, which means people will be at Wal-Mart more often than they used to be."
Given that Wal-Mart is a one-stop retailer, it would be very logical for shoppers already at Wal-Mart to fill up with gas, Rosenbaum said.
And there is already some proof that Murphy Oil, El Dorado, Ark., is benefiting from the spillover.
Gene Gillespie, an oil analyst with Howard Weill Inc., New Orleans, said that whereas national gasoline demand slipped 2% to 3% in the first quarter of 2008, Murphy USA same-store fuel volumes grew 10% to 15%; in the past, Murphy's volumes grew 3% to 5% by taking market share. "So clearly a lot of people are trading down, and the fact that Wal-Mart's seeing a lot more traffic is not coincidental that Murphy is seeing a lot more traffic," he said.
There are challenges as well, said Badillo. Many of Wal-Mart's core customers are financially pressed and looking for ways to cut back, which can limit the company's sales gains. "At the same time, you have middle- to higher-income shoppers considering trading down to discounters such as Wal-Mart, so there's an opportunity there for Wal-Mart to get those shoppers in the stores," he said.
When asked whether Murphy expected to benefit from this budget-conscious consumer mentality, Paul Wells, Murphy Oil's vice president of retail operations, was diplomatic. "We want to build a gas station where the cars are at," he said. "It's really as simple as that. It's good to be in the right spot and on our own dirt."
Editor's Note: For an in-depth look at Murphy Oil and its intense focus on fuel, watch for the July issue of CSP magazine.Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.