A sign above the coffee dispensers in the fuel station outside the Neighborhood Market on Walton Boulevard reads, “88¢, Everyday Low Price.” If that’s not enough to tell you who’s minding the store, the sign over the register leaves no doubt: “Wal-Mart,” it says. “Your neighborhood gas station.”
Wal-Mart, with its Bentonville, Ark.-based home office just down the street that bears its founder’s name, plans to put gas stations in lots of neighborhoods far beyond its own in the coming months.
In jettisoning a 20-year relationship that let Murphy USA sell fuel in Wal-Mart parking lots, the nation’s largest big-box merchant is taking over at the pump, with plans to open Wal-Mart-branded fuel stations at scores of its new Neighborhood Markets and supercenters.
“Fuel is a differentiator for us,” Wal-Mart executive vice president and chief financial officer Brett Biggs said at the Bank of America Merrill Lynch Consumer & Retail Tech Conference in March. “It’s certainly a way to show price to customers, to drive traffic into the stores.”
While the harrowing specter of Wal-Mart may cause convenience operators to shudder, will there really be any difference in pricing strategy if the banner is Wal-Mart instead of Murphy?
“I wouldn’t be surprised if Wal-Mart doesn’t try and run cheaper prices than others in the area to really try and drive that traffic,” says Brian Yarbrough, an Edward Jones analyst who follows Wal-Mart. “If that’s the case, that could definitely take some business away from other convenience stores in the towns around where Wal-Mart will be adding more stations.”
But Jim Fisher, CEO of Houston-based IMST Corp., a fuel and retail sales forecaster, says Wal-Mart’s move is nothing the c-store industry hasn’t seen and dealt with before. “Will it have an impact? Yes. To say that everybody should think the sky is falling? Absolutely not,” he says. “It’s another competitor. If I was a retailer, I would much rather be dealing with a Wal-Mart Neighborhood Market than with a QuikTrip.”
Not a Hasty Decision
Wal-Mart plans to add fuel stations, where feasible, to 50 to 60 new supercenters and 85 to 95 new Neighborhood
Markets scheduled to open this fiscal year, company spokesman Randy Hargrove told CSP. Murphy is not out of the picture; it will continue to manage the nearly 1,100 locations that it has been operating and will also open about 60 stations already in the works.
“Somebody in Bentonville didn’t just wake up and say, ‘Gee, why don’t we run a fuel business?’ ”
Operating fuel stations is not a new venture for Wal-Mart. The retailer has run gas stations at Sam’s Clubs since the first one opened in 1997, and it’s already operating stations at about 200 U.S. locations.
“It’s something we’ve operated and we’ve just made the decision that we’re going to return to that,” Hargrove says. “It’s a fundamental decision of focusing on what we think is best for the customers.”
In the face of tumbling profits and a retail slugfest with online merchants, Wal-Mart has strong motivation to squeeze profitability from whatever corners of its operation it can. “They’re under so much pressure from these online-only retailers—the Amazons of the world. But you can’t buy gas online,” Yarbrough says. “Gas just drives traffic.”
Wal-Mart has spent billions trying to improve customer service by focusing on staffing and wage increases.
The company’s split with Murphy may represent Wal-Mart’s effort to control the entire customer experience, from
gas to groceries, Yarbrough says. He wonders whether Wal-Mart might eventually offer coupons or loyalty incentives to entice fuel customers into the larger stores. “At the end of the day, Wal-Mart has had a problem driving traffic into the stores and driving same-store sales,” he says. “Maybe they think if they can control this, there’s an opportunity to do a better job of cross-selling.”
Moody’s lead retail analyst Charlie O’Shea doesn’t think gas stations will prove a big game changer for the retailer. But he also says Wal-Mart must see some untapped opportunity, or else it wouldn’t be putting its name on the gas pump. “Somebody in Bentonville didn’t just wake up and say, ‘Gee, why don’t we run a fuel business?’ They put a lot of thought into this and came to the conclusion of either, ‘We can do it better from a service provision perspective’ or ‘We can do it more profitably than our current manager,’ ” he says. “If either one is true, that’s going to be the tipping point.”
Smaller Formats
Much like the Murphy stations, Wal-Mart’s new fuel stations largely will be built at the edge of each Neighborhood Market and supercenter site, Hargrove says. They will vary in number of fuel dispensers and will have a small convenience area, something “not real big, but where if you wanted a drink or a tobacco product, you could get that,” Hargrove says.
The fuel-station prototype in front of the Neighborhood Market in Bentonville features six dispensers and a mini convenience store. Inside, coolers—holding everything from milk to beer—flank the back wall.
There’s fresh coffee, a fountain and plenty of snacks, dominated by a large rack of jerky. The new Neighborhood Market stations in the works average about 750 square feet, Hargrove says.
Another prototype in front of a supercenter in Rogers, Ark., features eight dispensers and a kiosk-style store, where snacks and beverage coolers sit arrayed under the canopy and an attendant sells tobacco through a walk-up window. Future supercenter fuel stations are likely to feature larger c-stores averaging 1,500 square feet, Hargrove says.
The new fuel stations look nothing like the 5,000-square-foot convenience store and fresh food format called Wal-Mart to Go, which is being tested at a single location on a busy intersection in Bentonville.
The Wal-Mart to Go store has a yellow and lime forecourt canopy emblazoned with the Wal-Mart spark logo, but the new fuel-station prototypes are less flashy. They feature basic taupe brick facades and fuel dispensers color-coordinated with the green of the Neighborhood Market or blue of the supercenter.
There are no current plans, says Hargrove, to expand the Wal-Mart to Go concept. Wal-Mart recently ended another foray into smaller-format stores when it announced the closure of 102 Walmart Express sites.
What the new stores all share, however, is an everyday low price, both inside the convenience store and at the fuel pump. “You can expect competitive pricing,” Hargrove says. “That’s just part of our DNA.”
Continued: Driving Price Strategy?
Driving Pricing Strategy?
In January, Wal-Mart held simultaneous grand openings at four new Neighborhood Markets in Monroe and West Monroe, La. Along with groceries and pharmacies with drive-thrus, each brought a new fuel station to neighborhoods known as the Twin Cities of northeast Louisiana.
“Other than margins, they don’t really impact a lot of our stores,” says Jim Boyett, a convenience-store operator who also serves as marketing director for the 38-store co-op U-Pak-It in Monroe. “And they’re going to impact margins, simply because they’re going to be the cheapest gas in town.”
Wal-Mart has not said who will supply the fuel to its new stations. But with its separation from Murphy and its ability to cut a nationwide or regional deal for fuel, Wal-Mart could offer lower fuel prices in an effort to drive traffic to its stores, says Scott Fisher, vice president of policy and public affairs for the Texas Food & Fuel Association.
“In today’s world, the refiners and bigger players in that arena all will be courting Wal-Mart for those gallons,” he says. “There’s no doubt about that.”
“If you think you can buy business by price, you’re barking up the wrong tree.”
The overall effect of Wal-Mart’s new stores on existing c-stores in a given market could be anywhere from “slight to severe,” says Steve Montgomery, president of c-store consulting firm b2b Solutions, Lake Forest, Ill. It will depend on physical factors such as the distance between fuel stations, as well as operational factors including pricing strategy and execution at the store level.
Operating the fuel sites could be challenging even for Wal-Mart, Montgomery says. He points to other hypermarkets that have gotten in and out of the fuel business. Albertsons, for example, opted to sell its 51 store-based gas stations in order to focus on its grocery business.
Others have operated c-stores as an extension of the big-box store, selling items at the same prices, “so as not to confuse their customers,” he says. “This limited the product mix, pack sizes … and reduced margins below what c-stores normally achieve.”
Not Perfect
Jim Fisher, whose IMST worked with Murphy when it first opened stores in Wal-Mart parking lots in the mid-1990s, sees Wal-Mart-branded gas stations as something that will appeal to Wal-Mart customers looking for cheap gas.
That could mean trouble in communities with aging c-stores or ones that haven’t kept up with changing times. But otherwise, “we haven’t seen anything that jumps out and says, ‘Oh, man, this is really going to be a disaster for the retailers that exist.’ ” He likens the competition to what retailers faced when supermarkets and warehouse clubs started selling gas.
“In a market that has really good retailers and really good operations with really good stores, then the impact of something like this is minimal,” he says. “If you go into a market that is old and worn out and no one has kept up with the industry, then it’s going to have a major impact. That’s based on conditions that exist within that market, not the threat of a Wal-Mart.”
In Louisiana, Boyett does not expect Wal-Mart’s price at the pump to differ much from that of stores already operated by Murphy at two supercenters. He is already seeing some chinks in Wal-Mart’s fuel operation. Two of the new fuel stations outside Neighborhood Markets are detached from those stores by some distance and don’t seem to be drawing a lot of traffic. “One in West Monroe, it’s not even close to their parking lot. It’s a considerable distance down the road from the store itself. You can’t even drive from their parking lot to the gas station,” he says.
While the new Wal-Mart stations could affect existing retailers’ margins by a couple of cents a gallon, Boyett doesn’t see a big effect on inside sales.
“It’s really a totally different customer,” he says. “If you want a fountain drink, who cares if Wal-Mart sells their 20-ounce Sprite for $1.69 and you sell yours for $1.79? Are you pulling up to a Wal-Mart supercenter to buy your 20-ounce drink?”
He believes customers who want to pick up a pack of cigarettes or grab a snack will continue to frequent their favorite convenience stores, regardless of price.
“I’ve always been taught in this business that if you think you can buy business by price, you’re barking up the wrong tree,” Boyett says. “You had better be concerned about having clean stores, clean bathrooms, having clerks that are customer-oriented.
“Price is way down the list in what convinces them to shop at a store.”
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