BRENTWOOD, Tenn. -- Home Depot Fuelthe home-improvement retailer's new convenience conceptis an "XL" kind of place all around. It is clearly geared toward contractor customers. A typical trip to the retailer's new offering might go something like this: Pour a gallon of coffee into a Home Depot jobsite carafe, grab a 52-oz. "bubba keg" of soda for later and then fuel up the truck and take itladders and allthrough the supersized carwash on the way out.
"This place has become real popular," landscaper David Johnson, sipping on a jumbo drink last week while [image-nocss] gassing up three riding lawn mowers, told the Atlanta Journal-Constitution. "I used to go to the Shell station down the street but now I come here. It's convenient."
That's precisely the point behind Home Depot's play for its all-important pro customers, said the report. Situated just outside a regular Home Depot warehouse store, it is a classic one-stop shop, aiming to grab customers who have just stocked up on home improvement goods.
"You don't have to cross four lanes of traffic or drive down the road for gas or drinks or snacks. It's all right here," Dave Long, a Home Depot store manager trainee who oversaw the recent launch of Fuel in the Nashville market, told the newspaper. A second Fuel just opened in nearby Hermitage, and Atlanta-based Home Depot plans to open its first Fuel on its home turf, in Acworth, Ga., in the fall.
As reported in CSP Daily News in late January when the stores were about to debut, if these test sites succeed, Home Depot could open 300 c-stores by 2010, adding $1.5 billion in sales a year, executives said. The company's main retail and wholesale supply business currently generates more than $81 billion in sales annually.
Fuel is the latest example of Home Depot venturing outside its big box for new business. Yet the retailer has a mixed record with new store formats.
In 1999, Home Depot launched another convenience-oriented format, Villager's Hardware, fashioned after neighborhood hardwood stores. That test was scrapped two years later when it began focusing on a new urban format. Expansion plans for its once-vaunted Expo Design Center have been scaled back, and Home Depot has opened only 11 Landscape Supply locations in four years of testing the concept.
But that's the way it goes in retail, notes Howard Davidowitz, chairman of Davidowitz & Associates, a New York-based retail consulting and investment banking firm. "The logic of what they're doing with the convenience stores makes total sense, but that doesn't mean it's going to succeed. That's why it's an experiment," he told the paper. "Part of the evolution of any business is that you've got to try new things. Some of it works, and some of it doesn't."
So far, Fuel has been a hit, Long said, and although it's likely that executives will tweak the concept as it expands into other markets, Home Depot is sticking with the current formula for now.
Throughout a recent midweek visit, contractors and local residents alike streamed into Fuel, snapping up drinks, cigarettes, beer and other items. Outside, at least half of the 14 gasoline pumps were steadily busy.
Like other big-box retailers that have added gasoline to lure shoppers, Home Depot offers a discount at the pump. Consumers get three cents off a gallon when they use a Home Depot credit card or Home Depot gift card.
Low-margin gasoline is merely the bait, though, according to the report. What Home Depot execs are really hoping is that shoppers pop in the store for a sandwich, giant bag of chips or other higher-profit item. Or buy an $8 carwash. "This is a way to drive profitability, whereas gas really isn't," said Long.
Just to make sure customers buy in, Fuel is a hub of cross-promotions. While customers are pumping gasoline, for example, a screen on the pump flashes the message, "Come inside and fill up," with a photo of sodas and hot dogs. Over at the nearby regular Home Depot store, workers have posted signs in the bathrooms touting gasoline prices at the Fuel store.
The next wave of promos may focus on Home Depot's bread-and-butter business, the report said. "I can see potential [at the pump] to say, 'Check out the patio furniture on sale at Home Depot,' or something like that," Long said. Inside the Fuel store, Home Depot might put a "tool of the month" display or something similar, he added.
Fuel merchandisers were careful not to clutter up the 2,800-sq.-ft. store, though, with the typical c-store layout, Long said. Fuel offers about 3,000 products, about half the number of items in an average c-store, he said. The store design also was tweaked to look more like a tiny Home Depot rather than a gas station, a la polished concrete floors and exposed ceilings. An orange-aproned crew runs the cash register and nearby sandwich station.
Fuel's sales projections, up to $7 million a year per store, are considerably higher than the industry average of about $4 million. "You can do that much in revenue and still not make money, because gas is a very low-margin commodity," Jeff Lenard, spokesperson for the National Association of Convenience Stores (NACS), told the paper. "But I've toured the Home Depot Fuel stores, and they've got some clever ideas, such as the XL sizes for contractors and an overall clean design that appeals to regular consumers, too."
Gasoline pumps attract retailers such as Wal-Mart, Kroger and Costco because they drive traffic, said the Journal-Constitution. In Home Depot's case, executives are looking for ways to rev up sales because the pace of new-store openings is slowing, the report said. Taking out 100 or so parking spaces to put up a c-store and gas station at some of its warehouse store locations may be a smart bet, retail experts said.
Home Depot hasn't disclosed its investment in the Fuel test, other than to say it is opening four stores this year. "It's a good use of real estate," said Davidowitz. "Nothing is more logical than bringing more footsteps to your store."
Some retail observers see Fuel more as a service for Home Depot's existing customer base, rather than something that will draw new customers into the warehouse stores. "I can't imagine someone would go to get gas and say, 'Gee, I think I'll go into Home Depot for some hardware.' I think they'll have more customers who are stopping in after they leave Home Depot," Ken Bernhardt, marketing professor at Georgia State University, told the paper. "It adds value for their current customers. It's an extra benefit, but I don't see them attracting people who weren't already there because it's a destination."
Home Depot is also looking at Fuel as a differentiator in its battle with archrival Lowe's, which has steadily put up stores across from Home Depots in recent years, said the report. "If I'm a customer and I can turn right to go to Home Depot or turn left to go to Lowe's, but Home Depot has a convenience store and the kids are hungry, then I'm going to turn right into Home Depot," Long said. "Yes, we're extending the business with this and adding revenue, but I see this as a way to establish a competitive advantage."
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