Behind Wal-Mart’s Decision to Pump Its Own Gas
What it means for Murphy USA
BENTONVILLE, Ark. -- For 20 years, Wal-Mart Stores Inc. has let Murphy USA Inc. build and operate gas stations in the parking lots of its stores. Now, the retailer has decided it wants to pump its own gasoline, reported The Wall Street Journal. Wal-Mart’s move to build future gas stations without Murphy USA marks the unraveling of an unusual alliance first forged in 1996 between two large Arkansas companies.
When the company was spun off from El Dorado, Ark.-based Murphy Oil Corp.in 2013, it cited its relationship with Wal-Mart as one of its risk factors.
As reported in CSP Daily News, Wal-Mart executives last week told Murphy USA that going forward it will build and operate its own gas stations. Murphy USA will continue to run the more than 1,000 locations it has already built near Wal-Mart stores.
Bentonville, Ark.-based Wal-Mart has run gas stations in front of Sam’s Clubs since 1997 and already operates several hundred in front of its approximately 4,500 Walmart stores, company spokesperson Randy Hargrove told the Journal. But the largest seller of gasoline in front of U.S. Walmart stores is Murphy USA. When building new stores, Wal-Mart plans to add its own gas stations to as many as possible, said Hargrove.
The shift is a sign, said the report, that Wal-Mart CEO Doug McMillon is trying to eke out profit from every corner as the retailer pours billions into boosting e-commerce sales to fend off Amazon and improve slow sales growth at stores, in part by raising minimum wages for hourly employees in an effort to improve customer service. The company has warned that profits could fall by as much as 12% in the fiscal year that began this month, and it recently closed more than 150 of its U.S. stores.
Like other retailers adding gas stations to parking lots, Wal-Mart primarily sees selling gasoline as a way to lure more shoppers to stores so they buy other, higher margin items in the main store. By running its own gas stations, Wal-Mart “can probably get a little more margin themselves,” selling gasoline and cigarettes coupled with more profitable items like small bags of chips or fountain drinks, Brian Yarbrough, an analyst at Edward Jones, told the newspaper.
Murphy USA had sought to expand a decades-old partnership that helped propel it into a company with $13 billion in annual sales. More than 1,000 of Murphy’s roughly 1,300 gas stations are attached or near one of the retailer’s stores.
Last January, Murphy executives met with Wal-Mart CEO Mr. McMillon and Wal-Mart U.S. CEO Greg Foran to pitch a plan to deepen their ties. Murphy executives highlighted that Supercenters with gas stations in front attract more shoppers and that Murphy had expertise running stations, which are often low-margin operations, said Clyde. The idea, Clyde recalled, was to take over “another distraction for management, given everything else that is on their plate.”
Murphy USA held a call last week with investors to deliver the news, highlighting a plan to grow without buying land from Wal-Mart directly, while continuing to benefit from the stations they already own. The company said it would use funds on share repurchases and to potentially buy land for new gas stations within a one-mile radius of Wal-Mart Supercenters.
“Our business model as a low-cost fuel provider allows us to compete with anyone in the business, whether it is in a Wal-Mart parking lot or a busy intersection down the street,” Andrew Clyde, CEO of Murphy, told investors.
Murphy USA will continue with plans to add about 60 gas stations that were already in the works with Wal-Mart.
Click here to view the full Wall Street Journal report.