Safeway Ends Club Card Gas Discount Program

Supermarket chain denies below-cost decision prompted discontinuation

OAKLAND, Calif. -- A gas station in Dixon, Calif., that said Safeway hurt its business by offering cheaper gasoline to customers has taken credit for the supermarket chain's recent decision to shelve the promotion, according to a report by Courthouse News Service.

Safeway discontinued the Club Card program nationwide last week, three months after Alameda Superior Court Judge Wynne Carvill ordered a preliminary injunction based on claims that the fuel promotion hurt local competitors, said the news agency.

Dixon Gas Club attorney James Dombroski told Courthouse News that the decision leaves room for him to seek a permanent injunction against the Safeway's Club Card and Gas Rewards programs.

"We're going to continue to attempt to obtain injunctive relief to enjoin the discount programs by Safeway that result in Safeway selling its gas below cost," Dombroski said.

He added that the case will go to trial in early 2013. Dixon Gas Club filed the first lawsuit over Safeway's gasoline program in May 2008.

But Safeway spokesperson Teena Massingill told Courthouse News that the discontinued discount cards have nothing to do with the court's order. "We have been able to obtain low prices from our suppliers, and pass along those savings to our valued customers," she said. "Although on August 1, we announced that we were ending our three-cent fuel discount program, the decision was not in response to any lawsuit or court order."

She added, "Our customers can continue to earn significant fuel savings through our Gas Rewards program. The court order simply says that Safeway will comply with the laws governing the sale of fuel, and we already are doing so."

Competing gas stations like Dixon had claimed that Safeway's conduct violated California's Unfair Practices Act.

Safeway's Club Card promotion offered customers a 0.03% discount on every gallon of gasoline, and the grocery rewards program gave customers a discount coupon for gasoline depending on the amount of groceries they bought.

Pointing to an April internal document describing Safeway's pricing strategy, Judge Carvill found sufficient proof that the store's policies hurt local gas stations, said the report.

"It is clear that those who developed defendant's discount programs believed the three-cents-per-gallon discount on the Club Card would generate additional volume and do so by diverting sales from, among others, its single product competitors--including those like plaintiff who compete on price and are often smaller market participants," Carvill wrote.

The preliminary injunction barred Safeway from setting gasoline prices and Club Card discounts below "fully allocated costs unless the discounted Club Card Price is at or above the documented price at which a surveyed fuel competitor is selling fuel within the 24-hour period prior to the Safeway sale of fuel below fully allocated cost."

Dixon Gas Club "now intends to set its street price at or above its costs, or to match or exceed the street price of its lowest competitor," its lawyers said.

"This means that the consumer will ultimately benefit by fair competition in compliance with California laws, especially independent gas stations who have lost substantial business because of Safeway's predatory pricing practices," attorneys James Dombroski and Ali Kamarei said in a statement. "This also means that jobs may be saved at gas stations competing with Safeway."

In April, Dombroski said that "the ultimate goal here is to protect the competitors in the area."

"If they run all the competitors out of business, Safeway will be able to control the price and increase the prices," he said. "That's where the consumer gets hurt."