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Ready for Grocery Store Fuel Competitors?

First we had fuel at hypermarkets, now it’s fuel at supermarkets. Does your company have a firm strategy in place to compete, or better yet profit, from this newest player in the retail fuel market?

When Big Box hypermarket competition arrived, the thought of Wal-Mart or Sam’s Club selling fuel struck fear in the hearts of store owners. What we all learned as the market matured, however, was that as long as a store wasn’t too close to a Big Box, margins and volumes didn’t suffer as greatly as some marketers speculated or feared. So, the strategy for dealing with hypermarkets became location – location – location, which meant be as far away from Big Box as possible!

But, now we have local grocery store players getting into the fuel market and the location strategy no longer works. You can’t locate far enough away from every grocer without your site being way out in rural America, somewhere without the customer base needed to support a new store. So, if you can’t stay out of the grocer’s proximity, what are you going to do to stay profitable in the face of this new competitor?

For some marketers, the answer brings immediate new profit. By negotiating supply and/or transportation contracts with local grocery stores, some wholesale marketers are already profiting from these new competitors. In fact, ask any local grocers with a new fuel installation about their supplier, you may find it’s a fellow marketer!

Other marketers realized they have tremendous expertise in fuel site design and construction, so they are now contracting the design and build outs for local grocers. They figure someone is going to make a profit on these new installations; so it might as well be them.

Still other marketers are taking the plunge to not only build, but also completely manage fueling at local grocer sites. While a local marketer may not have the scope to serve many regional or national chains, they see opportunity in local chains or individual stores. These local owners are perfect candidates for the expertise of a local fuel marketer who can design, price and run a cost-effective fuel operation.

One of the cries of “unfair” from many marketers is that the new competitors don’t have any real estate costs when it comes to their fuel site. They already own the site, so it’s a zero cost. However, this is not unlike an existing dealer location. Marketers who view grocers as just more dealer opportunities will have a profit advantage in this new marketplace. There are many local grocers who know nothing about fuel that would love to have a jobber come in and design, supply and run their fuel operation on a profit-sharing basis.

Taken to the next level, petroleum jobbers also have an opportunity for tremendous benefit from partnership with grocers. Grocers have expertise in wholesale grocery supply contracts, software and management practices. Most grocers have inventory, scanning and accounting systems that would put the typical petroleum-based software to shame. Grocers have been living for years in a pennies-profit world and know how to manage stock. They are light years ahead of our industry with loyalty cards and capturing and understanding customer buying habits.

Some state petroleum associations are already seeing the partnership opportunities between the two market segments and are offering joint convention and trade show meetings in 2002. Meridian’s prediction is that this partnering will continue to blossom as jobbers and local grocers join forces to fight their common competitor enemy — Big Box retailers.

If you are a store owner reading this article, and cannot benefit from fuel supply, you may be wondering what competitive strategy you need to employ. What happens when your c-store is already sitting on property across the street from a grocer and some smart-aleck wholesaler who read this article is putting in a fuel island?

In your case, continued profit and success will depend upon differentiation from the grocer. If the grocer puts in only fuel, you can easily compete on convenience. If the grocer, however, decides to build a small c-store with fuel islands, you must treat that grocer as you would any other competitor using customer identification and stratification as your weapons.

Identify what will keep your present customers loyal and help you gain new customers. How can you cater to your local customer base through product offerings that your grocer may miss? Do you have long-time employees that know customers by name? Is your site attractive and well lit with pay-at-the-pump and other conveniences?

Especially if your grocer decides to wage war with gas price, you may have to get creative with loyalty programs and marketing. In Ohio, when two grocers decided to duke it out on price, it got ugly when gas went under a dime a gallon.   It’s important to remember there is a certain type of customer that doesn’t want to be in a ten-car deep line waiting to pump 10-cent gas. There are customers who want and will pay for true convenience and service. If you can identify and cater to this customer, you will not feel as much impact when your nearby grocer begins his fuel war.

No matter where your operations fit in this new marketplace of grocer competitors, have a plan. The most successful companies are proactive, not reactive. Decide your strategy now, and make a written game plan. You’ll be glad you did.

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