With gas prices skyrocketing, many consumers have become more discerning about where they buy gas. That’s actually true whether gas prices are high or low.
“It doesn’t matter whether gas prices are $4 or $2 per gallon, consumers still want to find the best price possible,” said Jeff Lenard, a longtime National Association of Convenience Stores (NACS) executive, in a press release. “Retailers are constantly fighting to attract price-sensitive drivers to their stores, especially given that 35% of gas customers say that they also go inside the store after fueling.”
That’s a strategy a number of retailers have used to draw customers into their stores, including Costco, Walmart’s Sam’s Club, and Kroger.
Kroger, however, has quietly built a massive advantage in this space, not based on having the cheapest gas, but by using gas as an incentive to get people into its stores.
Gas prices have been steadily rising
Rising tensions in the Middle East have pushed gas prices higher, with a gallon now over 80 cents more expensive than a year ago, according to data from AAA.
“Drivers are getting a bit of relief at the pump as the national average went down by 6 cents since last week to $4.03. Crude oil prices have come down below $100 a barrel, helping drive down the cost of gasoline for consumers,” the auto services provider shared.
That relief might be short-lived.
“But how long the downward trend will last is uncertain with continued instability along the Strait of Hormuz. Currently, pump prices are the highest they’ve been during this time of year since 2022, when the national average on April 23 was $4.11,” AAA added.
- April 23 national average: $4.031
- One week ago: $4.093
- One month ago: $3.956
- One year ago: $3.172
But for retailers, gas isn’t just a cost. It’s a customer acquisition tool.
Kroger does gas differently than Costco, Sam’s Club
Costco and Sam’s Club lure customers to their warehouse clubs by offering lower-than-market prices at their gas stations.
“Generally speaking, we see about half of members that will shop at the gas station will also cross-shop at the warehouse,” CFO Gary Millerchip said during Costco’s second-quarter earnings call on March 5.
As prices rise, driving to a Costco, which is generally not the closest option for many consumers, becomes a better deal.
“When prices are higher, that will tend to cause members to maybe take the extra mile that it might involve to get to the gas station because of the incremental value they see there,” Millerchip added.
Kroger, which operates more than 1,700 gas stations, does not offer the lowest up-front prices. Instead, its no-frills gas stations, which are not convenience stores, offer incentives to get customers into their stores.
Kroger offers gas customers “fuel points,” which can be redeemed for in-store discounts.
“Earn 1 Fuel Point for every $1 you spend on the following purchases when you shop in-store or online for pickup or delivery,” Kroger shared on its website, showing a list of items where the points can be applied.
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Kroger has a simple strategy
Kroger’s fuel centers’ proximity to the company’s supermarkets helps Kroger draw in shoppers and provide robust fuel benefits as part of its loyalty program, Ken Fenyo, a former Kroger executive who is now managing partner of Pine Street Advisors, told C-Store Dive.
“I think the various incentives they have make you more likely to go to a Kroger fuel center, but then also really [provide] an incentive to spend more with Kroger because you’re going to get that fuel discount on the back end,” Fenyo said.
Over the past three years, Kroger has tripled the number of gas stations it operates, according to its annual report.
“Fuel continues to be an important part of our strategy, building loyalty through our fuel rewards program and providing another source of value for our customers,” Kroger CFO David Kennerley said during the company’s fourth-quarter earnings call.
Costco has bet big on gas as well
Costco has about 600 gas stations in the U.S. The warehouse club‘s strategy has been offering lower-than-average gas prices to drive membership sales.
“You save approximately 20 cents a gallon at Costco over other local vendors,” David Schwartz, who, with his wife Susan, authored “The Joy of Costco,” told CNBC. “That’s something we have seen time and time again across the country.”
So, that’s $1 in savings, on average, for every five gallons of gas you buy. That means if you buy 325 gallons of gas per year, you pay for your membership in savings.
Gas stations are a driver for Costco, according to GlobalData Managing Director Neil Saunders.
“Anyone who has been to a Costco knows that the gas station is one of the most crowded areas, often with long lines that back up into the parking lot and cause snarls. A fair proportion of visitors are there just for gas,” he posted on RetailWire.
Kroger, however, has a big edge simply in the number of gas stations it operates (over 1,700) compared to Costco (roughly 600) and Walmart’s Sam’s Club (more than 400).
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