Gas wars: Mini-marts fend off Wal-Mart

Kathy Miller, manager of an Amoco station in this pastoral Missouri town, admits to setting gas prices "by binocular." But she hardly needs them. The large $1.489 sign on the pumps at a nearby Wal-Mart is clearly visible with the naked eye. If Wal-Mart's prices go down, so do hers - instantly.

Ms. Miller's guerrilla tactics are part of a price war going on across the country between big and small gasoline outlets.

While everyone has focused on how high energy prices are pinching America's drivers, many gas stations are hurting as well. As prices go up, station owners, worried about alienating consumers, often cut into profit margins to keep prices as low as possible.

The competition is particularly fierce between the big retailers like Wal-Mart and the mom-and-pop and convenience store operations that often rely on repeat business. Many superstores can afford to discount gasoline prices, since part of their strategy is to lure customers into their stores, which is where they make most of their profits.

To fight back, the smaller stations are offering a variety of incentives - everything from talking pumps to free car washes.

"We're seeing an acceleration of the trend toward fewer and bigger [gasoline] outlets," says Tom Hogarty, an economist at Virginia Tech University in Blacksburg, Va. "Consumers have an incentive to shop around for better prices and break buying patterns. That plays into the hands of the big retailers, who can provide a price break yet still make money, because they're doing so much volume."

Nationwide, so-called "big box" retailers are adding gasoline operations at a prodigious rate.

* Wal-Mart now has fueling stations at 356 of its 2,600 US stores and 103 of its 480 Sam's Clubs. Many sell gas up to a dime-a-gallon cheaper than independent station owners.

* Costco opened its first gasoline operation four years ago and now pumps gas at 125 of its 260 US stores.

* Albertsons grocery store chain, which began pumping gas in 1997, sells fuel at 175 outlets. It's expected to add as many as 400 more in the next four years.

Market share for these so-called hypermarket retailers - the huge stores that now sell gasoline - is projected to jump from 3 percent today to 15 percent by 2005, according to a forthcoming report sponsored by the National Association of Convenience Stores.

In fact, few stations just offer gas anymore. Since the self-service breakthrough in 1971, the number of convenience stores with gas stations surged from 7 percent to 78 percent by the end of 2000.

Pumps as electronic billboards

Pressed by the megaretailers, many of these 7-Elevens and Circle Ks are trying to reinvent the gasoline pump to stay competitive - and lure customers into their stores for the highly profitable sodas and Snickers bars. One chief focus: turning the fuel pump into the equivalent of an electronic billboard.

Some sport color monitors that carry ads about in-store specials. Others dispense coupons for a free cup of coffee, redeemable at the local counter. Talking gas pumps in Michigan and elsewhere advertise everything from bread to beer nuts, while also promoting the convenience store a few steps away.

The next-generation pumps, now just starting to appear, are even more radical. They let you access the Internet while filling up. Soon, teenagers will be able to download MP3 files: retrieve the latest recording by Limp Bizkit as they top off their tanks with Mom's or Dad's credit card.

While some dismiss the cyberspace-meets-pump-handle movement as a mere gimmick, proponents foresee a wired service station in the future meeting a consumer's every whim - from oil checks to local traffic news.

Nor does the search to stay competitive stop with gee-whiz technology. In the past three years, the number of gas-and-convenience stores that have added car washes has quadrupled, according to NACS.

Still, the mass merchandisers continue to hold several advantages. While convenience stores are happy to top off a tank with a Slim Jim or gallon of milk, Costco and Wal-Mart can often count on a fill up and a shopping cart piled with household goods.

Even without discounting, mega-retailers own a wholesale price advantage over small outlets because of their volume purchases. A recent survey showed that the average gas station pumps 1.3 million gallons a gas a year. A Wal-Mart facility typically pumps 1.3 million gallons a month.

And that's important because, in the end, it isn't the items that retailers sell in their stores that usually attracts drivers. It's the price at the pump.

A penny saved is a penny earned

Take Mike Young, for instance. For years, the Troy resident always filled up his pickup at a local service station down the block. No more. Now he gets his gas at the Wal-Mart supercenter. "It usually saves three cents a gallon," he says. "A few pennies start to add up after awhile."

Knowing that, many small stations here are doing their best to meet the discounter's prices. Betty Sawyer, who works at a local Citgo station, is selling regular for $1.48 a gallon. "If Wal-Mart lowers their price, I'm supposed to call my boss and tell him, and he says 'match them,' " she says.

(c) Copyright 2001. The Christian Science Monitor