PUMPING UP VOLUME

CHICAGO (FNS) -- What started as a knee-jerk response to convenience-store competition a few years ago now appears to be a lasting trend in the supermarket industry.Nearly 500 U.S. supermarkets, ranging in size from small independents to Wal-Mart Supercenters, now feature gas pumps at their locations.And some industry experts predict that figure will grow 50% to 60% to approximately 800 supermarkets

CHICAGO (FNS) -- What started as a knee-jerk response to convenience-store competition a few years ago now appears to be a lasting trend in the supermarket industry.

Nearly 500 U.S. supermarkets, ranging in size from small independents to Wal-Mart Supercenters, now feature gas pumps at their locations.

And some industry experts predict that figure will grow 50% to 60% to approximately 800 supermarkets by the end of 1999.

"It's becoming more important in a lot of locations," explained Larry Willis, president and chief operating officer of IGA here. "It's just starting to take off."

Willis said about 200 IGA-licensed stores in the United States -- primarily small stores in rural communities -- have gas pumps. More IGA stores will add gasoline service as IGA rolls out a new format that focuses on convenience.

Several other large players are entering the gas business this year. Supervalu, Minneapolis, is outfitting 100 of its retail customers' stores with gas pumps, while Food Lion, Salisbury, N.C., will add pumps at 10 locations, in addition to four current stores. Albertson's, Boise, Idaho, said it has installed interactive "Touch-N-Go" fuel pumps at five of its 12 gas-equipped stores, and plans 20 more installations for 1998.

The high-tech pumps allow users to select fuel type and payment method by touching a computer screen. The system also can be programmed to dispense coupons, display general information or show video advertising, news, weather, or other messages. Wal-Mart Stores, Bentonville, Ark., has jumped into the market with gasoline pumps at about 40 locations, primarily supercenters, with 40 more planned for this year. Kmart, Troy, Mich., is expected to add pumps after it chooses an oil partner. Costco, Issiquah, Wash., has pumps at 12 of its stores, indicating interest at the warehouse-store level.

Many supermarket chains have offered gasoline for years, and have stated plans to roll out the service to more of their units. Jitney-Jungle Stores of America, Jackson, Miss., has added 58 units in the past 15 years, while Brookshire Bros., Lufkin, Texas, has opened about 73 in seven years, according to industry watchers. Although IGA officials and other retailers say they offer gas service as a convenience, they are also aware of the tremendous profit potential.

"Those who sit back and watch will be left behind," said Harry Hammond, a Pollok, Texas-based consultant who tracks supermarket gasoline sales.

Hammond estimates a 30% return on investment and 15% increase in sales when grocers add gas pumps.

In-store sales get a boost as well when savvy retailers cross merchandise at gas pumps, Hammond noted. Some offer coupons on home-meal replacement dinners, for example, while others leverage their customer-loyalty programs.

"Think about what would happen if you had a commodity you could sell at cost -- a minimal 5% increase in in-store sales," he said.

With Food Lion's Frequent Filler Card program, customers get a sticker each time they fill up with 8 gallons or more. When the consumer's card is filled up with stickers, the card can be redeemed for three free items -- a half-gallon of milk, a dozen eggs and a loaf of bread -- plus a coupon good for $2 off a future 8-gallon fill-up.

Although Brookshire Grocery Co., Tyler, Texas, sponsors frequent-filler promotions from time to time, it will not do them regularly, according to Sam Anderson, a company spokesman.

"We just make sure our price is the cheapest in the neighborhood," he said.

About 12 of the chain's 129 stores have gas pumps, and Brookshire Grocery is adding more at both new and existing locations, he added.

Despite the influx of food retailers in the gas business, some maintain the market is wide open for other supermarkets.

"They are not really cannibalizing on other grocers, they're cannibalizing on what convenience stores have taken away from them for the past 10 to 15 years," Hammond said.

Indeed, supermarket gas stations perform well in regions overpopulated with too many convenience stores, he said.

"It cuts out a lot of chores in [a consumer's] everyday life," he said.

Convenience-store operators admit they are concerned about the competition. "[Supermarkets] are technologically advantaged. Most have scanning capacity and extensive frequent-shopper or customer-loyalty programs," said a new report from the National Association of Convenience Stores, Alexandria, Va.

In addition, supermarkets can more effectively cross merchandise from store to pump by offering a discount on gasoline purchases, the report said.

Although many supermarkets outsource gasoline purchasing and management, the business does not come without risks. Some operators rushed into the market and built inexpensive units, which have had expensive gas-leak problems.

"Grocers have a paradigm set up for how to build a store," Hammond said. "A lot of times they think, 'whoever gives me the least expensive price, that's whom I'll get.' "

However, when gas leaks or spills occur, or retailers fall behind on gas-reconciling paperwork, they face substantial fines. "You have to be real careful with every aspect of construction to ensure that the integrity of the system is impeccable," Hammond said. "Once you do that, your risks are nonexistent."

In Europe, finding gas pumps at supermarkets has become the norm, and consumers there have even come to expect the best prices at their local markets. Food retailers from other parts of the world have taken an interest as well. IGA said its licensees in South Africa and other countries are "anxious" to add the service.

Prime for Pumping

Regardless of their size, supermarket operators are showing an interest in

gasoline sales. Below are some of the companies in the food industry that have

installed or are planning to install gasoline pumps at their stores.

Company No. of Units With Gasoline Facilities

Affiliated Food Southwest, Little Rock, Ark. 4

Albertson's, Boise, Idaho 32

Brookshire Bros., Lufkin, Texas 73

Brookshire Grocery Co., Tyler, Texas 12

Costco Cos., Issiquah, Wash. 12

Food Lion, Salisbury, N.C. 14

H.E. Butt Grocery Co., San Antonio 90

Hy-Vee, West Des Moines, Iowa 60

IGA, Chicago (licensed retailers) 200

Jitney-Jungle Stores of America, Jackson, Miss. 58

Kroger Co., Cincinnati 20

Metro Food Markets, Baltimore 8

Minyard Food Stores, Coppell, Texas, 12

Schwegmann Giant Super Markets, New Orleans 8

Shaw's Supermarkets, East Bridgewater, Mass. 13

Supervalu, Minneapolis (retailer customers) 100

United Supermarkets, Lubbock, Texas 12

Wal-Mart Stores, Bentonville, Ark. 80

Woodman's Food Markets, Janesville, Wis. 7

Projected for end of 1998 Source: H.A.C. Enterprises, Pollok, Texas.