Are retailers being helped or hurt by low gas prices?
During a recent stop at a convenience store, I asked a manager if low gas prices had been good or bad for business. The answer I received was “both.” Low gas prices had resulted in more frequent shopper visits, with people spending more on purchases inside the store even if rings at the pump were down. I’ve heard similar stories from c-store execs I’ve asked the same question.
An article published on MarketWatch echoed some of this view albeit in a somewhat less positive tone. True, according to the piece, low gas prices have been good for consumers. On the other hand, chains including Costco and Kroger posted lower gas sales as a result.
It should be noted that lower gas prices weren’t exactly business killers for the two chains even if Wall Street overreacted this week when the they failed to meet analysts’ expectations on certain metrics.
Costco, reported gas sales were down 0.8 percent. While the chain did fall short of expectations, it should be noted that same-store sales in the U.S. were up slightly while Costco struggled outside the domestic market with sales down seven percent in Canada and three percent in other countries. One benefit of gas being a smaller portion of overall sales was margin improvement. Costco reported a 0.1 gain year-over-year in gross margin.
Kroger reported record profits of nearly $2 billion in the last fiscal year. CEO Rodney McMullen cautioned that price deflation would provide “a headwind to sales” in the coming year. The company’s stock took a hit, falling more than nine percent at one point after Kroger reported a same-store sales increase of 3.9 percent (excluding gas) for the quarter. Kroger’s target range was between four and 4.5 percent.
The MarketWatch article asked if lower gas prices should deter Walmart from opening its own stations. The piece pointed out that Walmart announced in February that it was uncoupling its relationship with Murphy Oil to begin opening its own gas stations. The goal was for Walmart to squeeze out profits wherever it could find them.
- Low gas prices are good for consumers, less so for Costco & Kroger – MarketWatch
- Kroger stock tumbles amid slowing sales – The Cincinnati Enquirer
- Costco’s Profits Hurt By Higher Costs – The Wall Street Journal
DISCUSSION QUESTIONS: On balance do you think that lower prices at the pump are good or bad for retailers with gas stations? If you were Costco, Kroger, Walmart, et al would it be full steam ahead in opening new stations or would you hit the break?