Some Retailers Happy to See Record Gas Prices
By George Anderson
By most accounts, gasoline stations have not prospered along with the rise to record prices at the pump. Many other retailers that don’t depend on motor fuel as their primary
source of business are also concerned consumers will shift dollars away from their stores to keep their gas tanks full.
Doug Day, owner of Scooter Centrale and Vespa Hartford in Plainville, Conn. has no such worries. Mr. Day’s business, along with others who sell motor scooters, has never been
better. Sales at Mr. Day’s shops were up nearly 200 percent last year and business has continued to climb along with gas prices.
“As people start driving them, they start finding more reasons to use them,” Mr. Day told The Associated Press. “They’re practical, easy to park and get great gas mileage.
I put $5 worth of gas into mine when it’s totally empty, compared to $50 in my SUV.”
Moderator’s Comment: What can retailers concerned about high gas prices do to generate revenue in new categories or under-developed areas of their present
business? Are there other consumer products and/or retail businesses primed for growth based on record oil prices? –
George Anderson – Moderator
The biggest opportunity we see for retailers to benefit from higher gas prices is to more aggressively and intentionally cross-promote gasoline and inside store sales.
Gas can now be part of a store’s overall market basket. The opportunity to use targeted promotions to tie together food and fuel has never been greater.
I’m really surprised to see the survey indicate people think the department stores will be most affected with higher fuel prices. Affluent consumers aren’t in panic mode (yet) over gas prices as they were following 9-11.
Mass merchants selling general merchandise and food are most at risk because their core customer base is people with limited discretionary income. Whatever additional dollars are taken by gasoline comes directly out of the discretionary spending. Worse yet, if they pay more for gas, they’ll soon pay less for consumer brands and shift their dollars from name brands to generic house brands and from hamburgers to hot dogs. This is probably why Wal-Mart is installing their own gas stations, and gearing up to sell more high dollar merchandise to their non-core customers who have discretionary income left over even after they give up more of it to the gas tank. But, I don’t see affluent consumers flocking to discounters yet and I don’t see the department stores hurting (much more than some already are), at least at this stage of the game.
Cross-merchandising gas to drive margins is certainly a big opportunity. The most popular (at least with gas stations) technique here in Chicago seems to be advertising the regular unleaded gas price on the marquis as “with purchase of car wash.” The result is a lower (apparent) advertised price per gallon of $2.65, but the real price per gallon is ten cents higher if you don’t buy the very high margin car wash as well. Personally, I find this tactic very annoying and avoid the stations that do it. Sort of the gas station equivalent of “with Jewel card only” pricing at grocery stores.
As for what retailers should push now….anything having to do with your at-home shopping presence should get maximum priority. On-line stores, catalog merchandising, etc. are all going to boom if the gas prices really do encourage consumers to shop less. Of course, the delivery charges for at home delivery are still going to be higher than the gas to drive to the store for most consumers, so the reality is that this is a convenience driven choice. But that won’t stop more and more consumers from rationalizing the home delivery option as “saving gas.”
Maybe the consumer mantra for the 21st century will be “Let UPS buy the gas!”
Yes, retailers must use fuel to drive inside store revenue. Just because gas prices are high, doesn’t mean the retailer sees the benefit. Margins on fuel are pennies per gallon vs. 30-35% on some inside store categories. With 60% of the average convenience store’s revenue based on gas sales, bringing consumers into the store represents the opportunity for growth.
It’s never a good idea to disagree with Bill Bishop and his comments above show why. The only thing I’d add is that the cross marketing Bill suggests isn’t limited to those retailers with gas pumps in their own lots. I’ve seen it work very successfully in the form of a marketing alliance between grocery retailers and nearby independent gas retailers (i.e. no convenience store element).
Any clothing retailer can emphasize keeping cozy and warm this winter, since heating prices will be at a peak. Any home improvement/hardware retailer can emphasize insulation, thermal window installation, storm doors, thermostats, and ceiling fans. Any food retailer can emphasize baking and roasting this winter, since oven use warms a house. Electronics and appliance retailers can emphasize ahead-of-schedule product replacements, since new items are often much more energy efficient than older ones.