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CBS Reports on Below-Cost

Competition between hypermarket fueling centers and traditional gasoline marketers received national attention through coverage by the CBS Evening News on Wednesday.

During Wednesday's "Eye on America" segment entitled "Driving the Little Guy Out," CBS News Correspondents Wyatt Andrews and Dan Radovsky presented a view mostly sympathetic to smaller marketers and convenience store operators.

The segment featured Garnett Ladd, operator of Ladco Inc., a chain founded by his grandfather in Clarksville, Tenn. Ladd claimed that he has been forced to shut down his entire chain due to the below-cost marketing practices of local Wal-Mart, Sam's Club and K-Mart fueling centers. "We cannot, as an independent marketer, continue to sell gasoline at or below our cost," said Ladd.

"But for consumers, discount gas from chain stores is the success story of the year," reported Andrews. "Retailers, like Sam's Club, doubled their share of the gas market last year using a simple strategy ? selling gas cheaply outside to lure shoppers into the stores. Not surprisingly, customers are happy to buy for a few cents less per gallon."

Describing below-cost selling as "rampant," Dan Gilligan of the Petroleum Marketers Association of America argued that "if [hypermarkets] run out all the other competitors, they will totally be free to exact whatever price they want ? this is crazy." Consumers may lose in the long run, if big-box retailers begin to dominate the gasoline business, Andrews reported, explaining why PMAA has helped persuade 14 states to ban the sale of gasoline below cost.

However, a handful of short interviews with motorists fueling up at a local Wal-Mart indicated that while consumers "feel for mom-and-pop," many still shop for the lowest prices.

As a result, below-cost laws can hamstring good competitors, argued Stan Sheetz, president of Altoona, Pa.-based Sheetz Inc., which sells discount gasoline in five states including Maryland, where below-cost sales are banned. Sheetz uses cheap gas to help drive customers into its stores where higher-margin items, such as its renowned sandwiches and coffee, offer better profits for the company.

In Maryland, Sheetz has been ordered by the state to raise prices. "They come in and say 'yes, you must raise the price of your fuel," he told Andrews. "This is an illustration of how stupid this law is."

The segment ended with a shot of Ladco's fuel pumps being driven away on a truck. "It's sad, it's the end of the era," said Ladd.
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