Kroger, Costco Growing Fuel Programs

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Kroger, Costco Growing Fuel Programs

CINCINNATI -- Kroger Co. is convinced that selling gasoline with groceries can add up to more convenience, more customers and more revenue for the country's largest grocery store chain. Kroger operates 75 percent more fuel centers at its grocery stores than it did at the end of 2001, having added 150 this year, the Cincinnati Post reported.

Gasoline sales may help position Kroger as a convenience center, but they won't necessarily be a lucrative profit center. "It's very low margin, like just about everything else in the supermarket business," Lynn Marmer, company vice president of corporate affairs, told The Post.

In a report filed in August with the Securities and Exchange Commission (SEC), the company called the fuel centers "a low-profit margin item" and said it expects to see its gross profit margins decrease as it sells more gasoline.

Kroger isn't alone in its new emphasis on blending groceries and gasoline. More than 16 percent of the country's grocers -- from major chains to small single-store operations -- have added gasoline sales to their product mix this year, according to the Food Marketing Institute (FMI). The group said the percentage jumped from about 2 percent in 2000 to 8 percent last year and 16 percent this year.

Fueling Competition
Selling gasoline continues a broader trend that began in the 1980s, when grocery stores began to offer other products and services in addition to food. Like Kroger, Seattle-based Costco considers gasoline sales to be one more way to attract customers to its membership-only club. "Usually we put them wherever we can," said Costco Chief Financial Officer Richard Galanti. He said 176 of the 300 Costcos in the U.S. sell fuel.

Fuel centers also provide grocery stores with another weapon to compete against convenience stores that typically sell gasoline and a limited selection of groceries.

Some grocery chains that offer gasoline have started creating their own convenience stores at the fuel pumps, which may be only 100 yards from the grocer's full-line store.

Gas sales also provide the company with another opportunity to build loyalty, a prized attribute in the competitive grocery business. There are also cross-promotional opportunities to offer discounts on gasoline at the grocery store register.

The report said that Kroger, which has 2,249 stores in 32 states, has more supermarket fuel centers than any of its traditional grocery competitors. For the current year, the company estimated that it would sell about 1.3 billion gallons of gasoline, roughly one percent of all of the gas purchased in the country.

The company has experience selling gasoline, as nearly all of its approximately 800 convenience stores sell it already, "We're certainly in it for the long haul," said Art Wulfeck, manager of communications.