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Margins may be pinched at the pump, but that doesn't mean that the fuel island has lost its punch. Marketing companies, looking to transfer the power of the Web to petroleum operators, are eyeing gasoline dispensers to heighten the shopping experience.
Eager to transform the gas-pumping box into an informational and commercial kiosk, suppliers have introduced a concept that combines TV, advertising, coupons and helpful services via high-resolution monitors integrated into the pump or mounted atop. These pump screens offer customized content or a standard blast of national news, sports and weather, complete with commercials. They also alert motorists to bargains at the on-site location, potential traffic snarls in the neighborhood and automotive diagnostics, including the ability to inject motor fuel additives on the spot.
The list of gasoline retailers testing these systems makes up a veritable who's who of the industry, including BP, Chevron, Citgo, Wal-Mart, The Pantry, Phillips 66, Pilot, Coastal Mart, Miller Oil and more. Among the companies behind this creative offering are Next Generation Network, Minneapolis; BillBoard Video Inc., Frisco, Texas; Outsite Networks, Norfolk, Va.; and Additech Inc., Brookfield, Conn.
Marketing companies tout the growing number of retail chains employing these mass-medium tools as endorsements of their products. In truth, the jury is still out. Industry opinion suggests that pump screens may be worthwhile, but, like other panaceas, they most likely will fall short of their hype.
"The problem with most of these companies is that they have the ideas but no money," said Peter Sodini, CEO of Sanford, N.C.-based The Pantry Inc., operator of 1,350 stores. "We have looked at a lot of programs on a one- or two-store basis, but we have not seen anything that is off the charts. The statement that these programs can deliver thousands of dollars in additional revenue for every location is in the realm of gross exaggeration. During the last year, many of the companies out there selling these concepts have been taken out of the game."
Sodini sees this youthful marketing segment, which focuses its efforts on gasoline pump transactions, as being in the midst of a shakeout. "The traditional path was for companies to get a good idea, get some initial revenue in the house, float an IPO, get real equity, and then see if the concept really pans out. But that avenue is closed off now. Wall Street is not looking for a hot IPO," he observed.
Despite Sodini's misgivings, The Pantry is testing several of these programs at 12 store locations. The apparent motivation is that if one or more can deliver even a fraction of the revenue being promised, they could be valuable additions to the company's operations.
Gregg Wingert, marketing senior vice president at Coastal Mart, which was acquired earlier this year by Houston-based El Paso Corp., sounded the same note of caution about the pitfalls presented by pump screens. But he is enthusiastic about a program being tested at two Tampa locations with Additech, tying petroleum additives to the dispenser, allowing motorists to pump STP motor fuel during a fill-up, while lifting what is a barely noticed category inside the store.
"We are still looking at some preliminary findings that actually show a gallonage increase. We believe it gives us a competitive niche," he said. "Our preliminary analysis said customers are getting larger fill-ups, because they are subjected to the infomercial about STP, told how to increase the performance of their gasoline, informed of how it can be injected right into the pump they are holding. We think their perception is, 'I want more of this value-added gasoline.'"
Sam's Club is the most recent company to tap Additech, introducing the fuel additive technology at a Houston area location this past summer, with plans for additional installations. Joe Hardin, Sam's gasoline operations director, said, "We are pleased to be the first warehouse club in the country to offer this technology," noting that the added-value service was a natural offshoot to Sam's fuel offering.
While Sam's is just gearing up, Wingert is expanding his Additech offering, wooing local advertisers -- from sports teams to neighborhood businesses -- to run ads on the system. "In the near future, all the dispensers will have the capability of adding to the shopping experience," he said. "It will be up to the retailer to enable that feature. Some companies have the resources to sell these programs and tie them in with their own, but you have to keep changing the message and keep it interesting."
Growing Pains, Gains
As retailers wade in, gently testing the waters, high-tech innovators are enduring pain and, in some instances, gain.
The biggest surprise came when Ten Square, the high-flying, deep-pocketed company from San Jose, Calif., shut down in late July. Backed by industry giants BP, Chevron and Marconi Commerce, Ten Square touted a $35-million bankroll and captivated clients -- a point not lost on its founder and CEO Scott Slinker.
In an interview with Convenience Store News last spring, Slinker distinguished Ten Square from the maze of competitors. "What sets us apart," he said then, "is we have access to capital. We have raised $35 million to date, and look at our partners. We have oil companies as investors/partners. Chevron and BP have invested in the last round and the round we are raising right now. They are also clients."
But in early August, confirming the company's demise, he lamented, "We were six months from becoming profitable. But this was like "The Perfect Storm." The economy went south, the venture capital went south and our strategic investor was having dire financial problems. A startup like ours could have survived one of these hits, but not all three."
Ten Square's collapse is not necessarily a portent for the high-tech segment. Others that have adopted more modest profiles to complement their more modest budgets are plying away, enlisting new players across the fuel spectrum, as well as upgraded technologies.
In recent months, Outsite Networks entered into deals or embarked in serious negotiations with Murphy Oil, Shell Oil and QuikTrip Corp., as well as several other high-volume gasoline players.
Created by Dutchman Anton Bakker, Outsite has rolled out what it describes as a second-generation radio frequency identification (RFID) system that blends media technology. The company employs two versions, including a full-scale system with a 15-inch LCD pump topper activated by the wave of an RFID tag. "Mobil deserves a lot of credit. Speedpass is a wonderful technology," Bakker said. "A lot of the jobbers I meet say they need some kind of loyalty program based on the Speedpass model.
"ExxonMobil focused on payment. I'm focusing not on payment, but loyalty programming," he added. "I'm looking at the grocery chains and mass merchandisers like Target and Wal-Mart. They have bar-code readers that give you instant gratification with coupons and loyalty points. We've developed audio and video technology to be complementary to the gasoline retailer's core business. We're an enabling organization that takes the pain away from how you can communicate with your customer."
For instance, QuikTrip Corp., the Tulsa, Okla.-based chain with more than 330 stores and a reputation for aggressive gasoline pricing, is piloting a scaled-down Outsite model that greets customers and introduces motorists to in-store services. "Essentially," Bakker said, "you have two minutes to tell the customer about yourself and why they may want to go into the c-store. It's an important competitive tool against the larger retailers."
To date, Outsite Networks is in approximately 250 locations, ranging from Miller Oil Co. of Norfolk, Va., operator of 58 Neighborhood Market stores, to behemoths like Bentonville, Ark.-based Wal-Mart Stores Inc. and its gasoline partner Murphy Oil. "I think there is a large opportunity there," said Bakker. "It is something that the jobbers in the market need because margins on gas sales are not high. We are also helping to bring people into the stores where the average margin is 30 percent versus 9 percent or 10 percent at the pump."
Assuming a less interactive approach is Billboard Video Inc., which reports having approximately 4,000 store locations using its Internet and wireless capabilities. The company delivers advertising and information to the store's computer, then to the gasoline islands via wireless transmissions. In addition to c-stores, offerings like Billboard are penetrating supermarkets, malls and train depots.
"We provide 15- to 30-second pieces on local news, weather and sports, with some advertising messages of about 15 seconds," said Brad Court, vice president of retail sales. "When we go to advertisers, we pitch to the outdoor media guy or the cable guy. We present our programs to different areas of these companies as a way for them to create a new revenue stream."
Court sees three basic revenue sources being generated by Billboard Video's programs: shared advertising revenue, additional sales generated by foot traffic inside the store and add-on sales produced by the store's own advertising at the pump.
One of Billboard's clients couldn't refuse the offer. "How could we resist?" said Brad Butcher, national facility revenue manager at Knoxville, Tenn.-based Pilot Corp., which signed an agreement to test the system at 137 locations, primarily along interstates. "The concept helps drive customers into the store when they might normally drive off after filling up."
Formerly known as E*billboards, Next Generation Network (NGN), like Billboard, takes a broader view of the opportunities presented by consumers forced to wait for something - whether they are pumping gas, waiting for an elevator in a hotel lobby or standing in line at a quick-service restaurant or pharmacy.
NGN president Tracy Crocker said, "Part of our strategy is to build a network that interacts with people throughout their day -- a gas pump is one of those places. "That network also includes adapting the message to day parts, so that new impressions appear morning, afternoon and evening. NGN also takes a brand-name approach to its programming, offering ABC News, Accuweather and Associated Press, while allowing retailers to fine-tune message content.
Through NGN, retailers capture revenue two ways -- shared advertising revenue and promotional programs that generate foot traffic. Crocker views gasoline islands as a natural venue to communicate with consumers. "If you deliver a stream of promotional messages, customers will tune them out. But if you catch them for two minutes, brighten their day, and then offer them some advertising, they are more likely to take notice," he said.
Leading pump manufacturers Dresser Wayne, Marconi Commerce Systems Inc. and Tokheim Corp. have taken note of the need for additional hardware and software to accommodate these proliferating marketing vehicles.
"We have to gear our new product designs on the drawing board to be able to support the marketing feature or the video features that come with advertising or couponing, or whatever it happens to be," said Scott Negley, Wayne's product manager for forecourt systems. "We recognize that our new designs have to have an upgrade path, and we are also working to develop the same kind of retrofit package."
He sees an increased emphasis on display technology, with more interest in larger screens that support full-motion video, along with lighting concerns that affect daylight viewing. And then there are the links between pumps and individual stores, Internet-based networks maintained by retailers, and the wireless systems that many gasoline retailers now rely upon.
Frankly, Negley believes the marriage between dispensers and pump toppers is in the embryonic stage and is certain to mature. "There is no question that the whole industry is going in this direction," he said. "We have seen it as a steadily climbing trend. The dispenser is far more than a functioning gasoline outlet. It is a marketplace. Retailers are doing as much as possible to squeeze revenue out of it."