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    Sleeping with the Enemy

    The popularity of fuel price discounts is spurring some c-store operators to partner with supermarkets on gasoline promotion programs

    Past success is pushing the supermarket industry to up the ante in gasoline promotions, as more grocery retailers aggressively market their motor fuels to lure customers inside their stores.

    But the news isn't all bad for c-store/gas station operators, as some are partnering with supermarkets to their mutual benefit.

    "Supermarkets with fuel are a growing competitive threat, since they are typically putting in full-line c-stores on their parking lot gas sites," said Jon Hauptman, a partner with Willard Bishop Consulting, based in Barrington, Ill. "For other c-store operators, though, the trend is an opportunity to partner with supermarkets who want to leverage the power of gasoline in their promotional strategies."

    This is exactly what Greenville, S.C.-based Spinx Oil is doing. The petroleum marketer linked up with regional supermarket chain Bi-Lo on a program that awarded Bi-Lo's customers with a $25 reloadable Spinx gas card, which could be used at any of Spinx's 62 convenience stores. Not only did the program drive Bi-Lo shoppers to Spinx gas stations, it also helped add new participants to the c-store chain's state-of-the-art loyalty program, and provided insights that assisted Spinx's chief marketing officer Bill Reilly in his development of the retailer's new loyalty strategy.

    It started with a successful low-tech, limited-time gas promotion last spring. Customers who spent at least $35 in any of Bi-Lo's 200-plus stores got a Tank Token coupon, 10 of which could be redeemed at Bi-Lo for a $25 Spinx reloadable gas card. (Spinx has a 65-percent share of the market; there are nearly two Spinx stores for every Bi-Lo in Greenville and the surrounding markets.)

    During the program, which ran from April 11 through June 26, Bi-Lo awarded approximately 350,000 specially designed Spinx cards. "Our goal was to encourage the use of gift cards and keep these customers, especially the female customers who shop at Bi-Lo but are not coming to our stores," Reilly said. "We also hoped the cards would be reloaded and move some customers away from credit cards and reduce those fees. Bi-Lo knew gasoline pricing was an emotional issue that changes shopping behavior."

    Still, because Spinx's payment platform would not allow the Spinx cards to be redeemed at the pump, Reilly was concerned that customers would be aggravated by the inconvenience of walking into the store to pay for gas using the Free Gas cards.

    "The customer was already inconvenienced because Bi-Lo wasn't able to do this program electronically; they had to collect the coupons manually," Reilly said. "I wasn't sure about making the customers walk the extra 10 feet into the store to redeem them."

    Some of the problems Reilly anticipated were realized: A portion of customers was annoyed. "But, every time an associate in the store saw one of the specially designed cards, he knew it came from a Bi-Lo customer," Reilly noted. "It was like a label on the customer's forehead, alerting the associate to really TLC the customer," Reilly said. "Executing that with 900 employees was no easy feat, but at least it gave us an opportunity to identify them as a VIP customer, take care of them and try to keep them as a customer for life."

    Spinx sold Bi-Lo the gas cards at a discount and invested in promotional materials, such as banners and pump toppers. Bi-Lo also ran billboard advertising and had point-of-purchase materials in its stores. Spinx is now rolling out a new point-of-sale system from Radiant Systems Inc. and a loyalty program that will allow rolling prices back at the pump. The manual program "was a natural bridge to that," Reilly said.

    Although the cards were sold at a discount, Reilly anticipated a boost in merchandise sales, which would help increase margins. He also knew the value of some cards would not be fully redeemed.

    "We were having a good summer, and it's difficult to pinpoint how many gallons or inside sales were directly attributed to the Bi-Lo promotion," Reilly said. "But, both we and Bi-Lo felt good about the promotion and are talking about working together long term with our new loyalty program. My job is to figure out what the customer wants and how to deliver it -- and right now, they want cheaper gasoline."

    Similarly, Irving Oil Corp. recently partnered with Shaw's Supermarkets, a division of Minneapolis-based Supervalu Inc., on a fuel discount program. From Sept. 7 to Oct. 4, customers who used their Shaw's Rewards Card earned discounts from 10 to 60 cents off per gallon for every qualified $50 to $300 purchase. Discounts were presented as coupons, which could be redeemed at any Irving, Bluecanoe or Mainway station, for up to 20 gallons of gasoline per visit.

    The coupons, honored through Oct. 18, could be accumulated. "One person got a free tank of gasoline, basically," noted Rob Wilson, a spokesman for St. John, New Brunswick-based Irving Oil.

    The program included 57 of Shaw's 200-plus locations and more than 140 Irving sites in Maine and New Hampshire. "It drove traffic to our stores and people tended to fill up with more gallons at once, which built our business and hopefully, created loyalty with us and let Shaw's customers who have not visited us before find out what Irving is all about," Wilson said.

    The fall promotion was an expanded program that followed a successful eight-week pilot at three Shaw's and six Irving Oil locations in Littleton, Gorham and North Conway, N.H., during the summer. During the pilot, 7,500 Shaw's Rewards customers saved an average of 24 cents per gallon at Irving Oil sites.

    "We're committed to finding ways to bring additional value to our customers," said Harry Hadiaris, Irving Oil's director of convenience retail. "Teaming up with Shaw's allows us to reward our customers for something they are already doing -- buying food for their busy families."

    In another ongoing partnership, Supervalu's Shop 'n Save chain, a group of more than 70 independently owned and operated supermarkets in western Pennsylvania, eastern Ohio and West Virginia, is touting its Pump Perks program with Sunoco. Customers using a Pump Perks loyalty card can earn 10 cents off a gallon of gasoline, up to 30 gallons, with a purchase of $50 or more. The discounts are automatically tracked on the loyalty card and can be redeemed at more than 100 participating Sunoco units and four of the chains' own Shop 'n Save Express stations. They must be redeemed within 60 days of issuance.

    In the Northeast, Schenectady, N.Y.-based Price Chopper last year debuted FuelAdvantEdge, an added value to its AdvantEdge loyalty card. The operator of 100 Price Chopper stores in New York, Vermont, Pennsylvania, Connecticut, Massachusetts and New Hampshire partnered with local Sunoco stations that offered a 10- cent-per-gallon discount for every $50 of groceries purchased. A 20-cent-per-gallon discount was awarded for every $100 of groceries purchased, a 30-cent-per-gallon discount for every $150 of groceries purchased, and so on.

    Unlike some other reward programs, consumers may amass their points/dollars spent over 90 days and cash in on their gasoline discount for as many as 20 gallons at one time.

    The increasing importance of gasoline loyalty programs in the supermarket channel became clear recently when Kroger Co. boosted the value of its gasoline discounts in some markets to compete more effectively with Giant Eagle's fuelperks! program.

    During one early October weekend, The Associated Press reported Kroger stores in the Columbus, Ohio, area offered $5 worth of free gasoline when customers using Kroger's loyalty card spent $60 in its stores. In addition, customers who spent $100 in their grocery stores earned $10 in free gas, and a $160 purchase was worth $15 in free gas.

    Kroger also offers a discount program that earns customers up to 50 cents off per gallon based on store purchases. The revved-up promotion was only offered in central Ohio, the same region where the two grocery chains have been waging a price war. In May, Giant Eagle doubled its fuelperks! gas discount program, and currently offers 20 cents off per gallon at its GetGo gas stations for every $50 spent in its stores. The chain's popular fuelperks! customer loyalty program typically rewards grocery shopping with 10-cent gasoline discounts for every $50 worth of purchases made inside its supermarkets and GetGo c-stores.

    Earlier in the fall, Giant Eagle, operator of 225 supermarkets and more than 125 fuel and convenience stores, cut back its double-coupon redemption policy, saying consumers put a higher value on fuelperks! and other loyalty programs. (Pittsburgh-based Giant Eagle has since reversed course amid consumer outcry, saying it would not end the practice of doubling coupons in its Akron, Cleveland, and Canton, Ohio-area stores.)

    In a September conference call reviewing the company's quarterly results, David Dillon, Kroger's chairman and CEO, said the chain's fuel business "had a strong second quarter this year -- in sales, gallons and margin."

    While the food chain does not break out average gasoline sales or margins, Dillon noted: "In the fuel business, it is not uncommon to see variations from quarter to quarter. To account for these fluctuations, we encourage investors to consider a longer view when analyzing fuel margins."

    A small clue to the role gasoline is playing in the supermarket chain's strategy is seen in Kroger's overall sales figures. Total sales for the second quarter increased 6.6 percent to $16.1 billion, with identical supermarket sales of fuel increasing 5.8 percent and those without fuel increasing 5.1 percent.

    Kroger also is expanding the sale of E85, now available in 40 sites in Ohio, Texas and Kentucky. In an alternative fuel marketing effort, Kroger and General Motors last month promoted the use of E85 at a store in Cincinnati by offering it for less than $1 a gallon. For only two hours, starting at 7:30 a.m., Kroger sold E85 for just 85 cents per gallon, which was nearly 70 percent below the then-current price of more than $2.54 per gallon.

    During the event, three GM E85-capable Chevrolet vehicles were on display, while Kroger and GM executives were on hand to answer consumer questions. The first 100 customers were given a $25 Kroger refueling card.

    In a related move, Kroger's Ohio E85 fueling sites are benefiting from an agreement between Enterprise Rent A Car and E85 supplier, VeraSun. Enterprise has committed to concentrate flex-fuel vehicles around selected E85 fueling locations and will provide educational materials and maps to Kroger's fueling sites inside each automobile.

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