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CALGARY -- The Wal-Mart juggernaut is rolling into retail gasoline markets across Canada, sparking immediate price wars and perhaps permanently depressing the cost of a fill-up.
Bentonville, Ark.-based Wal-Mart Stores Inc. and partner Murphy Oil Co. Ltd., the Canadian subsidiary of El Dorado, Ark.-based Murphy Oil Corp., have quietly set up two gas stations since late July, one in Dryden, Ontario, and the other in Edmonton, Alberta. Murphy operates the stations located on Wal-Mart property, which are linked to the store through promotional tie-ins, the Toronto Globe and Mail reported.
Another station will start operating in Calgary in late September, pending governmental approvals, said Murphy Oil vice president Tim Larson. Three other Canadian cities are slated for Wal-Mart gas stations.
Calgary consumers have already benefited from hypermarketers, even before Wal-Mart sets up shop. Several grocery chains offer substantial discounts to customers with loyalty cards, up to a 7-cent savings per liter, if they also make a store purchase. That has led gasoline retailers such as Petro-Canada and Shell Canada Ltd. to offer their own discounts from posted prices.
But Wal-Mart's approach is much more direct: It aims to offer the lowest gasoline prices in any market it enters, and will post that price. It also gives an additional penny off for customers bearing a Wal-Mart Shopping Card, the report said. "It will save you time, as well as money," Wal-Mart spokesman Andrew Pelletier told the Toronto Globe and Mail.
For the retailing giant, the aim is to draw new customer to the retail heavyweight and encourage existing patrons to gas up after stocking up. In the United States, Murphy's U.S. parent operates about 450 gas stations in Wal-Mart parking lots, the result of a five-year partnership.
With the arrival of Wal-Mart, prices plummeted in Camrose in August to as low as 64 cents a liter, about 8 cents less than in the much-larger Calgary market. Yesterday, prices had rebounded to about 71 cents, still cheaper than in Calgary, although Wal-Mart itself was selling gas for 74.9 cents.
Pelletier said temporary underpricing can be expected at new stores to attract customers, and that Wal-Mart and Murphy will generally offer the lowest pump price. Price wars are usually short-lived in gasoline retailing, since thin margins leave little room for sustained cost cutting, the report said. They are also a phenomenon largely limited to big cities, where each station needs to keep selling a comparatively huge volume of gasoline, intensifying competitive pressures.
In smaller, less-volatile markets prices tend to be more stable and higher over time, analysts said. But Wal-Mart's entry promises to upend that calculation as it drives down prices, and drives smaller stations out of business, the report said.