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FAIRBANKS, Alaska -- It has a slim profit margin, means spending money on new construction and comes with fierce competition. So why have some of Fairbanks' major retailers -- Sam's Club is the latest with gas pumps expected to be ready for members by Sept. 1 -- jumped into the gas station market?
Two words: Foot traffic.
"I don't think retailers are entering the fuel market to make money on fuel, I think they're trying to utilize that as a way to draw consumers into their stores," said Ellen Tolley, spokeswoman for the Virginia-based International Mass Retail Association, which monitors industry trends and publishes STORES magazine.
Fred Meyer says it can make a profit at the pumps it opened in August of 2000, and competitors believe the same is true of Safeway's Bentley Mall store, which began offering gas about two years later. But Sam's Club sees gas mainly as an added service, an incentive for customers and a chance to boost in-store sales of other goods. "I know I'm not going to make money on gas," Kelly Paschall, a merchandise manager at Sam's, told the Achorage (Alaska) Times), but he said other clubs nationwide that added fuel pumps enjoyed overall sales increases.
For consumers, the increased competition sometimes means lower costs at the pumps, though the price can only go so low, retailers say. "The gas market in Fairbanks is not growing," said Rick Bucy, regional manager of retail for Tesoro Petroleum Co., which has five company-owned stations locally and works with eight branded dealers in the Fairbanks area.
Without demand increasing, any new competitor's growth comes at the expense of existing stations and some smaller operations probably won't survive, he said. "It's going to be a one-two punch to some of the little guys."
Still, Bucy didn't foresee major, long-term changes in Fairbanks gas prices because of the new competition and expected Sam's fuel to be priced on par with Safeway and Fred Meyer. Drivers will need a Sam's Club membership to use that store's pumps, which won't include diesel. "We will be the price leader," Sam's Paschall said.
Fairbanks has 29 active gas stations, with seven in North Pole, according to Alaska Department of Environmental Conservation figures. The department keeps an eye on the industry because it regulates gas station tanks, said Marti Early, ADEC community involvement specialist. The amount gas stations pay refineries for their gas is confidential, but in general major buyers can pay less per gallon by buying in volume.
"There's not a big difference, but it's not the same for everybody. It has a lot to do with the volume they're taking down, their credit and their payment schedules," said Jeff Cook, vice president for external affairs at Williams Alaska Petroleum, which owns and operates a North Pole refinery.
Alaska is catching up with a Lower 48 trend toward larger stores adding gas pumps to help attract customers, he said. "Everybody in the states has been doing it for probably about five years and it's really successful."
Fred Meyer's expects the majority of its gas consumers to combine their fuel trips with shopping in the store, said Rob Boley, Fred Meyer spokesman. The company has 10 stores in Alaska, six with gas pumps. It plans to add more pump stations at its Alaska stores, but Boley declined to give details.