An new shift in the retail channel between supermarkets and c-stores

1. By Angel Abcede
aabcede@cspnet.com
W
hen grocery chains such as to pay, you’re going to have to bring “Ukrop’s has always been
Giant Eagle, Jewel and new customers to the location.” interested in the gas busi-
Albertsons began placing Since becoming the preferred gaso- ness,” says Larry Halley, man-
pumps on their lots earlier this decade, line retailer for Richmond, Va.-based ager of corporate and retail
convenience retailers rolled their eyes Ukrop’s Super Markets Inc. last year, systems for the grocery chain.
and braced themselves for yet another Johnson says the chain has sold 7 mil- “But it’s not our forte. It’s cap-
assault on their gasoline profits. lion gallons through the fuelperks! pro- ital-intensive and not what we do.”
But in 2009, retailers are seeing a dif- gram. More importantly, he’s seen All good? Here are a few key pain
ferent picture unfold. Partnerships are double-digit percentage increases in points to consider before entering into
springing up between grocers and c-store volumes overall, meaning that his new a third-party relationship:
operators, as a way for the former to Control. Because many partner-
leverage existing fueling sites and for
the latter to bump up traffic counts.
“Gashasamore ships have grown from established
grocery programs, the destiny of
While the gas-grocery solution psychological perception of the fuel retailer’s loyalty efforts
may not be for all convenience value thancashback[for could be in someone else’s hands.
retailers (see Kraft/CSP Daily News groceries]orarewards “What if your partner at the end of
poll, p. 214), those engaged in such point.Fuelretailers the contract decides to turn off the
partnerships say it’s been a boost
to their businesses.
havethesecret sauce.” program or promotes it improp-
erly?” says Nicole Nunn-Walker,
“If all you’re going to do is vice president of marketing for
reward customers you already have, customers have decided to keep buy- MetroSplash Systems Group, Dallas,
that’s one thing,” says Terry Johnson, ing gasoline from the Uppy’s chain. which markets a program called
vice president of marketing for Uppy’s, For Ukrop’s, the tie has proven pop- FuelLinks. “[Retailers] are seeing grocers
Chester, Va., a 40-store chain that part- ular with customers, having paid out $9 get the lift by promoting things in their
nered with a local grocer’s loyalty pro- million in rewards and exceeding 1 mil- store, so they’re asking, ‘Wouldn’t it be
gram last year. “But in order for loyalty lion redemptions earlier this year. beneficial to use my own fuel power to
O c t o b e r 2 0 0 9 CSP 209

2. Loyalty
Numbers
The numbers retailers look to when
considering grocery ties, or any loyalty
system, can include the following:
15% to 20%
Lift seen in fuel sales due to grocery
partnership, according to Excentus Corp.,
Irving, Texas
80-20
The favorable split that some c-store retailers
are seeing from grocers who want to offer
fuel discounts, according to ValueCentric
Marketing Group, Binghamton, N.Y.
10%
The percentage of convenience retailers FOOD AND FUEL: The ties between groceries and gas appear to be getting tighter
that have adopted loyalty programs, as more retailers contemplate partnerships.
according to ValueCentric
65% c-store numbers, creating a com- For instance, the two chains initially
Percentage of 2,400 U.S. consumers in First pelling lure for fuel retailers to cap- offered 10 cents off per gallon for every
Data’s “2009 Consumer Loyalty Study” who ture new customers. $50 in groceries a customer bought.
belonged to a grocery-store loyalty program Cost. While not elaborating on Today, they offer 5 cents per gallon due
what the company had to spend to tie to the expense. “But even that didn’t
35% into the fuelperks! program, Johnson seem to hurt the program,” he says.
Percentage of consumers in that same First
Data study who said their decision about says compatibility issues forced Uppy’s The Uppy’s chain had toyed with
where to shop was “very” influenced by to upgrade equipment: “It wasn’t loyalty programs in the past, says John-
gasoline loyalty programs. Bookstores were cheap.” So for many retailers, the cost son, but Ukrop’s approached them
second at 33%. of tying to a grocer’s program—while with a plan whereby the two divided
probably a fraction of the burden of costs, with the grocer paying substan-
maintaining an in-house version— tially more for the discount. Other ele-
promote my higher-margin [items]?’ ” may still be considerable. ments sealed the deal, such as Ukrop’s
Natural fits. While issues of control Ultimately, tying in with a grocer’s reputation as a local, highly respected
may linger, no one can deny the yin- loyalty program is a complex agree- business within the Richmond market.
yang relationship that gas has to gro- ment. Retailers have to agree about who Uppy’s own concentration made the
ceries. Rollbacks at the pump are more pays for things such as the discounts, partnership a logical move.
exciting than cents off a bag of rice associated transaction fees and equip- So the chain took on the added costs
cakes, say loyalty providers, and gro- ment upgrades, as well as marketing, to upgrade its store-level equipment,
cery rings hit the kind of dollar range length of contracts and other issues that which Johnson says at some sites needed
that make discounts truly viable. come with involved partnerships. John- to occur anyway, and gave the stores the
Common attractions. Economic son says, “You’ve got to have a good capacity for pumps to “roll back” prices
realities are forcing many grocery partner and see eye-to-eye with them.” as customers retrieved their rewards.
chains to leverage existing assets, such “Customers are excited to save $10 and
as neighboring gas stations, if they Retailer Wins have to tell someone, so they start talk-
want to compete with big boxes and Uppy’s partnership with Ukrop’s has ing to the other customers or to
other supermarkets that have put fuel been an unequivocal win, with cus- employees,” he says.
on their lots. At the same time, the tomer response remaining strong even While Johnson says inside sales have
traffic a grocery store draws dwarfs as the program evolves, Johnson says. risen because of the program, it’s not as
210 CSP O c t o b e r 2 0 0 9

3. LogisticsChecklist
Suiting up a location to accept loyalty can be a daunting
task. Here are a few pieces in the logistics equation:
I A “box” that supports the loyalty program.
House (ACH) debit transac- T-Jay Johnson is unable to partner with
I A logic-control board for pumps and other electronics
necessary to link the station to the loyalty program. tions. The process bypasses a grocery store at this time, he wants to
I Digital subscriber line (DSL) or satellite connections. Visa and MasterCard credit eventually. He says convenience retail-
I The loyalty program’s server. fees, allowing the store to pass ers in his area have ties to grocers and
I A POS device that can process the program. on the savings to customers he’d like to compete against their offers.
in the form of a discount.
In addition, Drew Mize, vice president of product
Taking this route purely A Grocer’s Perspective
management and marketing for The Pinnacle Corp.,
Arlington, Texas, says retailers sometimes overlook from the perspective of the For Ukrop’s, the desire to augment its
some of the more obvious steps and their costs: credit-fee savings, T-Jay John- rewards program with a fuel tie existed
I Cards. son, store manager for for some time, according to Halley, who
I Sign-up forms. O’Ryan’s Monticello, says says the company’s proprietary loyalty
I Signage. he’s brought his credit-card program began in 1987 with a printed
I Advertising: radio, TV, etc. use from 80% back to at least card that used customers’ phone num-
I Employee training. 75%, with the difference bers as identifiers.
I Web site updates. potentially reaching 10%. He Halley believes the gas-grocery con-
I Incremental employee wages involved in calls those numbers “a great nection is intuitive. “It’s not like air-
administration, customer service, etc. success.” lines miles, where it’s about a purchase
I Maintenance including additional hardware (if For many retailers, saving you don’t have to make,” he says. “Gas
necessary), spare parts, replacements, service, etc. on credit-card fees is the pri- and groceries are things we need to
mary goal, according to Joe survive day to day. We need to eat. We
dramatic as the sales of gasoline, because Randazza, CEO of National Payment need to work. We need to get places.
that’s the product being discounted. Card Association, Coconut Creek, Fla., It’s a good fit.”
“The more people there are on the lot, whose company operates the O’Ryan’s Ukrop’s chose Uppy’s not because
the more there are in the store,” he says. Monticello program. “It’s a traffic-build- both chains start with U, as Halley says
Other retailers believe that just being ing program,” he says. “It’s an alternate jokingly, but because the fuel chain had
able to offer cents off per gallon via some form of payment that merchants can locations that complemented the
type of rewards mechanism is the criti- use to change consumer behavior.” Ukrop sites; Uppy’s family history also
cal element in the equation. O’Ryan’s The other two stores in the O’Ryan’s was appealing. In addition, the way
Monticello, Monticello, Minn., has one Monticello chain would probably take Uppy’s paid for and executed the nec-
of its three sites on a card that allows cus- advantage of the cards if a POS upgrade essary technology upgrades solidified
tomers to pay via Automated Clearing were not required. And even though the partnership. “Uppy’s has got a lot
212 CSP O c t o b e r 2 0 0 9

4. RETAILERS SKEPTICAL OF GROCERY TIE
Do you think grocery and c-store partnerships make the best loyalty programs?
Wetzel, vice president of marketing for
15.8% Yes
Excentus, Corp., Irving, Texas, which
Yes, as part of a operates the fuelperks! program.
24.8% larger coalition of stores. But the ability of many chains and
independent grocers to establish the kind
No, c-stores should run
59.4% their own standalone programs. of fueling network that, say, a Giant
Eagle has done is limited. “We’re seeing
Source: Kraft/CSP Daily News Poll. Based on 101 respondents. a continued movement toward grocers
partnering with c-stores as opposed to
of skin in the game with us,” he says. another major grocery player in the area building their own,” Wetzel says. “[They]
As far as numbers go, Halley says the had a fuel program. Ukrop’s designed want to leverage existing assets in the
economy puts a haze on determining the basic elements of its loyalty program field as opposed to going through the
success. He prefers to ask where the to outdo the competitor’s reward-expi- expense and operational learning
company would be without the pro- ration dates and usage terms. process of running fuel stations.”
gram. “In our analysis, it helps keep loyal In addition, cents off a gallon of gas
customers loyal,” he says. “The spend- The Gas, Grocery Equation seems to resonate with customers, says
ing rate continues to be good for our The move by hypermarkets into gaso- Nunn-Walker of MetroSplash. “Gas has
[loyal customers]. And that’s important line was one reason many of the larger, a more psychological perception of
because they have other options.” regional grocery stores started installing value than cash back [for groceries] or
The move was also strategic, because pumps on their lots, according to Scott a rewards point,” she says, pointing out
how the c-store acts as the redemption
outlet for grocery discounting. “Fuel
retailers have the secret sauce.”
But supermarkets can be a new
resource for untapped traffic. Jim
Nevill, president of Midax Inc., Virginia
Beach, Va., says supermarkets act as an
anchor for the gas-grocery loyalty tie
because of the sheer numbers they
draw to their lots. “We identify that our
realm of people will go to a grocery
four times for every one time to a c-
store,” he says. “And [supermarkets
have] the critical mass to a make a con-
tribution [to the discounting].”
What concerns some is that grocery
stores carry many of the same products
that c-stores do. Ideally, a customer who
has purchased groceries will then move
to the gas station and potentially go into
the store for a follow-up purchase,
according to Anton Bakker, president
and CEO of Outsite Networks, Norfolk,
Va. “Hopefully it won’t have the effect
of cannibalizing c-store sales,” he says.
214 CSP O c t o b e r 2 0 0 9

5. Wider Net In addition, Wendy Kobler, marketing whether with a grocery partner or not,
Providers such as Nevill of Midax manager for Fiscal Systems Inc., Madi- lies a more basic issue: that of simple,
believe the potential for more loyalty son, Ala., says the system needs to pro- store-level execution. Brooks says keep-
programs to crop up is high. At least vide relevant customer-tracking ing restrooms clean, making sure
51% of regional and local grocers, information. On top of that, “a busi- cashiers dress professionally and inter-
which some consider still as fragmented
a channel as convenience retail, have
ness has to know how to
use the information,”
“Themore act well with con-
sumers, and always
yet to adopt a program, he says. she says. people there looking for ways to
The number of c-store retailers who Training. The simple areonthelot, “surprise and delight”
have embarked on programs could be act of a cashier asking themore people are all steps
as low as 10%, according to Roger for the customer’s loy- therearein toward building loyalty.
Brooks, vice president of loyalty mar- alty card during a trans- “All that is bigger
keting for ValueCentric Marketing action is a critical aspect
the store.” than the card,” he says.
Group, Binghamton, N.Y. Part of the that must be engrained into staff Editor’s Note: Last June, Excentus
reason is the difficulty of executing pro- behavior. filed a patent-related lawsuit against
grams. He mentions some common Marketing. Retailers have to com- Pleasanton, Calif.-based Safeway. At
stumbling blocks: municate to customers that the program press time, the grocer had discontinued
Multiple, limited POS. Integration is exists and then continually promote the its PowerPump rewards program, with
key to allowing all stations in a retailer’s program to generate activity. a spokesperson saying the move was not
network to accept the loyalty program. Beyond executing a loyalty program, related to the lawsuit. I
O c t o b e r 2 0 0 9 CSP 215