Wal-Mart’s Effects On Retail Gasoline Markets

Lynne Kiesling

Over at Truck and Barter, Kevin has a post on Wal-Mart’s next victims now that they’ve stomped all over the large toy store model. One of the next victims that Forbes names is retail gasoline.

Retail gasoline is a natural extension of the Wal-Mart business model. Sourcing the product through a distributed supply chain with technology-enhanced logistics gives an advantage to a company that can use technology and distributed information systems to lower its costs. Retail margins on gasoline sales are only around 2 percent anyway, which is why the traditional gasoline retailers (including vertically integrated and franchised and independent) have diversified so heavily into convenience items to up their margins on goods that are complements in consumption with gasoline. I can also see how signing a contract with Wal-Mart would be very attractive to a refiner, even if Wal-Mart follows its famous hard-nosed negotiation strategy.

There is another large retailer called Meijer in the Midwest that has been following this strategy for gasoline for almost a decade, and this getting economies of scope over small margin items and selling lots of them seems to be working for them too.

In fact, there’s been some criticism of Meijer and some accusations that they use gasoline as a loss leader to attract business. I do not believe anything has ever come of that accusation, and that it’s probably as unfounded as many accusations are of collusion and price gouging in the gasoline industry.


3 thoughts on “Wal-Mart’s Effects On Retail Gasoline Markets

  1. One issue here is that it can be less “convenient” (takes more time searching for the good and checking out/paying) to shop in a big store than a small one, and time is often at a premium when you are buying gas. Also, the bigger spatial footprint of a giant Wal-Mart could mean it takes more time to drive from the road to the pump. Wal-Mart has an advantage on inventory management but it strikes me as having a disadvantage because of its physical size.

  2. I lived in Alaska until the start of 2004, and the grocery stores there were selling gas in the last couple of years. The pumps were generally close to the road, and as easy to get to as a free-standing gas station. Fred Meyer gave a 3 cents/gal discount for using their shoppers card. I have moved to Cincinnati, and Meijer here has gas available, with a 3 cents discount if you present a grocery store receipt. Generally Meijer is about as cheap as the lowest station in the area. I can’t see much downside to the augmented competition.

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