By MARINA STRAUSS
Thursday, January 12, 2006 Posted at 9:38 PM EST
From Friday's Globe and Mail
Tight profit margins, limited space and regulatory straitjackets are helping to delay discount retailers' efforts to set up gas stations as they try to woo more customers to their stores.
Both Wal-Mart Canada Corp. and Costco Wholesale Canada Ltd. have been slow to roll out low-priced gas bars at their superstores, dragged down by existing or potential provincial pricing regulations, zoning approvals and inadequate space in their parking lots.
Costco, which has gas stations at only three of its 66 massive outlets, found that competition in British Columbia was “ferocious,” cutting into margins, said Louise Wendling, country manager for Costco in Canada. Meanwhile in Quebec, the chain is battling provincial minimum pricing requirements, which have forced Costco to raise its rates.
“We're going to go about it slowly,” Ms. Wendling said in an interview. “We're not in the business of running a business at a loss.”
Retailers ranging from Loblaw Cos. Ltd. to Canadian Tire Corp. Ltd. have been keen to add gas bars to their stores, viewing them as another way to entice customers with low prices and convenient services. The strategy is particularly appealing for consumers now that gas prices have surged, prompting a preference to make fewer shopping trips.
But some merchants have discovered that the strategy is more difficult to execute than they may have anticipated. Margins are slim, especially in Southern Ontario where competition is fierce, while fuel price controls in some provinces can play havoc with merchants' goals, said consultant Michael Ervin, president of MJ Ervin & Associates Inc. in Calgary.
Wal-Mart, which teamed up almost four years ago with a Canadian division of Murphy Oil Corp., has opened gas bars at just eight of its 263 discount stores despite plans to add about 20 stations annually.
Murphy may have expected to generate higher margins, and is probably disappointed, Mr. Ervin suggested. Murphy operates gas bars at Wal-Marts in the United States, but price competition isn't as vicious south of the border, Mr. Ervin said. A Murphy official did not return phone messages.
Wal-Mart, for its part, had intended a more rapid expansion of its gas bars, Wal-Mart spokesman Kevin Groh acknowledged. It may look at partnering with other gas players, or even running its own gas bars, he said.
“Our largest challenge is space,” he added, citing parking lot priorities. In some cases, the stores are part of a mall that won't accommodate gas operations.
With only eight gas shops in Alberta and Ontario, customers don't expect to be able to fill up their cars at a Wal-Mart, he said. “From a real estate perspective, it was a bit of a false start.”
The giant discounter is considering opening between 10 and 20 more gas bars, although probably not in the next year or more, he added.
And while Wal-Mart has not been hampered by provincial regulatory limitations, Costco clearly has.
In Quebec, where Costco runs one station, its recipe of selling high volumes at ultralow prices has been scuttled by the provincial imposition of a 3-cent-a-litre “tax” on operators such as Costco that have let their prices slip below regulated weekly minimums, Ms. Wendling said.
Costco is battling the province over the matter, and more than 1,000 customers have signed a petition objecting to it, she said. “We ended up being non-competitive.”
In the face of the challenges, Costco will only provide gas bars at a limited number of its stores beyond the one in Quebec and two in British Columbia, she added. In the spring, the chain plans to announce another three stations, although she would not say where they will be located.
Still, a number of retailers are plowing ahead on the gas front.
Loblaw has 189 gas stations at its more than 1,000 stores, most of them in Western Canada, and plans between 20 and 25 more this year, said Loblaw spokesman Geoffrey Wilson. Loblaw sometimes has to seek zoning changes for gas bars, he said, and parking lots aren't always big enough. “If the site is large enough our plan will be, wherever possible, to open gas bars.”
Loblaw, which runs Real Canadian Superstores, No Frills and Extra Foods stores, among others, offers promotional coupons at the pumps for items in the stores. “It's a great draw back into the stores, which is really what it's all about.”
Canadian Tire has slowed down its growth plans for gas bars, with more than 250 now operating and up to 35 on the drawing boards for the next three years, said spokeswoman Caroline Casselman.
Thin margins and price volatility have played their part in the slowdown, she said. But gas bars remain important to the retailer's marketing strategy, with cross-promotions helping to drive business.
WTF?
