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By Stephanie Hemphill
November 21, 2000
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Some owners of gas stations and convenience stores around the state are getting nervous as Wal-Mart's and Sam's Club stores begin selling gas at discount prices. Nationwide, nearly 2,000 discount stores and supermarkets sell gas, but so far Minnesota has seen only skirmishes in this latest assault in the gas wars.
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"When they were posting $1.32, that was seven cents below my cost. I got down to $1.39, which was my cost and I was still losing business. So I raised it a couple of cents. Not making enough to stay open and still losing customers is going be an interesting challenge. We hope to overcome it, but it's going to be interesting," Curtis says.
Stores in Worthington have already experienced the same "interesting challenge." Last summer, Worthington's Wal-Mart partnered with Murphy Oil to offer discount gas. The nearby Co-op gas station lost 10 to 15 percent of its business right off the bat, according to manager Gary Koschmeder. All the stations in town cut their prices and the difference between wholesale and retail prices practically disappeared. Since then, Koschmeder says, most of the small stations have brought their prices back up.
"Murphy continues to be very aggressive and but at least local stations have come to realize you've got to have so much to open the doors, so margins have gotten back at other stations in town closer to normal while Wal-Mart continues to be very aggressive with their pricing," Koschmeder reports.
Koschmeder remodeled the store, investing in new equipment so customers could pay at the pump. He says it'll be at least a year before he knows if it's paid off.
Some stations are at greater risk than others, depending on location and clientele. Chains like Holiday and SuperAmerica get better wholesale prices, and people who like to use gas-company credit cards tend to stay with their regular stations.
Koschmeder worries about the impacts on stores in smaller communities.
"Wal-Mart draws shoppers from a lot of small towns around southwest Minnesota and these smaller towns now have had maybe one or two stations and they're operating on a shoestring, they need all the business they can get and that's going to hurt; I think that's the first place you're going to see it is in the small communities surrounding Worthington."
Sam's Club spokesperson Melissa Berryhill says the price will stay low, consistent with the company's overall strategy. Sam's Club doesn't have to make a profit on gas, because the company makes most of its money from annual membership fees.
"The club business does not stay static, as any other business it's changing very rapidly, and we owe it to our members to stay on top of the changes, to look for innovative ways to make that card in their wallet the most valuable one they have," she says.
Convenience stores can't make money by selling membership cards. Sales of milk and other items inside the store bring a better profit than gas sales, but first people have to stop for the gas. Jack Curtis and his store managers are brainstorming ways to entice people to stop for gas, and shop inside as well.
"I hope I survive, it'll take some imagination, but I think we will," he says.
Sam's Club has no immediate plans to open other gas stations in Minnesota, but will watch the profits at the store in Duluth.
Stephanie Hemphill covers northeast Minnesota for Minnesota Public Radio. You can reach her at shemphill@mpr.org.
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