Supermarkets that don't sell gasoline are using their loyalty cards to support cross-promotional programs with independent service stations.

With gas prices expected to hit $4 a gallon this summer in some parts of the country, drivers are looking for savings wherever they can find them, including the grocery store.

Supermarkets have been offering customer loyalty programs that provide discounts at the gas pump for a while. But until recently those rewards have been redeemable only at gas pumps operated by grocers or the convenience stores they own.

That is good for grocers, as they are able to get extra mileage from their loyalty programs. But what about those customers who want the fuel rewards but don't necessarily want to be locked into using the gas stations owned by the grocer?

And what about grocers that, due to space constraints or other limitations, don't sell gasoline? These operators also want to tap into the opportunity to boost sales by offering fuel incentives that are redeemable through partnerships with gas stations.

While both sides are eager to lock in loyal customers, it has been difficult to overcome some of the technical challenges necessary for supermarkets to allow their customers to redeem their rewards at independent gas stations. Because independent stations haven't had the technology to track and redeem the rewards, supermarkets have not been able to easily partner with one in their neighborhood.

Grocers like Giant Eagle, which operates the GetGo convenience store chain, have gotten around this hurdle by offering their supermarket customers the ability to redeem the gas points they earn buying groceries at the convenience store pump. Since they operate the supermarkets and the c-stores on the same technology platform, integration wasn't an issue.

But things are changing, if the recent wave of announcements about cross-marketing programs with independent gas stations is any indication. Grocers such as Supervalu's Shop 'n Save and Handy Foods are enabling loyal customers to redeem rewards at independent gas retailers, including Sunoco and Marathon Oil, using systems from Irving, Texas-based Excentus, a provider of marketing technology and integration services.

"This enables the supermarket to partner with the gas station on the corner, and that can bring tremendous value to the supermarket," says Scott Wetzel, vice president of marketing and retail/commercial markets for Excentus. "Supermarkets have wanted to partner with the corner gas stations for quite a while, but there have been some technology hurdles to overcome and we are making progress. We're seeing a lot of interest from supermarkets who want to find fuel partners for their loyalty programs."
The information from the grocer's loyalty program is provided through a link at the participating gas stations. When customers scan their loyalty cards at the pump, the per-gallon price is adjusted based on their reward levels.

More than 40 Shop 'n Save supermarkets and 70 Sunoco fuel outlets are already running the promotion, with more locations being rolled out. Price Chopper, which began a program last fall with Sunoco stations using the Excentus system, recently announced an expansion. The program, called Fuel AdvantEdge, is a cumulative savings/reward program that gives consumers a 10-cent per gallon discount on gasoline purchases for every $50 of groceries purchased. Consumers can accumulate their points over a 90-day period and cash in on their gasoline discount for up to 20 gallons.

Wetzel notes that there are several options for supermarkets that want to set up a rewards program. The rewards can be based on overall spending, the purchase of specific items or a combination of both.

"Offering fuel rewards based on the overall shopping basket is the most popular approach," says Wetzel. "Giant Eagle provides 10 cents off with each $50 you spend on groceries, but they also offer incentives when you use dry cleaning services or get a prescription at the pharmacy. You can use the fuel incentives to entice your customers to try other services or purchase gift cards, which is another thing Giant Eagle does with their program."

MAINTAINING SPEED
Linking with loyalty programs can put some serious stress on systems that are specifically designed for fuel. Looking up customers' records in a database can take a little bit of time, but every second counts in the fast-paced gas environment.

"The connection between fuel pump and store wasn't designed to handle a high volume of traffic," says James Hervey, product marketing manager for Radiant Systems in Alpharetta, Ga., a provider of fuel technology. Recent upgrades to the hardware and transaction controller help keep pace, he says. "While the customers want their rewards, we can't slow things down at the pump," notes Hervey.

Ahold USA's Stop & Shop Supermarket Co. is deploying Radiant's technology at more than 60 Stop & Shop fuel centers. The solution will include POS software, terminals and fuel controllers. The system will interface with the supermarket's loyalty and price-book systems.

"With the right technology in place, we will be able to provide our customers with meaningful rewards and a fast transaction," Joe Sullivan, the chain's general manager of gasoline, said at the time of the announcement.

"Fuel rewards programs are also becoming more personal for the consumer," says Douglas Henderson, director of global product marketing for Radiant. "There is an increased level of integration with the loyalty and store accounting systems. The receipt can include the person's name and their points balance."

BELLS AND WHISTLES
While the links to the store systems are becoming more sophisticated, the fuel pumps themselves are adding bells and whistles such as video screens to broadcast marketing messages and the ability to download music while you top off the tank.

LCD TV manufacturer Westinghouse Digital Electronics in Santa Fe Springs, Calif. recently announced an expansion of the PumpTop TV program with digital media network partner AdtekMedia in Costa Mesa, Calif. Customers can view news and ads on 19-inch, wide-screen, high-resolution displays on both sides of the pump.

Dresser Wayne, an Austin, Texas-based manufacturer of retail fueling equipment, has unveiled an Internet-ready, WiFi-capable gas pump with a 15-inch touchscreen and speakers that can download music to a cell phone or entertainment system. In addition to offering real-time Internet news headlines, traffic information and weather reports on its VGA screen, the fuel dispenser provides customers with customized, full-motion video promotions and specials while they fill up. Consumers can print coupons for special offers.

"These marketing messages could be targeted to a specific consumer based on their buying habits," says D.P. Rabalais, Dresser Wayne's director of North American marketing. "It is a great tool to promote items in the store while someone is gassing up the car. Since signage in gas stations is limited, this is a way to reach the consumer."

While many people assume that profits rise along with gas prices, that is not necessarily the case. "When prices are high, that is the time when retailers are generally making the least," says Radiant's Henderson, who attributes the situation to a number of factors, including decreased volume as people cut back on their driving.

To ensure that they are pricing their gas competitively yet still making a profit, supermarkets such as Giant Eagle, Brookshire Brothers and Safeway are using price optimization software.

Pricing becomes increasingly crucial as prices rise and consumers seek out the lowest-cost provider. A recent report from the National Association of Convenience Stores reveals that high gasoline prices have not changed Americans' driving habits, but they are becoming increasingly aggressive when it comes to price. To save one penny per gallon, 27% of drivers say they would make a left-hand turn across a busy street; 20% would drive five minutes out of their way; and 11% would even drive 10 minutes out of their way, the report found.

MARGIN WOES
“The margins on gas are razor thin," says Dresser Wayne's Rabalais. "What cuts the margins even further is the fact that most people pay for gas with their credit card."

Will dropping the price draw customers into the store? Not necessarily, according to Anila Khalid, a consultancy manager for KSS, a Florham Park, N.J.-based company that offers pricing systems for the retail and fuel industries. "In some markets, you may be able to give up a little bit of margin on the gas to increase sales in the store. In other situations, price may not be as much of a driver."

Khalid says that understanding price sensitivities, together with the impact of competitors within that micro-market, is crucial in setting prices that maximize each site's potential. She also notes that that price sensitivity can vary widely among customers of different banners in a chain and even among different locations under the same banner.

"What price optimization does is allow you to determine if dropping your price a penny is going to help you meet your overall target. Price optimization software provides a very detailed analysis of the impact of gas pricing on the overall profit margin," Khalid says. The system examines historical information specific to gas sales as well as other data, including that related to store sales.

"The goal is to maximize fuel sales as well as store sales," she says. "For many supermarkets and convenience stores, fuel is a very large category. If your margins shift just a little bit one way or another, the total operational impact can be great."