Will Gas Rewards Give Walmart a Boost?

Maybe not, but it helps WMT level the playing field on one front

   

Big-box behemoth Walmart (NYSE:WMT) is known as a do-it-all retailer — the one-stop shop for toiletries, groceries, clothes, office supplies and sometimes gas.

Now, it does gas discounts, too.

Yesterday, the company announced a 15-cent-per-gallon savings for shoppers using a Walmart credit card or MoneyCard (and a slightly smaller discount for those using a Walmart gift card).

Consumers obviously have plenty of reason to love these kinds of programs, but are gas rewards — popular as they are — even good for business?

I’d say that’s probably a “yes” … although not as emphatic of one as you might think.

Gaga for Gas

People are obsessed with gas prices. I know countless folks who will drive around just to find a cheaper gas station … many not realizing they are wasting gas in the process. I personally don’t get it, as a nickel difference for 10 gallons (more than I usually put in my tank at one time) adds up to a mere 50 cents — hardly a wallet-breaker for most folks.

Still, I think there are a few simple reasons why the price of a gallon is always glaring in our minds:

  • Giant price tag (literally): The price is stated in giant figures that we can see from down the road, making price changes literally easy to see.
  • Easy comparison: Gas is a commodity that comes in just a few varieties and people go to a gas station for a specific one, which makes it real easy to notice movement in price. It’s not the same as produce, for example, where people buy many types of produce at one time, in a number of varieties, while buying other foods, to boot. While some people might keep tally of an entire cart’s worth of individual product costs week in and week out, most people don’t — it’s much more complicated.
  • Necessity: In our car-centric society, filling up at the pump is a necessary routine. In fact, the average commute to work is around 25 minutes, meaning many of us spend nearly an hour in the car just to earn a paycheck — a paycheck that then goes back toward that very commute, of course.

Combine this with the fact that we as shoppers love savings — just ask JCPenney (NYSE:JCP) how dropping coupons worked — and it’s easy to see why gas discounts are popular.

Don’t just take my word for it, though. Tom Kloza — chief oil analyst for the Oil Price Information Service — said the same thing. In his words: “For many consumers, saving on gas is like winning a lottery prize. It’s cash in their pockets.” It’s almost no wonder, then, that “gas rewards programs have really taken off in the last few years,” he added.

A report from the NPD Group — called “Price, Deals, and Discounts: Consumer Expectations at the Pump” — confirmed this trend, too, showing that loyalty programs “have had the greatest impact on consumer behavior” and that “even discounts of 10 cents and less per gallon made a difference.”

A paper citing the report said: “Volatile gas prices and a challenging economic environment have taught fuel consumers to seek out deals, discounts and loyalty programs to get the best value for their money,” while NPD motor fuels industry analyst David Portalatin referred to fuel discounts as a “game-changer” in today’s market.

Leveling the Playing Field

While there are lots of reason to like fuel programs — they lure in new shoppers, promote loyalty and encourage more spending, for example — you can hardly say that they’re a “game-changer” for Walmart for one simple reason: Most stores already do it.

Not only is Walmart’s initiative a revival of a similar rollback program introduced last year, but grocers Food Lion, Safeway (NYSE:SWY), Kroger (NYSE:KR) and Costco (NASDAQ:COST) are among a number of grocers that offer gas rewards as well. That’s not to mention gas station operators themselves, such as Royal Dutch Shell (NYSE:RDS.A, RDS.B) and BP (NYSE:BP).

Instead, it’s more of a catchup move — gas has become so important, and gas rewards so common, that offering them is almost a necessity at this point. WMT is just leveling the playing field.

It’s not dissimilar to an undergraduate degree: It used to set people apart, but now it’s a standard.

The Bottom Line

All that said, Walmart’s move to introduce fuel discounts is still a good one. Gas is important to consumers, so if the big-box retailer is one of the few grocers not offering rewards for fuel, it risks losing customers. However, the promotion actually is short-lived and will only go through July … though depending on the results, one imagines it could be extended.

And even if it isn’t, gas rewards aren’t difficult to implement — Midwest grocery chain Hy-Vee, with just 230 employee-owned locations, has already lured in more than 1 million users since December — so they could reappear again in the future.

As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2013/04/will-gas-rewards-give-walmart-a-boost/.

©2014 InvestorPlace Media, LLC

Comments are currently unavailable. Please check back soon.