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By Angel Abcedeaabcede@cspnet.com

When grocery chains such asGiant Eagle, Jewel andAlbertsons began placing

pumps on their lots earlier this decade,convenience retailers rolled their eyesand braced themselves for yet anotherassault on their gasoline profits.But in 2009, retailers are seeing a dif-

ferent picture unfold. Partnerships arespringing up between grocers and c-storeoperators, as a way for the former toleverage existing fueling sites and forthe latter to bump up traffic counts.While the gas-grocery solution

may not be for all convenienceretailers (see Kraft/CSP Daily Newspoll, p. 214), those engaged in suchpartnerships say it’s been a boostto their businesses. “If all you’re going to do is

reward customers you already have,that’s one thing,” says Terry Johnson,vice president of marketing for Uppy’s,Chester, Va., a 40-store chain that part-nered with a local grocer’s loyalty pro-gram last year. “But in order for loyalty

to pay, you’re going to have to bringnew customers to the location.”Since becoming the preferred gaso-

line retailer for Richmond, Va.-basedUkrop’s Super Markets Inc. last year,Johnson says the chain has sold 7 mil-lion gallons through the fuelperks! pro-gram. More importantly, he’s seendouble-digit percentage increases involumes overall, meaning that his new

customers have decided to keep buy-ing gasoline from the Uppy’s chain.For Ukrop’s, the tie has proven pop-

ular with customers, having paid out $9million in rewards and exceeding 1 mil-lion redemptions earlier this year.

“Ukrop’s has always beeninterested in the gas busi-ness,” says Larry Halley, man-ager of corporate and retailsystems for the grocery chain.“But it’s not our forte. It’s cap-ital-intensive and not what we do.”All good? Here are a few key pain

points to consider before entering intoa third-party relationship:

Control.Because many partner-ships have grown from establishedgrocery programs, the destiny ofthe fuel retailer’s loyalty effortscould be in someone else’s hands.“What if your partner at the end ofthe contract decides to turn off theprogram or promotes it improp-erly?” says Nicole Nunn-Walker,vice president of marketing for

MetroSplash Systems Group, Dallas,which markets a program calledFuelLinks. “[Retailers] are seeing grocersget the lift by promoting things in theirstore, so they’re asking, ‘Wouldn’t it bebeneficial to use my own fuel power to

“Gas�has�a�morepsychological perception ofvalue than�cash�back�[forgroceries]�or�a�rewardspoint.�Fuel�retailershave�the�secret sauce.”

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promote my higher-margin [items]?’ ”Natural fits.While issues of control

may linger, no one can deny the yin-yang relationship that gas has to gro-ceries. Rollbacks at the pump are moreexciting than cents off a bag of ricecakes, say loyalty providers, and gro-cery rings hit the kind of dollar rangethat make discounts truly viable.

Common attractions. Economicrealities are forcing many grocerychains to leverage existing assets, suchas neighboring gas stations, if theywant to compete with big boxes andother supermarkets that have put fuelon their lots. At the same time, thetraffic a grocery store draws dwarfs

c-store numbers, creating a com-pelling lure for fuel retailers to cap-ture new customers.

Cost. While not elaborating onwhat the company had to spend to tieinto the fuelperks! program, Johnsonsays compatibility issues forced Uppy’sto upgrade equipment: “It wasn’tcheap.” So for many retailers, the costof tying to a grocer’s program—whileprobably a fraction of the burden ofmaintaining an in-house version—may still be considerable.Ultimately, tying in with a grocer’s

loyalty program is a complex agree-ment. Retailers have to agree about whopays for things such as the discounts,associated transaction fees and equip-ment upgrades, as well as marketing,length of contracts and other issues thatcome with involved partnerships. John-son says, “You’ve got to have a goodpartner and see eye-to-eye with them.”

Retailer WinsUppy’s partnership with Ukrop’s hasbeen an unequivocal win, with cus-tomer response remaining strong evenas the program evolves, Johnson says.

For instance, the two chains initiallyoffered 10 cents off per gallon for every$50 in groceries a customer bought.Today, they offer 5 cents per gallon dueto the expense. “But even that didn’tseem to hurt the program,” he says. The Uppy’s chain had toyed with

loyalty programs in the past, says John-son, but Ukrop’s approached themwith a plan whereby the two dividedcosts, with the grocer paying substan-tially more for the discount. Other ele-ments sealed the deal, such as Ukrop’sreputation as a local, highly respectedbusiness within the Richmond market.Uppy’s own concentration made thepartnership a logical move.So the chain took on the added costs

to upgrade its store-level equipment,which Johnson says at some sites neededto occur anyway, and gave the stores thecapacity for pumps to “roll back” pricesas customers retrieved their rewards.“Customers are excited to save $10 andhave to tell someone, so they start talk-ing to the other customers or toemployees,” he says.While Johnson says inside sales have

risen because of the program, it’s not as

Loyalty�NumbersThe numbers retailers look to whenconsidering grocery ties, or any loyaltysystem, can include the following:

15% to 20%Lift seen in fuel sales due to grocerypartnership, according to Excentus Corp.,Irving, Texas

80-20The favorable split that some c-store retailersare seeing from grocers who want to offerfuel discounts, according to ValueCentricMarketing Group, Binghamton, N.Y.

10%The percentage of convenience retailersthat have adopted loyalty programs,according to ValueCentric

65%Percentage of 2,400 U.S. consumers in FirstData’s “2009 Consumer Loyalty Study” whobelonged to a grocery-store loyalty program

35%Percentage of consumers in that same FirstData study who said their decision aboutwhere to shop was “very” influenced bygasoline loyalty programs. Bookstores weresecond at 33%.

FOOD AND FUEL: The ties between groceries and gas appear to be getting tighteras more retailers contemplate partnerships.

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dramatic as the sales of gasoline, becausethat’s the product being discounted.“The more people there are on the lot,the more there are in the store,” he says.Other retailers believe that just being

able to offer cents off per gallon via sometype of rewards mechanism is the criti-cal element in the equation. O’Ryan’sMonticello, Monticello, Minn., has oneof its three sites on a card that allows cus-tomers to pay via Automated Clearing

House (ACH) debit transac-tions. The process bypassesVisa and MasterCard creditfees, allowing the store to passon the savings to customersin the form of a discount.Taking this route purely

from the perspective of thecredit-fee savings, T-Jay John-son, store manager forO’Ryan’s Monticello, sayshe’s brought his credit-carduse from 80% back to at least75%, with the differencepotentially reaching 10%. Hecalls those numbers “a greatsuccess.”For many retailers, saving

on credit-card fees is the pri-mary goal, according to Joe

Randazza, CEO of National PaymentCard Association, Coconut Creek, Fla.,whose company operates the O’Ryan’sMonticello program. “It’s a traffic-build-ing program,” he says. “It’s an alternateform of payment that merchants canuse to change consumer behavior.”The other two stores in the O’Ryan’s

Monticello chain would probably takeadvantage of the cards if a POS upgradewere not required. And even though

T-Jay Johnson is unable to partner witha grocery store at this time, he wants toeventually. He says convenience retail-ers in his area have ties to grocers andhe’d like to compete against their offers.

A Grocer’s PerspectiveFor Ukrop’s, the desire to augment itsrewards program with a fuel tie existedfor some time, according to Halley, whosays the company’s proprietary loyaltyprogram began in 1987 with a printedcard that used customers’ phone num-bers as identifiers. Halley believes the gas-grocery con-

nection is intuitive. “It’s not like air-lines miles, where it’s about a purchaseyou don’t have to make,” he says. “Gasand groceries are things we need tosurvive day to day. We need to eat. Weneed to work. We need to get places.It’s a good fit.”Ukrop’s chose Uppy’s not because

both chains start with U, as Halley saysjokingly, but because the fuel chain hadlocations that complemented theUkrop sites; Uppy’s family history alsowas appealing. In addition, the wayUppy’s paid for and executed the nec-essary technology upgrades solidifiedthe partnership. “Uppy’s has got a lot

Logistics�ChecklistSuiting up a location to accept loyalty can be a dauntingtask. Here are a few pieces in the logistics equation:� A “box” that supports the loyalty program.� A logic-control board for pumps and other electronics

necessary to link the station to the loyalty program.� Digital subscriber line (DSL) or satellite connections.� The loyalty program’s server.� A POS device that can process the program.

In addition, Drew Mize, vice president of productmanagement and marketing for The Pinnacle Corp.,Arlington, Texas, says retailers sometimes overlooksome of the more obvious steps and their costs:� Cards.� Sign-up forms.� Signage.� Advertising: radio, TV, etc.� Employee training.� Web site updates.� Incremental employee wages involved in

administration, customer service, etc.� Maintenance including additional hardware (if

necessary), spare parts, replacements, service, etc.

of skin in the game with us,” he says.As far as numbers go, Halley says the

economy puts a haze on determiningsuccess. He prefers to ask where thecompany would be without the pro-gram. “In our analysis, it helps keep loyalcustomers loyal,” he says. “The spend-ing rate continues to be good for our[loyal customers]. And that’s importantbecause they have other options.”The move was also strategic, because

another major grocery player in the areahad a fuel program. Ukrop’s designedthe basic elements of its loyalty programto outdo the competitor’s reward-expi-ration dates and usage terms.

The Gas, Grocery EquationThe move by hypermarkets into gaso-line was one reason many of the larger,regional grocery stores started installingpumps on their lots, according to Scott

Wetzel, vice president of marketing forExcentus, Corp., Irving, Texas, whichoperates the fuelperks! program.But the ability of many chains and

independent grocers to establish the kindof fueling network that, say, a GiantEagle has done is limited. “We’re seeinga continued movement toward grocerspartnering with c-stores as opposed tobuilding their own,” Wetzel says. “[They]want to leverage existing assets in thefield as opposed to going through theexpense and operational learningprocess of running fuel stations.”In addition, cents off a gallon of gas

seems to resonate with customers, saysNunn-Walker of MetroSplash. “Gas hasa more psychological perception ofvalue than cash back [for groceries] ora rewards point,” she says, pointing outhow the c-store acts as the redemptionoutlet for grocery discounting. “Fuelretailers have the secret sauce.”But supermarkets can be a new

resource for untapped traffic. JimNevill, president of Midax Inc., VirginiaBeach, Va., says supermarkets act as ananchor for the gas-grocery loyalty tiebecause of the sheer numbers theydraw to their lots. “We identify that ourrealm of people will go to a groceryfour times for every one time to a c-store,” he says. “And [supermarketshave] the critical mass to a make a con-tribution [to the discounting].”What concerns some is that grocery

stores carry many of the same productsthat c-stores do. Ideally, a customer whohas purchased groceries will then moveto the gas station and potentially go intothe store for a follow-up purchase,according to Anton Bakker, presidentand CEO of Outsite Networks, Norfolk,Va. “Hopefully it won’t have the effectof cannibalizing c-store sales,” he says.

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Yes 15.8%

24.8%

No, c-stores should runtheir own standalone programs.59.4%

Yes, as part of a larger coalition of stores.

RETAILERS SKEPTICAL OF GROCERY TIEDo you think grocery and c-store partnerships make the best loyalty programs?

Source: Kraft/CSP Daily News Poll. Based on 101 respondents.

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Wider NetProviders such as Nevill of Midaxbelieve the potential for more loyaltyprograms to crop up is high. At least51% of regional and local grocers,which some consider still as fragmenteda channel as convenience retail, haveyet to adopt a program, he says.The number of c-store retailers who

have embarked on programs could beas low as 10%, according to RogerBrooks, vice president of loyalty mar-keting for ValueCentric MarketingGroup, Binghamton, N.Y. Part of thereason is the difficulty of executing pro-grams. He mentions some commonstumbling blocks:

Multiple, limited POS. Integration iskey to allowing all stations in a retailer’snetwork to accept the loyalty program.

In addition, Wendy Kobler, marketingmanager for Fiscal Systems Inc., Madi-son, Ala., says the system needs to pro-vide relevant customer-trackinginformation. On top of that, “a busi-ness has to know how touse the information,”she says.

Training. The simpleact of a cashier askingfor the customer’s loy-alty card during a trans-action is a critical aspectthat must be engrained into staffbehavior.

Marketing. Retailers have to com-municate to customers that the programexists and then continually promote theprogram to generate activity.Beyond executing a loyalty program,

whether with a grocery partner or not,lies a more basic issue: that of simple,store-level execution. Brooks says keep-ing restrooms clean, making surecashiers dress professionally and inter-

act well with con-sumers, and alwayslooking for ways to“surprise and delight”people are all stepstoward building loyalty.“All that is bigger

than the card,” he says.Editor’s Note: Last June, Excentus

filed a patent-related lawsuit againstPleasanton, Calif.-based Safeway. Atpress time, the grocer had discontinuedits PowerPump rewards program, witha spokesperson saying the move was notrelated to the lawsuit. �

“The�morepeople thereare�on�the�lot,the�morethere�are�inthe store.”