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Grocery chain Kroger pumps up gas biz

This gas station shown, Monday, Jan. 10, 2011, outside a Kroger Co. grocery store in Middletown, Ohio, will be the 1,000th gas station for the grocery chain when it opens later this week. This gas station shown, Monday, Jan. 10, 2011, outside a Kroger Co. grocery store in Middletown, Ohio, will be the 1,000th gas station for the grocery chain when it opens later this week. (AP Photo/Al Behrman)
By Dan Sewell
AP Business Writer / January 11, 2011

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CINCINNATI—The Kroger Co. will open gas station No. 1,000 on Wednesday, a milestone that underscores the growing link between groceries and gas in the drive to build customer loyalty.

The nation's largest traditional grocery chain has nearly doubled its number of gas stations in the past five years, after having just over 100 a decade ago. Kroger is also rapidly expanding a customer rewards tie-in with Shell Oil. In less than a year since their joint pilot launch in five markets, that program has grown to nearly 5,000 Shell stations in 26 states.

Other grocery chains have also expanded fuel rewards in an industry that has seen sharpened competition, marked by price-cutting and promotions, in the rough economy.

Bryan Pearson, president of the loyalty marketing firm LoyaltyOne Inc., said fuel rewards are particularly popular because while few consumers like gassing up, they enjoy watching the pump prices fall before their eyes. At many Kroger stations, they can drop down by as much as $1 a gallon -- 10 cents a gallon for every $100 spent on groceries.

"There is a psyche about gas specifically," Pearson said. "It is a little bit of hassle, it doesn't go on sale very often, you don't get a lot of thrill about going to buy petroleum. What is brilliant about the program is the rollback at the pump, a feeling that you're beating the system."

Fuel sales, which tend to be volatile because of price fluctuations, now account for nearly 12 percent of Kroger grocery revenue. But Kroger officials say the major value is boosting the number of regular shoppers by offering shopping convenience and rewards for using their Kroger cards. Kroger officials say households that shop in their stores regularly though bad times and good are the key to long-term growth.

"It's about customers shopping our stores and being loyal Kroger customers," said Chris Hjelm, a Kroger senior vice president. "More and more customers are engaging in the program."

The company in some locations faces zoning, real estate or legal issues that prevent building gas stations. Also, some people prefer to use major-brand gasoline like Shell in their vehicles.

But Hjelm said Kroger plans to keep expanding; gas rewards are also being tried at some of its nearly 800 convenience stores. The Cincinnati-based company also has nearly 2,500 grocery stores in 31 states.

Competitors such as Safeway Inc. and Meijer Inc. also offer fuel discounts at their own gas stations, and more grocers are also linking up with Shell, BP and other national gasoline brands, often with the "Fuelperks" discount system developed by Irving, Texas-based Excentus.

Besides the nearly 5,000 stations offering Kroger reward discounts, Shell now has hundreds more stations with discounts for Bi-Lo, Winn-Dixie Stores Inc. and Royal Ahold NV (Stop & Shop, Giant stores) shoppers.

"Grocery really is the perfect combination," said Dan Little, Shell's North America fuels manager. "It works so well because of the frequency of purchases and the size of the spend."

Little said the rewards programs aren't just a promotion, they're a key part of Shell strategy. He said Shell will continue to add markets and partners for rewards this year.

Pearson, based in Toronto, said U.S. retailers have generally lagged behind those in Canada and Europe in offering rewards programs. He said the next U.S. trend could be bigger "coalition" programs, in which grocers and gas retailers combine with credit card companies and non-food retailers to increase their customer reach.

"These companies borrow some brand gravity from each other, to create a sense of enhanced value," Pearson said.