Discount stores, grocers change gas game

ATLANTA - As the price of gasoline has gone up, the way it's marketed has changed. There was a time when good service and a big name was all you needed.

Remember the Texaco ad with employees singing, “We are the men of Texaco”?

But with the price shock of the 1970s, we started pumping it ourselves. And from then on, only one thing mattered: Cost.

Today, once again, price is dramatically changing the market. Supermarkets like Kroger and discount stores like Wal-Mart and Costco have plunged in, offering gasoline that consumer advocates agree is as good as anything being sold by the big names, and selling it 2 to 7 cents cheaper than nearby stations. Volume is what allows them to buy gasoline at a better price, which they often sell for little profit.

"It helps us drive foot traffic," says Roger Lissenden, who manages a Sam's Club in Alpharetta, Ga. "And the more we see at the pump, the more we're going to see inside."

Inside, shoppers buy big-ticket items.

"I'm buying gas and a gas grill here at Sam's," Alpharetta shopper Allen Dent told NBC News.

NBC NEWS SPECIAL SERIES A series on Today, Nightly News, and MSNBC reports on how gas prices affect you. Nightly: What's the value of high-octane gas? Poll: Washington should focus on gas prices Nightly: Discount stores reshape gas game Nightly: Size no longer matters in Texas Today: Great American Gas Challenge Nightly: What drives gas prices? MSNBC: Pinched at the Pump—your reports

Right now, these "hypermarkets," as they're called, account for less than 10 percent of the gasoline market, but they're growing fast.

Among new grocery stores planned in 2003, just 18 percent included gas pumps. By 2004, that number soared to 62 percent. All that new competition has cut profits.

"Our average member maybe makes 2 or 3 cents a gallon," says Hank Armour with the National Association of Convenience Stores.

"There's no question hypermarkets are a threat," echoes Jeff Lenard, also with the association. "They're changing the way convenience stores are doing business. And if you don't change along with it, you won't be around."

Smaller gasoline operations are fighting back, supporting legislation barring hypermarkets from selling below cost. At least 29 states now have such laws. Maryland has stepped in 31 times to put down price wars, forcing gasoline retailers to raise their prices.

But some chains like Sheetz are using convenience and high-tech innovations to lure customers, like ordering ready-made food or gourmet brews at the pump. These days, as one convenience store expert put it, you can make more money selling a 12-ounce cup of coffee than on a 12-gallon fill-up.

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