Article

C-stores: Are they missing money at the pump?

Pay-at-the-pump terminals, they definitely make life easier. But is there revenue potential in non-fuel self-service or are the obstacles greater than any possible benefits?

June 20, 2004 by Angela Lawson — buyer, Kaba Ilco Corp

Pay-at-the-pump terminals, they definitely make life easier. It's a great concept, use convenience to increase sales and build brand loyalty. All the consumer has to do is swipe a credit card, touch yes or no for a receipt, and begin pumping.

When the first self-service gas station opened in California in the 1940s critics were sure that no one would want to get out of their car and pump their own gas. But in 1970 the gas wars made self-service gas the standard. Convenience and lower price were the benefits.

The c-store owners were happy because the consumer had to go inside to pay. This created the perfect opportunity to increase profits by offering snacks, soda, tobacco, maps, and other convenience items.

It's no wonder that retailers were hesitant when pay-at-the-pump was first introduced. Since profit margins on in-store sales are much greater than fuel profits, c-store owners worried that customers would not need to enter the store and profits could plummet.

Surprisingly, inside sales did not plummet--they increased. Why? Many industry experts suspect that pay-at-the-pump shortened or even eliminated register lines and it drove more non-fuel business inside.

Pay-at-the-pump technology has increased from 13 percent in 1994 to 65 percent in 2000, according NACS. But c-stores are still losing a lot of customers between the gasoline pump and the store.

Increasing revenue at the pump

Is there opportunity for new sources of revenue by offering additional products and services at the pump?

Exxon Mobil was one of the first to take pay-at-the-pump to the next level with its SpeedPass program. Building on existing RFID technology they launched a program that uses key fobs with embedded RFID tags that contain built-in, non-transferable encryption. The key fobs allow consumers to pay for their gas in a fraction of the time.

For the retailer RFID offers the ability to track customer-spending habits and offer loyalty programs based on purchasing behavior. But while SpeedPass and similar programs increase convenience, they do not create new revenue streams by offering pump-side services such as bill pay, banking, or other non-fuel transactions.

Monitizing pay-at-the-pump

Fuel sales typically make up 61 percent of in-store sales, followed by cigarettes at 36 percent, then food service items, packaged non-alcoholic beverages, and beer.

But creating new revenue at the pump is a difficult proposition according to Zytronic's Marketing & Sales Director, Mark Cambridge.

There is a small profit margin with fuel. Much of the revenue is generated by what is sold inside, Cambridge said. "Generating non-fuel revenue at the pump-how can it work without bringing them inside?"

"To get consumers to buy something at the pump you have to make it as easy to use as possible," said Tom Weaver, vice president of sales for Kiosk Information Systems (KIS).

One area that had been seen as promising was at-the-pump lottery sales. Typical long lines during high jackpots can burden c-store staff and cause missed in-store sales.

"If you could sell tickets at the car during peak periods, then that would be a tremendous boost in convenience and profits," Weaver said.

Lottery sales at the pump were seen as the "Holy Grail" said Weaver. "However few people tried it. It was not successful."

Weaver said the results surprised the industry. "It was the perfect application. You have people who would just give you money in exchange for a receipt with the lottery numbers printed on it."

Transaction security

Would consumers accept modest service fees as a trade-off for convenience?

C-store customers are already using in-store kiosks, such as the ZapLink kiosks, that let them pay utility bills and purchase pre-paid telecommunications services such as long distance and cellular time.

However, both Cambridge and Weaver see security as the major obstacle when moving these services to the pump.

"Generally pay at the pump is only for gas payments," Cambridge said.  "This is because gas transactions are not hard cash transactions. The pumps are not equipped with bill accepters."

In Europe securing transactions is a big issue, according to Cambridge. "Pin pad security is a problem when looking at pump-side bill pay or other financial transactions."

Is there revenue in pump-side advertising?

Weaver said that c-store kiosks are a big opportunity for KIS.  However he feels the opportunity is with in-store services such as bill pay and pre-pay. "Building non-fuel revenue at the pump will be accomplished in incremental stages," said Weaver. "Digital signage to drive customer into the store is one option." Weaver also said that he was skeptical about the ability to generate non-fuel revenue through couponing. "I don't see real opportunity with printing coupons on the back of receipts," he said. "Most people don't want the receipts." Cambridge, on the other hand, believes that c-stores could generate revenue by selling advertising that is displayed during the customer's pump-side time. 

For example, DirectCast's product, the FuelingTalker is an audio point-of-purchase device that's installed on fuel pump nozzles at c-stores.

The audio ads are stored on computer chips that are embedded in the pump handles. The sponsored ads are looped along with information on in-store specials. The ads are served when the pump handle is tipped into the fueling position.

DirectCast Network claims they can deliver an average of 4,000 impressions per location, per month. Each ad spot is 15 to 20 seconds long. Since the average fill-up time is three minutes, that's more than nine ads per fueling session.

"Using the customer's downtime to generate payable point of information revenue is the only way I see to get additional pump-side revenue without bringing the customer back into the store," said Cambridge.