First Home Depot Convenience Store Set to Open Nex
Atlanta, GA, January 20, 2006--Home Depot will open the first of four gas convenience stores, called Home Depot Fuel, in the Nashville area next month, according to the Atlanta Journal-Constitution.
The newspaper reported that Home Depot will join a handful of big-box retailers, including Kroger, Wal-Mart and Costco, that have tried using gas stations next to their stores to give consumers another reason to stop in.
If the concept is deemed a success, Home Depot predicts it will open 300 fuel stations in the next five years, said Frank Blake, the company's executive vice president of business development and operations, during the chain's analyst and investor conference Thursday.
The first location will open around Feb. 1, with the others set to open by June.
"Unlike many other retailers with gas stations," Blake said, "we can offer a convenience store that doesn't compete with the 'host' store."
Each station is expected to ring up from $5 million to $7 million in sales annually. Convenience stores could add $1.5 billion to the chain's total sales by 2010.
"Every retailer is looking to generate more trips," said retailing analyst Neil Stern with McMillan/Doolittle in Chicago. "It's certainly not a profit driver; it's being used as a traffic driver."
While retailers look to generate more store traffic and sales by providing gas and convenience items, they're also able to cross-promote, such as offer discounts on gas, if store items were purchased, which gives shoppers additional incentives to stop in.
For example, BJ's Wholesale Club promoted regular gasoline for 99 cents a gallon during a three-hour event on Wednesday at Atlanta stores. While such a big drop in price is highly unusual -- gas goes for well over $2 per gallon -- it demonstrates how retailers will go to great lengths to generate more foot traffic.
Anecdotal evidence suggests that adding gasoline can lead to a 2 percent increase in traffic, Stern said.
That could mean big bucks for Home Depot, which generates 1.3 billion transactions per year with an average tab of $58. Adding an additional 2 percent to the store traffic count could be "meaningful," Stern said.
Supermarkets, discounters and warehouse operators began selling gas and convenience items in the late 1990s. From there, it's taken off.
Last year, 3,580 supermarkets, discount retailers and warehouse clubs captured nearly 8 percent of total fuel sales, compared with 75 percent sold by 110,000 convenience stores, according to Energy Analysts International.
By 2008, that 8 percent market share will about double to nearly 15.5 percent, the energy group predicted.
NPD Group, a consumer research firm, reports that discounters, supermarkets and warehouse clubs garner more than 20 percent market shares in the Denver, Houston and Seattle areas.
Sears and some supermarket chains experimented with selling gas in the 1960s and 1970s. But the idea failed to catch on or generate consumer interest. That was also before the self-service phenomenon.
Spokesman Jeff Lenard of the National Association of Convenience Stores thinks a sizable move by Home Depot into the market would take a bite out of the convenience store industry.
"Home Depot is particularly of concern to convenience stores," Lenard said. "You can't walk down the street and not see some house undergoing some kind of construction. That means the local convenience store is going to lose business."
Contractors are big customers of convenience stores because they fill up and get coffee and breakfast sandwiches each day.
They're also big customers of home improvement stores. Home Depot reports that the construction contractor is 25 percent of its customer base.
"We think the economics here will be attractive," Blake said.
"Pro customers are the heaviest weekday users of convenience stores."
