Kroger, Shell make gas-discount deal

CINCINNATI (AP) - The Kroger Co. and Shell Oil are combining forces to offer gas discounts for grocery shoppers at Shell stations.

The deal provides a major expansion of the largest U.S. traditional grocer's ability to offer gas incentives, an increasingly popular industry tool for building loyalty among recession-squeezed households. Beginning Monday, regular Kroger shoppers in five markets in Ohio, Tennessee and California can get at least 10 cents off a gallon at Shell stations after buying $100 in groceries.

Adding Shell to Kroger's own gas stations will triple the number of places shoppers can get discounts in those markets - and will give Kroger shoppers 75 Shell stations to get gas breaks in the San Diego area, an intensely competitive grocery market where Kroger's Ralphs stores don't sell gas. The companies could eventually spread their deal to all 31 states Kroger operates in.

"We don't have any definite plans, but it's safe to say both companies are looking to expand this," said Jeff Fike, Kroger's director of fuel marketing Neither side would disclose terms of the deal, but both expect it to draw new customers.

Regional chains such as Giant Eagle and Meijer are among Kroger competitors that also offer fuel breaks. Supervalu's Bigg's stores in the Cincinnati area have offered gas discounts through local Sunoco stations. The recession has most shoppers looking to cut pennies off their bills, and gas bargains are particularly pleasing to consumers.

"To Americans, saving money on gasoline is like finding dollar bills on the street," said Tom Kloza of Oil Price Information Service, who tracks loyalty programs. "It has incredible allure."

"It's huge," said Pat Gilligan, who owns a string of Shell stations in the Cincinnati-Dayton area, where Kroger dominates the market. "Everybody's household is on budget these days, and they're all looking for ways to save money."

Gilligan's station in the Cincinnati suburb of Blue Ash is among a handful that tested the new technology to provide pump rollbacks over the last 60 days. Customer Gloria Achten was delighted, saying she will use only Shell gasoline in her Saturn, but regularly shops Kroger.

"It's a very good feeling to get gas discounts, it really is," said Achten, 79.

Kroger and major grocery chain rivals Safeway Inc. and Supervalu also operate their own gas stations. Kroger sells gas at about a third of its nearly 2,500 grocery stores.

But Fike said zoning, real estate costs or lack of space prevent new stations at many locations. Roughly 10 percent of Kroger's $70.2 billion annual revenue comes from fuel sales, but gas is a low-margin business. So grocers see their best value in using them for shopping incentives.

In the Shell team-up, discounts are capped at 10 cents per gallon everywhere except Knoxville, Tenn., where shoppers buying $300 in groceries can get 30 cents off. The other trial markets are Nashville, Cincinnati and Dayton.

The Shell tie-in is particularly big in San Diego, where Ralphs shoppers now get grocery vouchers as loyalty incentives. Fike said they will be able to choose either grocery or gas discounts.

Shell competitor BP also is expanding its fuel rewards programs, but taking an opposite approach. Rather than hook up with one retailer as Shell has done with Kroger, BP has deployed technology that will allow any retailer with a loyalty program to offer BP discounts. The technology is being installed at its 10,000 stations nationwide this year.

(Copyright 2010 by The Associated Press. All Rights Reserved.)