Gas For Groceries, What's The Real Deal?

By: Rob Hughes Email
By: Rob Hughes Email

Grand Junction, CO (KKCO)-- Lobbyist organizations say you're getting ripped off. Grocery stores stores say you're getting a good deal. In the end, it's your hard earned money at stake.

"Points for every dollar spent inside gives you cheaper gas," says Mike Howerton, as he fills up his truck. "Today I got 30 cents a gallon, so it's sizeable when you fill up a pig like mine," says Howerton.
So why do consumers like Mike use frequent shopper cards or loyalty programs. "The wife tells me to." C'mon Mike, what's the real reason?
"If I can save 30 cents a gallon right now, I can play a little more all summer, so that's why i do it," remarks Howerton.

"I believe they just give me 4 cents off a gallon," says Troi Lindell, as he takes a pit stop to fill up his truck in Grand Junction on a road trip from Iowa to California. Troi on the same page as Mike, and the rest of us who think these discount loyalty cards are a smoking hot deal. "I believe every time you spend $100 at the grocery store, actually they give me 3 cents as a discount," says Lindell. I mean, it makes sense, spend money, get rewarded. "It's at least cheaper than anywhere else I've seen, and every bit counts this day and age," says Lindell. Customer loyalty programs promise you rewards, but why are they doing it? "No customer loyalty program is doing this out of the kindness of their heart, they are doing it in order to try and get the customer to continue doing business with them," explains Mark Larson, Executive Director with the Denver based Colorado Wyoming Petroleum Marketers' Association. Larson says big grocery stores aren't giving you a discount. "When you're paying $100 worth of groceries, in order to get ten cents of gallons off, there is a certain amount of cross-subsidization that goes in," says Larson. That means, he says, you're paying higher grocery costs to cover the gas discount.

According to the 2007 consumer price index, wholesale food prices increased 4.8%. Kroger, City Market's parent company, had a 28% increase in 2nd quarter profits. It's shares rose 7.5%. The company said it was able to pass along cost increases for staples such as milk to customers. Some states require gasoline to be sold at or near a 'fixed' cost. These ''minimum mark up'' laws help level the playing field so small businesses aren't impacted by large companies that can afford to slash prices on certain items. "Small marketers have no recourse against someone selling below cost," says Larson. In Colorado, no such law exists.

While it's hard for the mom and pop and small businesses to compete, the person who comes out on the losing end on all of this, is you. This includes seniors who don't drive much, or people who ride a bike to work. They're actually paying more because they don't use gas discounts. "It means that they're paying 3-5% above what the discount programs costs coming from the food," remarks Larson.

It affects people like Joann Brown, who sold her car and bikes to work. "You know, it's really important to be outside every day in the fresh air and the sunshine, and being on a bicycle as a commuter, is a way to do that; without having to take up more time in your day, because you're commuting to work; which you have to do anyway."

It also affects Beth Palmer, who lives on a fixed income, and watches every penny. "I did shop at Safeway, but I haven't shopped at City Market for years, because I find that their prices are quite high. They're a lot higher than Albertsons really when it comes down to it," says Palmer.

City Market denied these claims. "Over the last 5 years, really in the last two specifically; we've reduced prices on over 1,500 items that customers buy most often; so we've made an investment in price to continue what our customers value," says Kelli McGannon, City Market Spokeswoman.

Safeway says the same thing. "There are a lot of things that drive food prices and that could be the cost of feed for cattle. It could be a drought, it could be a crop freeze. Their statement (Colorado Wyoming Petroleum Marketers' Association) just isn't accurate. Our pricing is competitive and promotion driven, and customers like promotions," says Kris Staaf, Safeway spokeswoman.

Will there be a day when we can only buy gas from a huge corporation? The U.S. General Accounting Office reports that gas stations have decreased from over 202,000 in 1994 to 163,000 in 2003. That's a 17% decrease. But it's not for lack if demand. Gas is bought on every corner, every second of every day.

"It's a survival thing, we're having to adapt," comments Larson. A study by the University of Wisconsin at Whitewater found that consumers benefit from 2-3% in overall purchases when there is multi-level competition.

"It doesn't make sense to me why they would want to pay 4, to 5, to 6 cents a gallon in order to get someone to come in and make 2 to 3 cents a gallon on the margin differential," says Larson.

The free market and capitalism made this country the greatest in the world, but what if that comes at the expense of the consumer?

"If the consumers ever catch on to what the discount program is costing them in the additional costs on food prices, that will be interesting," says Larson.

These grocers, or anyone offering discounts or loyalty programs is not doing any thing illegal. But does the customer realize what the true cost of the discount is? And is it ethical? You'll have to decide yourself.

To know more about any of the research cited in this report, just click on the "find it" link on our web channel, www.nbc11news.com.


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