Why Is Everyone Suddenly in the Gas Business?

Drive down any major commercial strip in America today, and you’ll witness a curious evolution of the classic gas station. The standalone pumps with their dimly lit convenience stores are no longer the only game in town. Instead, you’re increasingly likely to fill your tank at a Costco, a Walmart, an Amazon-owned Whole Foods, or even a Kroger. Your morning coffee run at a Cumberland Farms or a Sheetz is as much about fueling your car as it is about fueling yourself. This isn’t a random trend; it’s a strategic seismic shift in the retail landscape. So, why is everyone from grocery giants to warehouse clubs suddenly in the gas business?

The simple, surface-level answer is to drive traffic. But to stop there is to miss the profound and sophisticated strategy behind this move. The phenomenon of retailers entering fuel business is a masterclass in modern business strategy, leveraging data, loyalty, and convenience to create a powerful ecosystem that locks in consumer spending. It’s not about selling gasoline; it’s about selling everything else.

The Core Strategy: Fuel as the Ultimate Loss Leader

Historically, a “loss leader” was a product sold at a loss to attract customers into a store where they would hopefully buy profitable items. Think of a rotisserie chicken at a supermarket, sold for $4.99 when it costs $5.50 to make. The goal is to get you in the door to buy the high-margin chips, soda, and dessert to go with it.

Gasoline is the king of all loss leaders. It is a universally needed product with an incredibly high purchase frequency. While margins on gasoline itself are notoriously thin and volatile (and sometimes even negative for these retailers), its power lies in its ability to capture a customer’s essential weekly need.

When a major grocer like Kroger or Giant offers discounted fuel points for every dollar spent in their store, they are creating a powerful behavioral loop:

The Incentive: You shop for groceries and earn 10 cents off per gallon for every $100 spent.
The Hook: You now have a tangible, valuable reward waiting for you—a significant discount on your next fill-up.
The Return Trip: You are compelled to return to that same retailer’s fuel pump to redeem your savings, a trip you were going to make anyway.
The Capture: While you are there getting gas, the convenience and habit make it incredibly easy to pop into the store for that gallon of milk you forgot, a freshly made sandwich, or a cup of coffee. The gas pump has successfully driven a store visit that might not have otherwise happened.

This model is the fundamental engine behind the trend of retailers entering fuel business. It’s a defensive play against competitors like pure-play discounters (e.g., Aldi, Lidl) and an offensive play to increase their “share of wallet” from their existing customer base.

The Data Goldmine at the Pump

Beyond the immediate foot traffic, the second, and perhaps more valuable, reason for retailers entering fuel business is data. In the 21st century, data is the new oil, and what better place to collect it than at the pump?

Traditional gas stations might have a rudimentary loyalty program, but they often lack a deep understanding of their customer’s broader purchasing habits. Conversely, a retailer like Target or BJ’s Wholesale Club has a detailed profile of what you buy, how often you shop, and how much you spend.

Integrating fuel purchases into this existing data ecosystem is a game-changer. By linking your fuel rewards to your club membership or grocery loyalty card, these corporations can now connect the dots between your in-store purchases and your fueling habits. This allows for hyper-personalized marketing:

They can see that customers who buy premium baby formula also tend to fill up their mid-size SUVs on Tuesday evenings.
They can offer a targeted coupon for a car wash with your next fill-up after you’ve purchased a new set of towels.
They can predict when you’re likely to need a fill-up based on your average time between visits and send a push notification with a special fuel discount to lure you in on a specific day.

This 360-degree view of the consumer creates an insurmountable competitive advantage. It’s no longer about competing on the price of gas alone; it’s about creating a seamless, data-driven experience that makes their ecosystem the most convenient and rewarding place to spend money. This sophisticated use of analytics is a key driver behind the wave of retailers entering fuel business.

The Evolution of Convenience: Beyond the Soda and Slushie

The old model of a gas station was simple: fuel out front, a small store inside selling cigarettes, lottery tickets, and stale donuts. The new model, pioneered by retailers and adopted even by traditional oil companies, is the “convenience restaurant.”

Chains like Wawa, Sheetz, and Cumberland Farms have completely redefined what it means to stop for gas. They offer extensive made-to-order food menus, high-quality coffee bars, clean restrooms, and fresh grocery items. They are not gas stations with food; they are food service destinations that also sell gas.

For major big-box stores and supermarkets, adding fuel is a way to compete in this new convenience arena. A Costco fuel station is often adjacent to its warehouse, capitalizing on the immense traffic it already generates. The fuel offering completes their value proposition: “We can sell you everything for your home, your family, and now, your car, all at the best possible price.”

This expansion of the convenience offering makes the act of getting gas a more pleasant and productive experience, further cementing customer loyalty. It’s a powerful response to changing consumer expectations, where convenience is king and one-stop shopping is the ultimate goal.

Economic Pressures and Competitive Threats

The retail world is brutally competitive, especially for grocery and general merchandise stores. Margins are razor-thin, and the threat from e-commerce behemoths like Amazon is constant. In this environment, retailers must find new ways to create durable, recurring relationships with customers.

Gasoline is a powerful tool in this fight. It is one of the few products that is virtually “Amazon-proof.” You cannot have gasoline delivered to your door (yet). It requires a physical trip to a physical location. By anchoring this essential, undeliverable product to their brand, retailers create a recurring physical interaction with their customers that online players cannot easily replicate.

Furthermore, in times of economic uncertainty or inflation, consumers become hyper-sensitive to prices, especially on essentials like gas and food. A retailer that can offer tangible savings on both positions itself as a champion for the budget-conscious consumer. This value proposition is a critical shield against competitors and a powerful tool for customer retention.

Case Studies in Success

Costco: Arguably the most famous example. Costco operates one of the largest fuel station networks in the U.S. and is consistently among the top sellers of gasoline by volume. Their model is simple: offer rock-bottom prices on high-quality fuel to their members only. This creates an enormous perk for membership, driving sign-ups and renewals. The long lines at Costco gas stations are a testament to its power as a traffic driver, and many members plan their shopping trips around filling up.
Kroger: The largest supermarket operator in the U.S. has a massive fuel center program. Their “Fuel Points” program is deeply integrated into their loyalty card system. The more you spend on groceries, the more you save on gas. This brilliantly links two essential spending categories, encouraging customers to consolidate all their spending within the Kroger ecosystem.
Amazon/Whole Foods: The tech giant’s foray into this space shows where the future is headed. Amazon offered discounts on gas at Whole Foods locations and Shell stations for Prime members. This move isn’t primarily about profit from gasoline; it’s about adding another layer of value to the Prime membership, making that $139 annual fee even more indispensable. It’s about embedding themselves into another facet of their customers’ lives.

The Challenges and The Future

This trend is not without its challenges. Retailers entering fuel business face significant regulatory and environmental hurdles, including compliance with underground storage tank regulations and managing environmental liabilities. The initial capital investment is substantial. Furthermore, the long-term viability of gasoline is in question with the accelerating transition to electric vehicles (EVs).

However, forward-thinking retailers are already planning for this EV future. The playbook remains the same, but the product changes. The “fuel” of the future is electricity. We are already seeing retailers like Walmart, Target, and Kroger installing EV charging stations in their parking lots. The strategy is identical: if a customer needs to spend 20-30 minutes charging their vehicle, where better to do it than in a store where they can shop for groceries, grab a meal, or run other errands? The captive audience provided by charging time could be even more valuable than the few minutes it takes to pump gas.

Conclusion: It’s Not About the Gas

The sudden rush of retailers entering fuel business is a misnomer. It wasn’t sudden, and it’s not about the business of selling gasoline. It is a calculated, sophisticated, and multi-faceted strategy that has been evolving for years.

It is about:

Traffic: Using an essential, frequent-need product to guarantee foot traffic.
Loyalty: Creating a powerful rewards ecosystem that makes switching competitors financially painful.
Data: Merging fuel purchase data with retail data to understand and market to customers with unparalleled precision.
Convenience: Evolving the one-stop-shop model to meet modern consumer expectations.
Defense: Building a moat against online competitors by anchoring their business to an undeliverable product.

The gas pump has become a portal—a gateway into a retailer’s world. It’s the hook that captures customers and the glue that keeps them coming back. So, the next time you fill up at your local supermarket, remember: you’re not just buying gas. You’re participating in a brilliantly designed ecosystem where the price on the pump is just the beginning of the story.