Why Is Walmart Making Gas Stations A Bigger Part Of Its Business?

Reports suggest that WalMart (NYSE:WMT) is looking to operate the gas stations outside its stores and bring them under its own brand. For the past twenty years, the company has partnered with Murphy USA to operate its gas stations, but now Walmart plans to build future gas stations outside its stores on its own. ^[1]. While the company already operates the gas stations outsides its Sam’s Club locations and some of its other stores in the U.S., Murphy operates majority of them – around 1100 in number. Walmart believes that branding gas stations under its own name will create a consistent shopping experience for its customers and facilitate its plans to add fuel stations in as many locations as it can to drive traffic and sales.  We believe the company  is looking at several avenues to improve its profitability and operating its own gas stations can work in favour of the overall business of the company.

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Greater Control Over Gas Stations Can Improve Margins, Facilitate Faster Expansion

Gas stations have always been an integral part of Walmart’s strategy to drive traffic to its stores using them to lure customers to shop other items. In the past the company has also offered discounts on fuel, when gas prices were high encouraging them to shop and buy gas at its stores.  The strategy to combine a fuel station with a convenience store has been used by several retailers to encourage consumers to shop while they fill gas and Walmart has not been an exception. With falling gas prices, discounts would no longer be attractive, so Walmart appears to be working on a strategy to expand its fuel network to drive sales. By acquiring control over new gas stations, the company can expand its gas stations at a faster pace to attract traffic. We expect Walmart’s US Revenue per square foot to increase gradually from $442 in 2016 to $488 by the end of our forecast period. With low gas prices and a rapid expansion of its fuel stations if Walmart can succeed in driving more traffic to its stores, there can be an increase in this revenue.

As Walmart loses retail market share to e-commerce players such as Amazon, the company is exploring avenues to improve its profitability and self-operated gas stations, as opposed to those run by a partner, could lead to higher margins. As gas prices remain subdued we believe Walmart is working on a strategy to generate more profits out of its fuel stations and expand them at a rapid pace to increase sales in its stores.

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1. Walmart taking over development of its gas stations, USA Today, February 4, 2016 [↩]