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The Honolulu Advertiser

Posted on: Friday, December 5, 2003

Costco gas competitors hold fast

 •  Comparing gas prices

By Kelly Yamanouchi
Advertiser Staff Writer

Lower prices at Costco's new members-only, eight-lane gas station in Iwilei has had little effect so far on gasoline prices at gas stations in the surrounding neighborhood two weeks after Costco opened its outlet.

Advertiser library photo • Nov. 24, 2003

The arrival of cheaper Costco gasoline in Iwilei has had a limited effect so far on gasoline prices in the surrounding neighborhood, but gasoline dealers are concerned they could eventually suffer serious business losses.

It's been less than two weeks since the Iwilei Costco started selling regular unleaded gasoline for $1.86 a gallon. The gas station is Costco's first in urban Honolulu and its second on O'ahu after opening the Waipi'o station about three years ago.

At a Chevron station on North King Street, dealer Thomas Kim said his sales have dropped about 20 to 25 percent since Costco opened.

Still, he said he plans to follow the same pricing strategy as before. His station's drop of a few pennies for regular unleaded gasoline in the past couple of weeks has less to do with Costco and more to do with lower oil prices, Kim said. The station was selling regular unleaded for $2.01 yesterday.

"We cannot match Costco," Kim said, because he pays a higher wholesale price than the big box retailer. "We're just hanging in there."

Kim hopes his customers return and he can recover some of his lost sales.

"We just gotta cross our fingers," he said.

Jeffrey Spring, a spokesman for AAA Auto Club, which tracks gasoline prices, said it may be some time before there are significant price changes at stations near Costco as the other retailers test the reaction of drivers.

"If they see a lot of consumers going away and see a real impact on their bottom line," they may lower prices, he said. "But it may take a while."

Frank Young, president of the Hawaii Automotive Repair and Gasoline Dealers Association, expects it to take about six weeks before the full impact becomes known.

"You're gonna see the stations in the immediate area compete a little bit differently," Young said.

Because other dealers pay higher wholesale gasoline prices, "there really is no room for the dealers to even compete," Young said.

The oil companies may make concessions to some dealers close to Costco, which could lower stations' prices by a few cents. But the decline would still not be enough to match Iwilei Costco, where the price was still $1.86 a gallon for regular unleaded and 1.99 for premium unleaded.

Historically, "Costco impacted every retail market wherever they went," Young said. "If Costco takes a million dollars, they gotta take it out of somebody's pocket. It's not gonna be new business."

He said the impact would be felt especially by stations within two to three miles of Costco, but could stretch to Kalihi, Waiakamilo and the School Street areas, too.

Young said the North King Street Chevron is not alone in losing sales. Other gasoline retailers near to Costa are also losing 20 percent of their sales, he said.

Because Hawai'i's gasoline market has a limited number of competitors, Costco may exert a larger impact on the market, Spring said.

"From the consumer's perspective, the more competitors the better," he said, although independent stations may be hurt.

He said refiners like Chevron and Tesoro favor their own stations when selling wholesale gasoline. Costco with its large volume is second in line in many parts of the country, elbowing out the "Mom and Pop" stations.

Iwilei Costco manager Robert Loomis said the gasoline business has been doing better than expected because the station gets customers who are driving to and from work. More are also signing up for Costco memberships, which are required for gasoline purchases, he said.

Memberships start at $45 a year, which drives up the per-gallon cost for members who only buy gasoline. Costco also doesn't sell medium-grade gasoline and doesn't accept cash.

Still, Costco gas stations in Hawai'i sell an estimated five to 10 times as much gas as the typical dealer, representing a significant competitive force.

Other stations have lowered prices "a tiny bit," Loomis said. But he adds: "We have not found a station that is lower than us, and we're certainly looking."

Reach Kelly Yamanouchi at 535-2470, or at kyamanouchi@honoluluadvertiser.com.

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