EVOLUTION OF THE HIGH
VOLUME GASOLINE RETAILER
Response
To
Requests for information
February 13, 2003
EAI, Inc. (Energy Analysts International)
12000 North Pecos, Suite 310
Westminster, CO 80234
303-469-5115
Fax: 303-469-4722
webmaster@eaiweb.com
EAI RESPONSE TO
REQUESTS FOR INFORMATION IN CONNECTION WITH EXHIBIT COSTCO-4
(EVOLUTION OF THE HIGH VOLUME RETAILER)
8.
Please file Mr. Joseph J. Leto’s curriculum vitae.
Please see Attachment 1 contained in this report.
9.
Please indicate the source of the information used to affirm that high volume
retailers (“HVRs”) have sales which are two to three times higher than those of
conventional gasoline retailers. Please file the documentation relied upon to make
this affirmation.
EAI relied on the following information to develop their estimates:
a) Monitored several sites to determine traffic frequency and average fuel purchase per
customer. Conducted these surveys for various days of the week and different time
periods to capture typical traffic and purchase patterns.
b) Estimated Kroger’s average volume per site using corporate report information that
detailed their total gasoline sales (supermarkets and their convenience store business)
and number of convenience store sites. Assigned an average sales number to the
convenience store sites based on industry information (from NACS) and backcalculated what the average supermarket site gasoline sales would have been.
c) Researched the literature, which often provides information regarding gasoline sales
for a specific company and store site.
d) Conducted a spot survey of a number of stores across the United States to determine
how many loads of fuel they received a week. Knowing this number and that the
average truck load is approximately 8200 gallons, we can estimate store volume.
e) Murphy indicated their average Wal-Mart site gasoline sales in one of their
presentations to the Investor Banking community.
f) EAI has attended numerous conferences addressing the Hypermart gasoline business
and has gathered intelligence from attendees of these meetings.
g) EAI some of its hypermart contacts/clients indicating that its gasoline sales numbers
were representative of actual sales figures.
The detail of this research is the private property of EAI. It is contained in EAI’s
February 2003 study “U.S. Hypermart Petroleum Market Outlook: Emergence of the New
Competitive Arena” (a publication marketed by and available from EAI) and supporting
data and analysis.
10.
Please file all the documents containing the statistics referred to in the first
paragraph of page 5 (Costco-4) regarding the number of hypermarkets with high
volume retailers, 1140 sites in 2000 and 2434 sites in October, 2002.
EAI conducted a survey of over 21,000 U.S. hypermart sites to determine if they had
gasoline retail operations, researched a number of company web sites which specify their
specific store offerings, and contacted companies to determine how many gasoline sites
they currently had.
The detail of this research is the private property of EAI. It is contained in EAI’s
February 2003 study “U.S. Hypermart Petroleum Market Outlook: Emergence of the New
Competitive Arena” (a publication marketed by and available from EAI) and supporting
data and analysis.
11.
Please file all the documentation containing the statistics referred to in the second
paragraph of page 5 (Costco-4), indicating:
11.1 That there are 2000 high volume retailers in the United States counting
only the dominant companies
See the "2001 Convenience Store and Petroleum Marketing Industry Review and
Outlook", Paula Loree - Director of Research, copyright 2001, published by GE
Capital Franchise Finance Corporation. 17207 North Perimeter Drive,
Scottsdale, AZ 85255 phone (480) 585 4500.
11.2 A total of 4411 high volume retailers in the United States.
This figure is equal to the 2000 locations cited above plus EAI’s latest U.S.
gasoline hypermart site count (see response to request #10).
12.
Please file the document containing the entry referred to in paragraph 3 of page 5
(Costco-4) indicating the existence of 170,700 sites in the United States.
See "NPN 2002 Market Facts - Facts, Figures,Trends" 2002 NPN Station Count, table on
page 100 giving U.S. gasoline retail station count by state for the years 1994 to 2002,
determined by NPN survey. Published by National Petroleum News by Adams Business
Media, a division of MCA Communications, LLC, 250 S. Wacker Drive, Suite 1150,
Chicago, IL 60606. Darren Wight, Editor in Chief (309) 689 9969. www.npn-net.com
13.
Please file the document(s) containing the information based on which EAI
projects in paragraph 4 of page 5 (Costco-4) that the number of high volume
retailers will increase to 6,000 or 7,000 sites in the United States in 2007 ;
EAI developed a Hypermart Gasoline Retail Forecast Model that takes into account the
number of sites each company has that can accommodate gasoline retail facilities, the
rate of new store development or existing store rebuild, and the fraction of new stores that
include gasoline retail. Using this model and EAI’s detailed Hypermart Gasoline Retail
Information Base, each company’s future likely gasoline retail site inventory was
computed.
The detail of this research is the private property of EAI. It is contained in EAI’s
February 2003 study “U.S. Hypermart Petroleum Market Outlook: Emergence of the New
Competitive Arena” (a publication marketed by and available from EAI) and supporting
data and analysis.
14.
Please file all the documentation upon which the statistics and projections
referred to in paragraph 5 of page 5 (Costco-4) are based, indicating that the high
volume retailers’ share of the market was 5.8% in 2002 and will reach from 12 to
16 % in 2007.
Using EAI’s estimate of future hypermart gasoline sites, EAI’s assessment of average
gasoline sales per site and for each hypermart company and EAI’s estimate of future U.S.
gasoline consumption, EAI developed an outlook for future hypermart gasoline market
share. The historical gasoline consumption figures were developed using: 1) U.S. Energy
Information Administration’s Petroleum Marketing Monthly Report, and 2) U.S.
Department of Transportation’s Annual Motor Fuel Report.
The detail of this research is the private property of EAI. It is contained in EAI’s
February 2003 study “U.S. Hypermart Petroleum Market Outlook: Emergence of the New
Competitive Arena” (a publication marketed by and available from EAI) and supporting
data and analysis.
15.
Please file all the documentation relied on to draft the graph entitled “Hypermart
Gasoline Sales Volume Outlook” at page 6 (Costco-4) ;
The future hypermart gasoline sales were computed using EAI’s forecast of hypermart
gasoline site count growth and EAI’s assessment of average gasoline sales by company
and site.
The detail of this research is the private property of EAI. It is contained in EAI’s
February 2003 study “U.S. Hypermart Petroleum Market Outlook: Emergence of the New
Competitive Arena” (a publication marketed by and available from EAI) and supporting
data and analysis.
16.
Please file all the documentation relied on to draft the graph entitled “Hypermart
Gasoline Sales Volume Outlook” at page 7 (Costco-4) ;
Figure 7 is Hypermart Gasoline Market Share Outlook and equals EAI’s estimate of
future hypermart gasoline sales for a given forecast year divided by EAI’s forecast of U.S.
gasoline sales for a given year. EAI used its gasoline consumption forecast model to
forecast future gasoline consumption. The model takes into account population growth,
fleet conservation, vehicle miles traveled, etc.
The detail of this research is the private property of EAI. It is contained in EAI’s
February 2003 study “U.S. Hypermart Petroleum Market Outlook: Emergence of the New
Competitive Arena” (a publication marketed by and available from EAI) and supporting
data and analysis.
17.
Please file all the documentation relied on to gather the data on the number of
hypermarket sites and their evolution from 2001 to 2002 as well as in relation to
the market shares referred to in paragraph 2 of page 8 (Costco-4) ;
EAI estimated the Dallas/Ft. Worth gasoline demand to be approximately 191,000 barrels
per day based on a county-level gasoline forecast algorithm developed by EAI. EAI used
its national average hypermart gasoline sales by site and its gasoline retail site count by
hypermart company to estimate each company’s gasoline sales for the Dallas/Ft. Worth
market area. The hypermart gasoline site count was based on EAI’s nation-wide market
research of over 21,000 hypermart sites as described previously.
The detail of this research is the private property of EAI. It is contained in EAI’s
February 2003 study “U.S. Hypermart Petroleum Market Outlook: Emergence of the New
Competitive Arena” (a publication marketed by and available from EAI) and supporting
data and analysis.
18.
Please file all the documentation relied on for the data regarding average volume
situated between 945,000 and 1,323,000 litres per month and volumes of
1,134,000 to 2,646,000 litres per month for certain hypermarkets.
The process used to develop these ranges was described in the response to request #9.
19.
Please file all the documentation relied on for the data regarding a convenience
store’s average volume gasoline in the United States referred to in paragraph 2 of
page 9 (Costco-4).
See the National Association of Convenience Stores (NACS): Fact Book 2002.
20.
Please file all the documentation relied on for the data used to evaluate the
difference in prices between hypermarkets and local competitors referred to in
paragraph 3 of page 9 (Costco-4) ;
EAI tracks retail pricing for a number of competing retail stores in the Dallas/Ft. Worth
and Denver markets. This data is periodically analyzed and presented in graphs that
define the pricing differentials between the competing stores and specific grades of
gasoline. EAI also researches the literature which has made considerable information
available regarding retail pricing between the hypermarts and competing gasoline
retailers.
The detail of this research is the private property of EAI. It is contained in EAI’s
February 2003 study “U.S. Hypermart Petroleum Market Outlook: Emergence of the New
Competitive Arena” (a publication marketed by and available from EAI) and supporting
data and analysis.
21.
Please fill all the documentation relied on for the data used to draft the chart
entitled “Hypermarket gasoline sites & volume estimates, U.S. market ; October
2002” on page 10 (Costco-4) ;
As part of EAI’s U.S. hypermart site survey described previously, each site was defined as
belonging to one of the three retail channels (supermarket, discount store or mass
merchandiser). Using the hypermart gasoline site counts and average store gasoline
sales defined previously, EAI computed gasoline sales by retail channel.
The detail of this research is the private property of EAI. It is contained in EAI’s
February 2003 study “U.S. Hypermart Petroleum Market Outlook: Emergence of the New
Competitive Arena” (a publication marketed by and available from EAI) and supporting
data and analysis.
22.
Please file the questionnaire for the survey, the list of questions asked as well as
the results and analyses upon which the data in the graph entitled “Customer
gasoline price sensitivity” on page 11 is founded (Costco-4).
The questionnaire is included as part of Attachment 2 in this response.
The detail of this research is the private property of EAI. It is contained in EAI’s
February 2003 study “U.S. Hypermart Petroleum Market Outlook: Emergence of the New
Competitive Arena” (a publication marketed by and available from EAI) and supporting
data and analysis.
23.
Please describe the sampling procedure for the persons surveyed in order to
create the questionnaire and indicate from which documents the survey was
created as well as the identity of the individuals having provided these
documents. Please provide, in addition, a copy of said documents.
EAI conducted both customer intercept and focus group surveys of convenience store and
hypermart customers. Completion of the surveys was procured on-site from customers of
specific convenience stores and hypermart gasoline locations.
The detail of this research is the private property of EAI. It is contained in EAI’s
February 2003 study “U.S. Hypermart Petroleum Market Outlook: Emergence of the New
Competitive Arena” (a publication marketed by and available from EAI) and supporting
data and analysis.
24.
Please indicate the date on which the survey referred to on page 11 (Costco-4)
was carried out.
The survey work was conducted over a period extending from May, 2001 through July,
2001.
25.
Please provide the number of responses to the survey at page 11 (Costco-4)
Approximately 389 customers responded to the question addressing customer sensitivity
to gasoline price for the Dallas market.
26.
Please provide the original document describing the methodology followed in
order to carry out the survey at page 11 (Costco-4) along with any synoptic tables
analysing the data by cross-referencing, in addition to any other document drafted
in connection with the survey ;
The detail of this research is the private property of EAI. It is contained in EAI’s
February 2003 study “U.S. Hypermart Petroleum Market Outlook: Emergence of the New
Competitive Arena” (a publication marketed by and available from EAI) and supporting
data and analysis.
27.
Please file all of the documentation relied upon for the data which warrants the
affirmation in paragraph 1 of page 12 (Costco-4) that the retail margins in
American metropolitan regions have diminished between 2000 and 2002.
See attachment 3.
28.
Please file all of the documentation relied upon for the data regarding retail
margins in markets with a weak to moderate concentration of high volume
retailers, as well as markets with a high concentration of high volume retailers
referred to in paragraph 3 of page 12 (Costco-4);
The detail of this research is the private property of EAI. It is contained in EAI’s
February 2003 study “U.S. Hypermart Petroleum Market Outlook: Emergence of the New
Competitive Arena” (a publication marketed by and available from EAI) and supporting
data and analysis.
29.
Please provide all of the documentation relied upon for the data used to create
the graph entitled “Rack to Retail Margins” on page 13 (Costco-4);
Data and calculations shown in Attachment 4.
30.
Please provide all of the documentation relied upon for the data used to create
the graph entitled “Rack to Retail Margins” on page 14 (Costco-4);
Data and calculations shown in Attachment 4.
31.
Please provide all of the documentation relied upon for the data used to create
the graph entitled “Rack to Retail Margins” on page 15 (Costco-4);
Data and calculations shown in Attachment 4.
Attachment 1: Mr. Joseph J. Leto’s curriculum vitae
Attachment 2: Customer Survey Form
Attachment 3: Retail Margin Trend Chart
Attachm ent 4: Basis for Retail Calculations