Death Knell Sounds for Safeway Gas Discounts

OAKLAND, Calif. (CN) - An Alameda County judge hinted that he will block Safeway stores in the Bay Area from luring customers with cheap gas.

The order comes after local gas station owners brought several lawsuits that claim Safeway's below-cost pricing of gasoline hurts their businesses.

The first of the lawsuits, brought by Dixon Gas Club in May 2008, said Safeway violated California's Unfair Practices Act by offering promotional discounts through its Grocery Rewards and Club Card programs that allow shoppers to buy cheaper gas at Safeway gas stations. The Club Card promotion gives customers a 0.03 percent discount per gallon, and the Grocery Rewards program gives customers a discount coupon for gas depending on the amount of groceries they buy.

Alameda Superior Court Judge Wynne Carvill said an internal document describing Safeway's pricing strategy sufficiently shows that the store's policies hurt local gas stations.

"It is clear that those who developed defendant's discount programs believed the 3¢/gal. discount on the Club Card would generate additional volume and do so by diverting sales from, among others, its single product competitors - including those like plaintiff who compete on price and are often smaller market participants," Carvill wrote.

An attorney for the gas stations, Jim Dombroski of Petaluma, Calif., said he expects Carvill to order a preliminary injunction later this month.

In addition to saving his clients' livelihoods, putting an end to Safeway's allegedly unfair practices will ultimately help consumers, Dombroski said.

"Unfortunately the perception is that the public generally just wants the cheapest gas available, they don't care if it's sold below cost or not," he told Courthouse News. "The immediate impact of this injunction is presumably going to mean that Safeway can't sell below cost and the price of gas will go up."

"The ultimate goal here is to protect the competitors in the area," he added. "If they run all the competitors out of business, Safeway will be able to control the price and increase the prices. That's where the consumer gets hurt."

The parties are due in court April 25 to finalize the injunction and set a trial date for some time between November and the end of March 2013.

Drombroski said he will argue that the injunction should apply to Safeway stores throughout California.

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