Prompted by the COVID-19 pandemic, the major credit card companies have further delayed the deadline for EMV fuel dispenser compliance to April 2021. This has conveniently provided marketers with some valuable time to tailor a turnkey EMV dealer development program to proactively provide upgrade guidance and support without breaking the bank.
Pragmatism is a virtue for marketers today when considering whether to brand a site or extend a fuel supply contract, as many dealer locations may not survive through the term of the agreement due to increasing competitive pressure. When that happens, the marketer is financially responsible for any unamortized branding money or lost profit recapture provisions contained in their branding agreements.
The delicate balance between solvency and insolvency can be disrupted by one sophisticated retail petroleum operator entering a given market. The cost to upgrade dispensers to meet the EMV mandate adds a further element of uncertainty to the long-term prospects for a given dealer account. Failure to become EMV compliant has a direct impact on the fuel supplier, and thus marketer inaction leading up to the deadline is really not an option.
For average dealer sites being supplied under a rack-plus pricing formula, the cost to replace or upgrade fuel dispensers pushes the investment payback period beyond traditional expectations.
That, combined with the other previously mentioned dealer viability risk factors, makes the overall EMV situation somewhat dicey. The financial requirements to upgrade multiple sites in a dealer book-of-business become quite daunting for many marketers. As such, having this COVID-19-induced additional six months to proactively address the situation is unexpectedly fortuitous.
A customized dealer EMV upgrade program can provide tangible added-value benefits by providing guidance and assistance through the entire EMV upgrade process. In exchange for this assistance, a dealer will agree to extend their fuel supply agreement out to a full 10- or 15-year term, plus other considerations to be determined based upon specific accounts and situations. The program is not officially rolled out until it has been fully developed, including custom presentation materials and relationships established between the equipment manufacturers and installers.
I envision an all-encompassing program that would address three types of dealer situations with three tailored solutions. The following three-fold concept is an example of how marketers might construct such a program with lenders and equipment companies.
For Gold-level dealer accounts with fuel volume of over 100,000 gallons per month, a direct investment may be considered utilizing equipment financing options that will limit the amount of direct cash outlays, while yielding valuable equipment depreciation benefits and further lock in the account by retaining direct ownership of the equipment.
For Silver-level dealer accounts with fuel volume between 50,000 to 100,000 gallons per month, a credit enhancement program can be established whereby the marketer provides a credit backstop to enable the dealer to obtain necessary credit, at sometimes lower interest rates, to facilitate the needed dispenser upgrades.
For lower-level Bronze dealer accounts, the marketer can proactively coordinate the various facets of an EMV upgrade, help source available EMV brand money and introduce the dealer to the program’s approved equipment lender. The goal is to provide turnkey support to enable the account to become EMV compliant at a nominal expense, commensurate to the value of the account.
Assuming that it will take 60 to 90 days to put together a comprehensive program, that still leaves three or four full months for implementation before the April 2021 EMV compliance deadline.
Marketers that proactively use this time to design and deploy a customized dealer development program will help solidify their dealer business relationships, extend the ratability and value of their dealer book-of-business and mitigate the risk of dealer attrition.
Mark Radosevich is the president of PetroActive Real Estate Services LLC, offering confidential mergers & acquisition advisory support and financing services exclusively to petroleum wholesalers. Contact him at [email protected] or call (423) 442-1327, www.petroactive.net.