Fuel retailers can be broken down into three categories:
- Exiters – those looking to sell their stations/business
- Existers – those not looking to make any changes at all
- Excellers – those looking to optimize their stations and grow their business
We’ve learned that while all retailers differ in some way, excellers are always consistent in two areas.
First, they recognise the same four market challenges:
- Volatile cost prices
- Unpredictable volumes
- Aggressive competition
- Changing consumer habits
While the impact of each of these varies by situation, one or more of these challenges will be on the mind of any exceller.
Excellers also approach fuel pricing in similar ways. These optimized fuel businesses aim to drive profits using five main ‘pillars’:
So, what does this mean and how can you as a fuel retailer use the five pillars to optimize your business?
The market is now volume driven. It’s widely agreed (and cited by the EIA) that fuel volumes will reduce through to 2050, so every gallon of fuel you sell needs to create more profit for the same result.
Overall, the link between volumes and competition is reducing as consumer habits change. Studies by NACS show that only 52% of consumers use price as the dominant factor when filling up fuel.
This means you need to find new ways to drive volume to your sites. Allowing the competition to dictate this is not the optimal strategy.
One EdgePetrol user had always followed the price of aggressive competitors near their stations. Edge helped them move away from relying on competitor prices and start factoring in volumes.
By waiting to adjust pricing until their own volumes were being impacted, they grew their profits 18% across a year!
Margin data used to always be the most under-utilized pillar due to restrictions around cost price information. Retailers would have to base their margin on today’s cost price, re-costing all their fuel regardless of deliveries to provide the replacement cost.
But this approach fails to account for old fuel in the tanks and leads to inaccurate margin numbers. Month end accounts would reveal the true picture, but by then it’s too late to change anything.
EdgePetrol provides a blended number in real-time by connecting to the station’s PoS, fuel tanks and cost prices, providing more options for retailers looking to optimize their businesses.
Access to an accurate cost of product lets retailers get closer to the competition if their costs are lower or move upwards if they aren’t getting the margins they desire. This golden number is proven to grow profits by 16% versus a replacement cost model.
Competition will always factor into your pricing decisions. How it factors in, however, has changed.
Excellers review who their competitors are more frequently on a per-site basis and use pricing to test customer sensitivity. EdgePetrol’s premium platform, EdgeAnalytics, shows which competitors follow you as well as how quickly they’re doing this.
In addition to weekend discounting and social media promotions, access to volume data and competitor pricing helps implement new strategies around regular and premium grade pricing.
Existers, those retailers who aren’t looking to make a change, let the competition dictate their profits. To them, good years and bad years are just down to luck.
Of course, this isn’t just profit from fuel, and you’ll know how much you expect to make across fuel, your store, food and everything else.
What we’ve seen consistently among existers is that profit from fuel just depended on the competition.
Compare this with excellers, who take most of the luck out of the picture. And you could argue that when they’ve been lucky, they made it themselves by being better placed to take advantage of a particular situation.
Knowing and understanding profit in real-time is key.
This tells you whether you need to push for more margin from fuel or whether you can give back to your customers. On its own, it isn’t that useful, but when combined with the other pillars, it lets you see what the key drivers are and adjust them accordingly.
As one EdgePetrol user put it, “Volume is vanity, profit is sanity.”
Finally, you’ve made your decision. You’ve sent it to your Station Manager. Month end results come in. Profit is not where you thought it would be. Why?
Unfortunately the Station Manager got held up. Or typed in the wrong number. Or they are a Commission Operator and conveniently ‘forgot’ to make the upwards price move.
A delayed price change at one station can reduce profits by hundreds. A wrong price change can cost thousands. Not having visibility of that change is a high risk strategy.
Many excellers have already invested in the technology that allows for remote price changing. EdgePetrol alerts you if price changes haven’t been made or have been made incorrectly.
Becoming a fuel retail exceller
Now it’s time to take a step back and think about your fuel pricing strategy. Do you fit the exceller category? If you haven’t considered the role of these five pillars, you’re almost certainly leaving money on the table.
See how fuel retailers are applying the Five Pillars to optimize their fuel pricing strategies and fight back against volatile cost prices. Click here for exclusive access to EdgePetrol’s free five pillars whitepaper!
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