What Fuels Retailers Decisions?

34 nacsonline.com March 2010

what FUELS

REtaILERS’ DEcISIonS

In recent years, we tackled fuel perceptions from the consumer side. This year, we see what

your peers — the retailers — think about the current state, and future, of motor fuels.

March 2010 nacS Magazine 35

Survey Says…The Balvor/NACS Motor Fuels Retailer Survey was fielded in January 2010 and promoted via several NACS Daily announcements. A total of 114 retailers — representing more than 5,500 fueling locations — responded to the online survey. Survey partici-pants were remarkably similar to the industry’s overall makeup.

average monthly gallons sold:

company size:

all charts and data in this article are from the Balvor/nacS Motor Fuels Survey unless otherwise noted.(percentages rounding to nearest whole number)

Under 75,000: 26%

75,000 to 125,000: 46%

Over 125,000: 28%

1-10 stores: 60%

11-50 stores: 27%

51-200 stores: 9% 201-500 stores: 3%

500-plus stores: 2%

We know consumers are price sensitive, that they think retailers make — and should make — more money per gallon than they really do. We also know that consumers generally don’t blame their neighborhood convenience store operator for high gas prices (although they do blame “Big Oil”). We know all this because that’s what con-sumers have told us in three previous NACS Consumer Fuels Reports.

But what about the retailers? How are they reacting to consumers’ perceptions and price sensitivity? And how do retailers feel about future prospects?

The results from the Balvor/NACS Motor Fuels Retailer Survey, released exclusively for the first time here in NACS Magazine, provide deeper insights into the motor fuels landscape and how motor fuels retail-ers are relentlessly changing. Above all, the survey revealed that despite today’s busi-ness challenges, retailers remain optimistic about the future.


InsIght 1:Discounts on gas are the norm — if they are offered in your area. We know that motor fuels customers are incredibly price sensitive. Last year, 70 percent of consumers told us that they consider price the most important factor when choosing where to fuel up, and 26 percent will drive 10 minutes out of their way just to save 3 cents per gal-lon — a time, energy and money waster. And nearly 4 in 10 customers said that they would pay cash to save as little as 1 cent a gallon.

So, what are retailers doing to man-age this price sensitivity? The Balvor/NACS survey found that one in five re-tailers offers some sort of discount pro-gram, but cautiously, and with good reason. Nearly all retailers say that dis-count programs invariably lead to mar-gin losses. While some retailers believe that a discount provides a competitive advantage, most are likely to offer a pro-gram because of the competitive disad-vantage they would have without it.

“The results reinforce what most fuel retailers already know: This business is

NACS Gas Price Kit Answers Consumers’ ‘Whys?’ and ‘Hows?’ “ I wish they knew our actual margins.”

“ We are locally owned and operated.”

“ We are a small business.”

“ The facts about the ‘price-gouger’ laws are destructive to small businesses.”

These are all retailer answers to the last question on the Balvor/NACS Motor Fuels Retailer Survey: “What do you wish customers knew about your business?”

On February 2, NACS released its 9th annual online gas price kit (nacsonline.com/gaskit2010) to address common consumer questions — and provide answers — about the U.S. petroleum market.

This year, two new elements gave unique insight into the world of gasoline retailing: a searchable map provid-ing key state-by-state metrics related to motor fuels and video respons-es to consumers’ ques-

tions about the industry.Experts from NACS

and the Oil Price Informa-tion Service (OPIS) answered more than a dozen common consumer questions, now available at NACS Online via short videos at NACS TV.

The searchable map allows users to examine critical market conditions related to their particular state. “When events like hurricanes or refinery breakdowns occur in one region, there is a ripple effect throughout the rest of the country,” said NACS Vice President of Government Relations John Eichberger. “Where fuel is produced and how it is distributed has a significant influence on the price the consumer ultimately pays.”

NACS traditionally releases its annual gas price kit on February 2 to coincide with two events: Groundhog Day and the beginning of the seasonal transition to summer-blend fuels.

While Punxsutawney

Phil’s prediction about whether we will see a long or short winter is considered more fun that factual, a colder winter could increase heating oil demand and complicate existing challenges associated with the seasonal transitional to summer-blend fuel.

In addition, the first week of February traditionally marks the beginning of the spring transition to summer-blend fuels for the petroleum industry. This transition to producing more than a dozen summer-specific fuels adds complexity to the system that typically leads to seasonal price varia-tions. Over the past decade, gas prices have increased an average of 55 cents between the first week of February and their seasonal peak, which is typically mid May. (In 2009, gas prices rose 80 cents between February 2 and the seasonal peak on June 22.)

NACS has shared the kit with the hundreds of national reporters who have contacted us to discuss motor fuels issues, as well as with key members of Con-gress and other policy-makers. You can reach out to your own local media or customers by using the materials in the kit, or provide a link to the kit on your Web site.

Do you currently offer discounts on fuel?

No: 82%

Yes: 18%

(percentages rounding to nearest whole number)

The 9th annual online gas price kit can be found at nacsonline.com/gaskit2010.


Retailers who “strongly agree”

84%Giving up some

margin with your fuel discount will keep you competitive

44%Fuel discounts are becoming a cost of doing

business

23%We offer

fuels discounts because our

competitors do

20%Fuel discounts

provide a competitive advantage

operations

92% Friendly employees

74% Well-lit exterior

75% Clean store/bathrooms

Products

46% Hot coffee program

38% Tobacco prices

33% Fresh foods

Branding

25% Fuel brand

23% Store brand

13% Fuel rewards/discounts

Excluding gas price, what attracts customers?(Retailers who “strongly agree”)

18% Store is clean and well lit

18% Restroom facilities available

What would most likely make you go inside the store after buying gas?

(Source: 2009 nacS consumer Fuels Report)

Who do you consider your competition?

Stores within a half mile: 12%

Stores more than 1 mile away: 43%

Stores within 1 mile: 37%

Stores on immediate block/corner, same side: 3%

Stores on immediate block/corner: 5%

very sensitive to market forces,” said Bal-vor Managing Partner David Bishop. “Offering fuel discounts only provides a temporary competitive advantage, be-cause the competition will likely match your offer to maintain competitiveness.”

To put it another way, the first to mar-ket will not be the last to market since every other retailer eventually jumps in. Because the first to market is quickly matched, the discount ultimately be-comes another cost of doing business as a fuel retailer.

The results clearly show how market dynamics work: Less than 4 percent of the retailers responding said they of-fered their own fuels discount when none of their competitors had one. How-ever, the percentage of retailers with fuel discount programs jumped to 40 percent when half of the competitors offered a discount, and reached 100 per-cent when all of their competitors of-fered a discount program.

InsIght 2:How you sell is more criti-cal than what you sell.Consumers were very clear in stating their preferences about stores in 2009’s NACS Consumer Fuels Report. While gas prices were deemed critical, equally so was operations excellence. Consum-ers said that your stores needed to be clean and well lit, with clean restroom facilities. They were much less interested in what you actually sold.

Retailers agree. Operations-related excellence is considered far more im-portant than the brand.

“These results underscore the criti-cal need to effectively execute the fun-damentals every day,” said Bishop. “Leading convenience retailers know that getting it right in these areas helps to drive improvements in other areas, such as the product offering. The strength of their brands — especially the store — builds over time based on their


success with the first two areas.”Furthermore, operations excellence

is particularly important because retail-ers also believe their competition is not coming from the immediate corner. More than 80 percent of retailers be-lieve that their competition comes from stores at least one half a mile away.

“Competition for the consumer’s dollar doesn’t stop with getting them to the pump,” said Bishop. Nearly four in 10 retailers (38 percent) said that they are going to focus on highlighting more in-store price promotions at the pump to help drive customer traffic into the store.

InsIght 3:Retailers are looking at a future without liquid fuel — but still consider it essential today.Convenience retailers, who today sell approximately 80 percent of the motor fuels purchased in the United States, are keeping an eye on a future beyond petroleum.

Retailers think that electric charge/battery swap will be the biggest change in fueling a decade from now, and thank-fully, that belief seems to match the change in green car technologies. At the January 2010 Washington Auto Show, electric vehicle technology was at the forefront, a sea change from last year when electric vehicles vied with hydro-gen, compressed natural gas and pro-pane in a much smaller space. The 2010 auto show featured the newest collec-tion of alternative-fuel vehicles ever displayed — 65,000 square feet, 13 times larger than last year’s 5,000-square-foot alternative vehicle pavilion.

That said, retailers don’t consider electric vehicles one of their biggest challenges today — in fact, only one in seven believed that alternative (or flex) fuels vehicles are a significant threat to their operations. Competition — wheth-er from other convenience stores or non-traditional fuel outlets — tops the list as

What fuels will you be selling in 10 years?(Retailers saying “extremely likely” or “somewhat likely”)

71% High-blend ethanol

68% Biodiesel

41% Electric charge/ battery swap

34% Compressed natural gas

22% Hydrogen

9% Biobutanol

How big a threat to your fueling business are...?(Retailers saying “significant” or “very significant”)

77% Other

convenience stores

66% Non-traditional fueling outlets

65% Regulations

37% Supply

challenges

14% Alternative fuel vehicles

(percentages rounding to nearest whole number)

Estimated conversion rate, fuel to in-store customers:(responses grouped, open-ended question)

20% or less:4 percent

21-39%: 11 percent

30-39%: 25 percent

50-59%: 16 percent

60-69%: 12 percent

70-79%: 4 percent

80% or higher: 4 percent

40-49%: 25 percent


pricing tactics continue to evolve, which ultimately influences how to drive incre-mental business inside the store.

Much more emphasis will be placed on promotions and foodservice in 2010, according to retailers. The Balvor/NACS survey found that 85 percent of respondents feel they will offer more in-store promotions and 80 percent say they will strengthen their foodservice offers. In comparison, 66 percent of the retailers are focusing on optimizing the tobacco category this year.

“Given the economic times, it’s not surprising that value-driven strategies are increasing,” said Bishop. “Price pro-motions — whether they are two-for deals, temporary reductions or a multi-pack offer — are a well-documented way to drive short-term results. However, an increasing number of retailers are now investing resources into foodservice — a longer-term strategy that can have a sig-nificant return for the business, if exe-cuted effectively.”

Retailers also are putting a greater focus on increasing their conversion rates between fuel and in-store custom-ers. Whichever is the case, the challenge is two-fold: getting consumers to the lot to buy fuel and moving a greater per-centage of all site traffic into the store. Interestingly, some retailers are looking at how they can drive more store traffic to the pump, as many loyal customers frequent some stores many times a week if not a couple of times each day.

The mean conversion rate was 42 percent among all responses, but when weighting for store size, the conversion rate improved to 44 percent.

InsIght 4:The industry’s positives make retailers optimistic.“We don’t participate in recessions,” said Dean Durling, president and CEO of Quick Chek Corp., during the “A Tale of Two Retailers” panel discussion at last year’s NACS Show. He was speaking about his company’s future, but may

have been speaking on behalf of other retailers who share similar thoughts.

More than three-quarters of retailers are optimistic about the future outlook of their company — nearly three times more than that of the overall economy. This reveals, like Durling, that conve-nience retailers do not believe they have to participate in recessions.

Not one retailer felt that the compa-ny’s prospects were “extremely pessi-mistic,” compared to 6 percent who felt that way about the U.S. economy.

“The reality is that our industry is challenged,” through increasing com-petition, the commoditization of fuels and the continuing onslaught of new regulations and taxes, said NACS Vice Chairman of Research Greg Parker,

president of The Parker Companies in Savannah, Georgia. “But the underpin-ning to everything is the general mood of our industry and our customers, and this optimism can go a long way in over-coming our challenges.”

“The big message to me from these results is that you better be good at something if you expect to continue to compete at the highest level,” said Parker. “And you better focus on the in-side of the box, and you need to really understand where you are making your money.”

Contact Jeff Lenard at [email protected] or (703) 518-4272 with questions or comments on how NACS can improve this resource.

How do you feel about your prospects this year for…?

Your company

25% Extremely optimistic

53% Somewhat optimistic

c-store industry



U.S. economy



How do you feel about your prospects this year for…?

In-store merchandise



Foodservice



Motor fuels



What Fuels Retailers Decisions?

Business

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