Whitepaper Ethanolretailersurvey

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Ethanol and the fuel retail inustry:
establishing a price advantage

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Whitepaper Ethanolretailersurvey

  1. 1. ethanol and the fuel retail industry: establishing a price advantagegrowth energy white paper series:ethanol and the fuel retail inustry:establishing a price advantageA survey to better define the value higher ethanol blends (E15 to E85) offer to retailers.Summary of ResultsThe fuel retailing industry is a very large, fragmented group with Roughly 81 percent of these retailers state they are satisfied withmore than 90,000 owner operators of convenience stores across their decision to install flex fuel pumps.the United States. In February 2012, Growth Energy commissioned In addition, findings in this report also indicate that if the etha-a study with a third party research firm, Irwin Broh Research, to nol retailer is able to advertise the ethanol price advantage, theybetter define the value higher ethanol blends (E15 to E85) offer experience even higher levels of success in selling ethanol blends.to retailers. Initial results demonstrate that the vast majority of retailersare able to establish a fuel price advantage in their markets, arelikely to see increased fuel sales, are able to simplify inventory,and have seen increase store traffic in large part due to the ad-dition of flex fuel pumps offering higher blends of ethanol fuel.Summer, 2012 Page 1
  2. 2. Ethanol and theFuel Retail Industry:Establishing a Price AdvantageCreating a Fuel Price Advantage Better Fuel MarginsThe timing of this report was immediately following the elimina- Just above forty percent (42 percent) felt that fuel margins im-tion of the VTEEC incentive for ethanol. Though the majority of proved by an average of 7.9 percent since they started sellingthis subsidy was kept by oil refineries, ethanol retail prices were higher blends of ethanol.under heavy pressure during the survey. Of those retailers promoting ethanol, 60 percent feel that fuel However, being a very fuel price competitive industry, more than margins have improved by an average of 7.44 percent. One of the36 percent of the retailers in this survey stated that only a 1¢ or 2¢ primary reasons for fuel margin improvement was due to lowerprice differential can lead to a price advantage in their market. delivery costs. Approximately 81 percent believe there is a price advantage inselling ethanol blends. Sixty percent (60 percent) of the retailers Better Fuel Inventory Managementincluded in this survey advertise the price advantage of ethanol Approximately 35 percent stated that their fuel inventory was simpli-and survey results indicate that this group generates even more fied after adding ethanol blends. Approximate 42 percent said theypositive sales volumes, inventory turnover and even in-store busi- experienced better inventory turnover as a result of adding blendedness large part in thanks to this price advantage ethanol offers fuel. And in some cases, retailers eliminated a premium grade oftheir business. gasoline due to greater demand for higher blends of ethanol. Better fuel inventory turnover implies less working capital isImproved Fuel Sales Volume required for running this business and possibly improved cashOn average, fuel sales represent 60 percent of these retailers’ flow from their fuel operations.business. Nearly 60 percent of the retailers believed that fuelsales have increased thanks to ethanol. The average increase was In-Store Sales Increaseapproximately 13 percent higher over-all fuel sales. Nearly 9 in 10 stated that there was a relationship between fuel Of those retailers promoting ethanol pricing, 66 percent be- stops and in-store sales where they make the majority of theirlieve that fuel sales have increased on average 14.1 percent. profits. On average 2 out of 3 fuel customers come into the store to buy additional items. Because over-all store traffic has improved after installing flex pumps, about 48 percent of the retailers participating in this poll “We have really picked up a lot of business believe that in store traffic has increased. On average an 11 percent increase was reported. since the blender pump was installed. I’m pumping about 2,800 gallons of ethanol Effective Ethanol Promotions Since there is a fairly strong correlation between promotions and each week, and the margins on that are increased success with higher levels of ethanol blends, the survey far better than regular gasoline.” asked retailers what they felt are the most successful options for promoting the renewable fuel. Here are the top tactics as reported: — Timothy Newton, • Outside signage – advertising price advantage Newton’s Service & Parts, Columbiana, Ohio • Local Media advertising • Literature • Online promotionPage 2 © 2012 Growth Energy
  3. 3. ethanol and the fuel retail industry: establishing a price advantage “Once you’ve explained the benefits of ethanol and dispel the myths you have a customer for life.” — Scott Zaremba, Zarco66, Kansas • A “personal touch” at the pump. Educating the consumer as • The selling of a locally produced product benefiting the local well as station staff on the benefits of ethanol and how the economy. choice allows the customer to experiment to obtain the best • Cleaner, renewable, “greener” fuel. gas mileage at lowest cost. • Eliminates dependency on foreign oil. As one retailer put it, “The more that the customers are edu-What Over-all Advantage does cated about ethanol use, the more of an advantage can be created.”Ethanol provide Retailers Another retailer felt, “having the blended fuel gets us the price-In the open discussion portion of the survey, retailers were asked sensitive customers.” And another retailer felt being the only storewhat advantage does selling higher blends of ethanol offer their with ethanol afforded them with an exclusive advantage, “Flex fueloperations. A variety of answers were given but they were along customers can find me and not the other guy.” Finally, one retailerthese themes: summed it up quite well, “Offering customers more choices at the • Giving the customer a choice of fuel products. pump equals more change in everybody’s pocket.”About the SurveyThe majority (81 percent) of retailers contacted are independentoperators. These retailers are primarily located in rural locationsand most are located near state highways. On average, fuel salesrepresent 60 percent of their business. E85 was sold by 100 percent of the retailers surveyed with E10and E30 accounting for 97 percent and 90 percent, respectively.Nearly three-fourths (74 percent) of retailers were satisfied (very+ somewhat) with their decision to install Flex Fuel pumps. The survey was conducted via telephone with flex pump re-tailers (10 percent of the total population) in the following states:Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Ohioand South Dakota. Each survey consisted of an approximate 20 minute interview.Interviews were conducted from Feb. 3 thru Feb. 17, 2012. Respon-dents were provided with an incentive of $40 to compensate themfor their time. They were also given the opportunity to receive the American Marketing Association (AMA), the Marketing Researchresults of the study, as well as the option to obtain a station kit. Association (MRA), and Qualitative Research Consultants Associa- The survey was conducted by Irwin Broh Research a full-service tion (QRCA). For more information about Irwin Broh, please visitmarketing research firm founded in 1971 that conducts custom as www.irwinbroh.com.well as syndicated survey research. Irwin Broh Research is a mem- For more information about ethanol retailing please visitber of the Counsel of American Survey Organization (CASRO), the EthanolRetailer.com.Summer, 2012 Page 3
  4. 4. ethanol and the fuel retail industry: establishing a price advantageGrowth energy Market development17220 Wright Street, Suite 150Omaha, NE 68130P h o n e : (402) 932-0567 W e b : EthanolRetailer.comPage 4 © 2012 Growth Energy

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