- 23 Feb
Are you ready for price increases?
Here we are heading into the end of February and everyone in the retail fuels business knows the season of rising gas prices is just around the corner. It happens every year: refinery prices increase, wholesale costs go up, and eventually the retail fuel marketer must respond.
We’re already seeing signs of this season being upon us. According to the Lundberg Survey, the average unbranded rack price for Regular Unleaded across the US has risen over seven cents since February 10. In the Midwest, the regional unbranded rack price average has shot up almost $0.23 per gallon in ten days. Yet refiner margins are still low, and pressure to increase margins continues to build .
Demand is higher year to date than 2015. That makes sense because in 2015, total US miles traveled broke a new record at 3.1 trillion miles. That record has stood since 2007, before the recession started. This number reflects miles traveled by passenger vehicle, bus, and truck. All indications are that 2016 will continue with similar numbers.
What does this mean to the Retail Fuel Manager? I recently spoke with one of our customers who manage a large number of locations across a number of dramatically different markets. He said that as he sees big increases in wholesale cost like what has happened recently in the Midwest, he’s faced with playing a game of chicken. Retailers are looking at each other to see who is going to move first. In order to be most effective in this retail fuel pricing game, you must go beyond simply responding to replacement cost and competitor price changes. You must have access to retail fuel pricing software that quickly shows you historical fuels volume performance for a store and market, compared to budget targets. You must be able to quickly see actual fuels margins store by store and across a region. You must be able to track past history of your prices vs. competitor prices, to get a sense of typically who moves first. And of course, the best retail fuel pricing strategy is a well executed fuel pricing strategy: once you determine the proper price for each grade at each location, you must be able to execute those prices out to the street across all locations.
One could say that recently it was relatively easy to make money in retail fuels because of falling wholesales prices and healthy margins. But as we head into the spring, this is when times get tougher and it takes more insight and faster response times to maximize retail fuel and overall store profits.