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NACS 2014 – what a show

We just finished up the NACS 2014 show, and what a show it was. It was great to meet up with so many of our customers again and learn about the latest developments in their business. For some of our customers, it provided the opportunity for us to bring them up to speed on new features of PriceAdvantage. For others, it was the opportunity to talk about where they’re headed, and our product roadmap.

We did something different this year, and invited our newest partner Fuelzee to share our booth space. That proved to be a winning move, since many folks wanted to learn more about the free competitor pricing data Fuelzee is providing to PriceAdvantage, and how PriceAdvantage is pushing prices out to the Fuelzee mobile app for consumers to see. Loyalty, rewards, and mobile payment is a hot topic in our industry now, so Fuelzee was quite busy over the three days of the show.

The Expo floor was interesting because it showed a sample of how many integrations PriceAdvantage offers. Though it’s not a complete list, it included PDI, Fuelzee, GasBuddy/OPIS, NCR Radiant, Skyline signs, Pinnacle, and Gilbarco Veeder-Root. PriceAdvantage provides the Fuel Analyst with the aggregation of information, the views needed to make quick fuel pricing decisions, and the ability to act on those decisions by executing fuel pricing strategies to the street. Our theme this year was “It’s about time”, as in “It’s about time:  the faster you can determine the right price, the faster you can increase profits”; “It’s about time: the quicker you can execute your fuel pricing strategies and know for certain the right price is at every store, the quicker you can move on to other responsibilities”; “It’s about time you make money off your fuel business”.

We look forward to seeing everyone at the NACS show 2015 next time – once again in Vegas.

Retail fuel margins lower

The OPIS report today revealed the average retail fuel margin across the US dropped again this week, down $0.027 to $0.214 per gallon. The equivalent day in 2013 we had an average of $0.255. That makes the second consecutive week where retail fuel margins are lower than last year.

The year to date average is a solid $0.190 per gallon, and the six week average is $0.222 per gallon. The Q4 average in 2013 ended at $0.200 per gallon, so we’re starting the quarter above that number. However, 2013 began the fourth quarter at $0.255 so it lost $0.05 over the three month period. Let’s hope we can hold margins steady this year.

TravelCenters of America financial results: fuel volumes down, margins up

TravelCenters of America announced their second quarter financial results with the following highlights:

1) fuel gross margin was up $0.02 per gallon year over year from $0.172 to $0.192 per gallon

2) total gallons sold was down 4 million gallons to 517 million gallons of fuel

Lower fuel volumes were blamed on conservation efforts on the part of professional drivers and TA’s decision to avoid selling fuels that bring in lower margins. Additionally, TA warned that their customers continue to have improved fuel efficiency.

These results seem to be consistent with industry trends – fuel volumes continue downward, and the margins for this past quarter were quite strong. It will be interesting to compare these results to others in the industry as the coming weeks unfold.

Incorporating weather conditions and forecasts into fuel pricing strategies

The October issue of NACS Magazine has a great article “Weathering the Storm” discussing how weather impacts both fuel and in-store sales. Perhaps the best quote in the article is this: “As a stand-alone discipline, focusing on weather impact seems perhaps overstated, but as part of an overall retailing strategy it is essential, especially when it comes to reinforcing your brand’s value.”

The importance of incorporating weather into your fuel pricing strategy is a concept we at PriceAdvantage have embraced for a long time. It is in this vein that PriceAdvantage offers a free weather widget that not only shows current weather conditions at the store location, but a six day forecast, and a three day weather history as well. Ice storm in the forecast for Dallas? Prepare for virtually no traffic on that day. Nor’easter predicted to hit Boston this weekend? Plan on increased traffic exiting the city for home ahead of it, and increased skier traffic to the mountains after it.

Weather is a critical aspect of retail fuel pricing that makes optimization economic models on their own simply not good enough. Economic models are based on all things being equal. Introduce a random major weather event, and suddenly all things are not equal. Successful retail fuel pricing strategies must incorporate the wisdom and insight that only the fuel analyst and field intelligence can provide. That’s what we mean when we describe the “art and science” of fuel pricing.

NACS board member Chris Gheysens says in the article “It’s time to see weather as an opportunity … Understand what it does to you and solve for it going forward, coming up with different strategies.”

What are the different factors influencing gas prices right now?

On the online Convenience Store Decisions site today there is an excellent article written by Brian Milne, the Energy Editor of Schneider Electric. In the article Mr. Milne outlines the various factors influencing the expected price of gasoline through the rest of this year. Here is the list of influences going on right now:

Downward pressure:

  1. Seasonal decline in demand from August to September, as expected every year
  2. The move to a higher Reid vapor pressure specified gasoline, which is less costly for refiners to produce
  3. Growth in global crude production from the US, the North Sea, Libya, and Iraq
  4. Slowing growth in the China economy means weaker demand

Upward pressure:

  1. Refinery outages in the Gulf Coast and eastern Canada which supply the US Northeast
  2. The world traditionally uses the most oil during the fourth quarter leading to increased demand

Mr. Milne concludes that the only certainty in gas price predictions is the uncertainty. While it remains a safe bet that retail fuel prices will continue to decrease through the end of 2014, it may not be to the low levels that some predict. And from a fuel price management perspective, whenever we say declining retail fuel prices, we can insert rising retail fuel margins, since the opposite trends go hand in hand.

Retail fuel margins dip but finish quarter strong

The OPIS report today revealed that the average retail fuel margin across the US dipped $0.026 to $0.241 per gallon. That is $0.041 per gallon below the equivalent week last year. However, the retail fuel finished up $0.03 per gallon since the beginning of September.

The third quarter average finished at a strong $0.240 per gallon, compared to $0.169 in Q2 and $0.158 in Q1. In 2013 the average for Q3 was $0.207 per gallon across the US.

From a fuels pricing perspective, a strong quarterly margin paired with a traditionally strong volume quarter means retail fuelers had a profitable quarter. We should look for that in the financial results that come in the next few months.

What can we expect in the remaining part of the year? Looking back to 2013, we saw October finish only $0.006 below the start of the month. But the outlook is for falling prices this year, with some calling for many states to dip below $3.00 per gallon, and traditionally when we see falling prices, we see rising margins. Let’s hope so.