by John Keller | Nov 14, 2013 | Fuel Price Management Solutions, Fuel Price Optimization, Fuel Pricing Software, Fuel Pricing Strategy, Fuel Pricing Technology, Fuel Software, Retail Fuel Margins
When analyzing the overall profitability of a c-store, there’s a fundamental question that needs to be answered: do increased fuel volumes correlate to increased in-store sales and therefore overall store profits? Some would argue the answer is “of course – more customers to the forecourt obviously equates to more customers in the store, so there’s a direct correlation”.
But is that true 100% of the time? Our PriceAdvantage team spent some time with industry experts at the recent 2013 Outlook Leadership Conference in Scottsdale, Arizona and the insight they provided may be surprising. Some of the folks we talked to said you can always count on the same percentage of forecourt customers coming into the store, and you can always count on the same per-dollar transaction average in the store; so therefore increasing traffic to the forecourt will directly correlate to increased store profits.
But others told us that as you modify your fuel pricing strategy, the buying profile of the forecourt customer changes too, and the percentage of these forecourt customers shopping inside the store changes. Further, the nature of what purchases this new customer makes in the store also changes. In other words, changing a fuel pricing strategy may mean you can’t count on the same percentage of converting forecourt customers to in-store customers, and you can’t count on the same per-dollar transaction average in the store.
What’s the right answer? We believe that it’s not “either / or”, it’s “both / and”: with some stores the customer buying profile is static and one you can count on to predict in-store profits, while with other stores the customer profile is more dynamic based on your fuel pricing strategy.
PriceAdvantage now allows you to select an unlimited number of product categories from an imported set of data from PDI, and run a report showing the correlation between retail fuel volumes and retail fuel prices with the selected data. That means you can see how fuel promotions impact in-store product category sales, along with the number of in-store transactions. You can even see how promotions of one in-store product category impact sales of another in-store product category, along with fuel volumes and fuel prices.
This type of rich analysis comes out of the box with PriceAdvantage and its integration with PDI, allowing fuel managers to optimize the entire business at the c-store, both at the forecourt and inside the store.
by John Keller | Nov 8, 2013 | Fuel Price Management Solutions, Fuel Price Optimization, Fuel Pricing Software, Fuel Pricing Strategy, Industry News, PriceAdvantage, Retail Fuel Margins
In October 2013, PetrolPlaza recorded an interview with me to discuss the unveiling of the new PriceAdvantage “Margin Percentage” report. The full interview can be found here.
This new report allows retail fuel managers to view retail fuel margins as a percentage of fuel price. Traditionally retail fuel margins have always been measured in terms of cents per gallon, with a generalized definition of success as being $0.15 – $0.20 per gallon. The problem with this thinking is that this number was defined back when retail fuel prices were in the sub-$2.00 per gallon range. Now that retail fuel prices are at $3.00 levels and above, these same cents per gallon ranges represent a much lower percentage of the retail price. Compared to other c-store product category margins, these are a very low percentage of price indeed, and that can be quite alarming to marketing managers who are less familiar with the fuels business.
In fact, marketing managers are often perplexed when fuels managers express fuels margins in terms of cents per gallon. That’s where this new report provides a nice bridge between retail fuels groups and marketing. The traditional cents per gallon way of measuring fuels margins is not going away any time soon, so this report displays side by side margins as cents per gallon, and as percentage of price. Thus the Margin Percentage report acts as both a translator between two divisions of the company, and as a new perspective into profits.
The September issue of CSP magazine included an article titled “Stop Making Cents?“. It was this issue that introduced the idea to the PriceAdvantage team, and we’re proud to say that between the time when the article was released in September, and the NACS show in October, we were able to develop and demonstrate the Margin Percentage report in our NACS exhibit booth. Customers and prospects loved it, with the feedback being that this report will make it so much easier to communicate with Marketing departments, and to ultimately optimize store profits.
by John Keller | Nov 5, 2013 | Customer News, Fuel Price Optimization, Fuel Pricing Strategy, PriceAdvantage, Retail Fuel Margins
In the second quarterly financial report since spinning off from Valero, CST Brands reported a successful quarter of effectively implementing fuel pricing strategies that balanced fuel margins and fuel volumes. These strategies varied according to the market profile of the store and the corporate goals of that store, offering an ideal model of how to manage retail fuel pricing right.
Kim Bowers, CEO of CST Brands, explained that in this quarter CST brands used a fuel strategy that sacrificed fuel margins to build volume and traffic at their new stores (categorized as NTI, or New To Industry stores). CST Brands used an opposite fuel pricing strategy for their established stores to optimize margins, without the concern of potentially sacrificing fuel volumes. This is where the retail fuel pricing strategy gets even more interesting: this fuel margin optimization strategy at established stores did not seem to have an effect on in-store merchandise sales. That means CST Brands is earning more overall profits at these stores, which of course is the ultimate measure of success.
Kim Bowers said in the analyst call “At our new stores, we look at balance, pushing volume from time to time to generate traffic. For our legacy stores, we have to strike a balance between margin and volume. We need both. At those stores, we’re more focused on that optimal balance. It’s a corner-by corner-analysis.”
Under the Valero name, CST Brands selected PriceAdvantage as their sole retail fuel pricing software for all their stores in 2011. They completed the full implementation in 2012. The PriceAdvantage implementation is a complete closed loop process that includes OPIS Radius Reports for competitor surveys and competitive analysis, PDI volume and cost information for performance analysis, PriceAdvantage Optimization for retail pricing guidance, VeriFone POS and Skyline electronic price signs for seamless price change execution, and retail fuel price publishing to the web via GasBuddy OpenStore.
The PriceAdvantage team is proud to have CST Brands as a strong partner and customer and to share in our mutual success.
by John Keller | Oct 22, 2013 | Customer News, Fuel Price Optimization, Fuel Pricing Strategy, Industry News
A USA Today article titled “Park, pump and pig out” touts the c-store trend of offering gourmet food. PriceAdvantage customers Parker’s, Rutter’s, and Sheetz are mentioned specifically, and Greg Parker is quoted briefly.
Here’s a clip from the article:
“We currently do $6 million in annual sales,” Parker says. “Our store was actually picked by TripAdvisor last year as the fourth-best restaurant in the city.”
That’s probably because the crab stew consistently wins awards. And the extensive wine list works well with the upscale Southern comfort foods served. Its charming, 6,000-square-foot space doesn’t hurt, either. A renovated automobile dealership from the late 1800s with Mediterranean-style architecture, it is certainly eye-catching, a place where you want to linger.
“Our head chef trained under the tutelage of her grandmother,” Parker says. “We all revere her food.”
I wrote another blog post about how Fuel profit optimization is most powerful when viewed as part of the overall gross profits of the store. In some cases, the advertised fuel price is strategically used as an advertisement to attract customers to the high margin food and store merchandise product offerings. In other cases, it is the quality food that drives traffic to the store, and customers will fuel up after finishing their meal.
No doubt overall store profitability needs to be measured in terms of fuel, merchandise and food. PriceAdvantage working in conjunction with PDI allows you to see the correlation between these three pillars of profitability, determine the market profile of each location with its specific elasticity between product categories, and optimize profits based on the synergy of all strategies working in union.
by John Keller | Oct 16, 2013 | Fuel Price Management, Fuel Price Optimization, Fuel Pricing Technology, Industry News
California plans to increase the number of hydrogen fueling stations in their state from 9 to 109 over the next ten years, according to PetrolPlaza news. Governor Jerry Brown signed the bill committing $20 million per year to build out the hydrogen fueling infrastructure.
Plans are in place to have 12 new stations in California by early 2014, and there is already funding for seven more stations. Auto manufacturers acknowledge this commitment is critical to the adoption of hydrogen vehicles they plan to introduce in the coming years. Toyota says they are on track to deliver a mass production hydrogen vehicle in 2015. Hyundai also plans to lease 1000 hydrogen cars in the US in 2015.
While this doesn’t mean petroleum fuels are going to be dethroned as the highest volume fuel product offered by fuel retailers, it does mean that in certain markets, particularly in California, it may make sense to look into a hydrogen station as part of the c-store overall branding. At least it projects a progressive image, and hydrogen is certainly going to offer much higher margins than traditional fuels, given the lack of competition and market maturity.
by John Keller | Oct 10, 2013 | Fuel Price Optimization, Fuel Pricing Strategy, Fuel Pricing Technology, Industry News
In a recent ZDNet article titled “The future of retail is dynamic pricing. So why can’t we get it right?”, a panel of ‘dynamic pricing’ experts representing companies including Best Buy and Ace Hardware provide lessons learned that can be applied to retail fuels pricing. Here are the highlights, and some thoughts on how they’re directly applicable to retail fuels pricing.
- It has become very easy for customers to research prices. For retail fuels pricing, this customer research has extended beyond the physical sign to the virtual price sign, as in GasBuddy, and all the OPIS-fed sites like MapQuest, Garmin, and AAA. How can you be sure these virtual price signs are always accurate? With PriceAdvantage, use the OPIS and GasBuddy exports as part of the fuel price change confirmation, and rest easy that every time a price change is complete, all these online sites are brought up to date.
- Retailers now have access to mainstream technology that allows them to quickly respond to market changes and make price changes at a moment’s notice, thereby insuring that their prices are always relevant. But this “change management” can be complex to execute effectively. In the retail fuels arena, this speaks to the difference between responding to a market change with a proclamation of a price change to your stores, and responding to a market change with a well executed automatic price change that includes confirmation and an audit trail upon completion. The PriceAdvantage SMART Fuel Pricing patented technology works with your Gilbarco, NCR, VeriFone, and AutoGas POS, along with your electronic price signs, to insure that every price change is executed within the compliance of the weights and measures regulations.
- The key to success is the right foundational data with the best information you can get, so you can have the best execution of your strategy, aligning pricing with the brand, and with your position in the market. In retail fuels management, that means carefully monitoring cost and competitor information from multiple sources including agents in the field and OPIS. And it means routinely reporting on historical pricing to make sure your pricing is where you want it to be relative to the competition, whether that is low price leader, middle of the pack, or premium experience. This strategy needs to be monitored not only on a store by store basis, but on a zone by zone basis, according to differences from market to market and convenience of location. In some areas pricing will need to be more aggressive, without giving fuel away across the entire enterprise.
These retail giants have a lot of wisdom to share, and it is all relevant to the retail fuels industry. PriceAdvantage allows you to apply the wisdom of these giants, without having to invest millions in the technology they use.
