Fuel Pricing Myths Busted! Part 1

March 7, 2022

Written by: Mark Truman

5 min

Fuel Pricing Myths Busted! Part 1
“I always have to follow my competition”

Myth rating: 8/10

Ok, if you operate in Germany or Denmark, for example, this isn’t a total myth. Price changes can happen 15 times a day (or more) and consumer habits are very much driven by these changes.

But in markets like the UK, Ireland or USA, many consumers are not looking at your pole sign price when deciding where to fill up.

Take the US for example. In the most recent NACS Consumer Fuels Survey (2020), 48% of consumers say price is not the dominant factor when deciding to fill up.

And the main thing to consider here is that the other 52% might not be the right customer for your site anyway. You could lower your price and still not bring them in.

Sure, you can aim to outright beat your competition and become a pure volume player, but it comes at a huge cost to you. And are you going to have the same cost economics as the large (and growing) operator with better supply deals and other economies of scale?

The truth is there are many other things you can do to bring consumers to your stations. Great facilities. Hot food. Community activities. Dessert stations. Beer caves. You could even get more creative. A gaming arcade? Just an idea.

In some cases there will be stations in highly sensitive areas where you just can’t help it, which is why this myth doesn’t get the full 10/10. The key here is when not if you follow and just how close you can get.

“As a follower, I need to change my price straight away.”

Myth rating: 9/10

Ok, so we have established you are a follower. We know this is going to hurt your margins and ultimately the profit of your business, but what is the objective?

The objective is to try and maintain or grow volume. And as volume is due to reduce every year now through to 2050 this is a tough task.

One EdgePetrol user, a Top 50 Independent, always followed straight away when they saw the competition had moved. They were worried about losing volume to the competition.

Using the live volume data provided by EdgePetrol, they were able to see exactly when volumes were impacted and gain on average an extra 48 hours of margin before following down. This resulted in 18% profit increases across the year.

If you don’t have access to live data, it is more difficult to capture this additional profit, but you still might only be fooling yourself if you follow right away.

Either way, the most important thing is to make sure that the competition you are following is the right competition. As oil prices continue to rise with no end in sight consumers may become more wary of what they are paying for fuel. Knowing how that impacts your site in particular is key to success.

"Replacement cost is the best way to work out my margin"

Myth rating: 10/10

Replacement cost means costing all of the fuel in your tank against the price of taking a tanker today. This is traditionally the most common method as it is the easiest number to capture.

The problem is that by not taking into account the cost of deliveries that came yesterday or before, you could be getting a totally different margin than the one you expect.

EdgePetrol’s weighted-and-blended margin calculates the proportion of fuel from different deliveries at their specific cost price, then adds exactly what is in the tank. This provides the real cost of the product in the tanks.

In the graph below, replacement cost is the line running through the middle of the data. As the graph below shows, this number is rarely the same as the real cost of fuel, making it difficult to make an optimal decision.


The line running through the middle of the data is the replacement cost and the green is the difference when accounting for all the fuel in the tanks.

You can see how this number is almost never the same as the real cost of fuel, making it more difficult to make an optimal decision with this number. This impacts how close you can get to your competition and whether you can hold out to hit margin targets when you need to.

Have a read of our Fuel Pricing Myths Busted! part 2.

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