Why you need to act on oil price volatility...and how to do it.

April 14, 2021

Written by: John Combs

5 min

Why you need to act on oil price volatility...and how to do it.

There is an interesting dichotomy in fuel retail:

Are you a shopkeeper that sells fuel or a fuel retailer that has a shop? 

As 2021 forges ahead and we see more mergers and a continuation of market consolidation the market is clearly shifting to becoming shop owners that also market fuel. 

Part of the reason for this shift is a change in consumer behavior; a decade ago I may not have thought about getting a burger at a gas station today I’ll gladly take a made-to-go offering. 

Frank Beard and Al Hebert talk about some of the amazing things retailers are offering in their In-Convenience podcast. Warning ⚠ this podcast will make you hungry. 

EdgePetrol's Eric Barzelogna wrote a blog on his experiences growing up in Italy as the child of a military man moving around the country and his subsequent diet of chocolate and sweets for lunch and how he has seen that change since moving to the USA.

Margins on food are great and consistent, so has fuel become the ignored stepchild? 

Many fuel retailers have employed the same pricing strategies for a decade. Heck, some have employed the same pricing strategies for generations. 

Part of the reason for this status quo approach is a lack of access to insights. In years passed it was widely accepted that the signal to move the pole sign price was your competition moving; but is that really the correct indicator for when you should adjust the price?

With better access to insights, retailers have the ability to identify the real signals for when they should adjust the pole sign price, mainly volume and transaction drops, or even average fill-ups. Why would you leave margin on the table if your volume hasn’t decreased or isn’t going to? 

Volume is one signal to move the pole sign price, but the second is oil volatility.

Now, I won’t be telling you anything you don’t know when I explain why a fluctuating or volatile oil market is a signal for retailers? 

Plain and simple; as the cost of fuel changes the margins ultimately change. 

All retailers were fortunate last year with a huge drop in oil prices just after lockdowns started; $1.00 margins were there for the taking. But what if you were only looking at volume for your signal? You would have lowered your price to chase volume that just wasn’t there. Not a sound business practice but one I’ve heard several retailers gripe about because their competition took it (and maybe one or two I have spoken to directly).

The challenge with getting consistent margins on fuel is not because the oil markets are volatile. The challenge with making consistent margins is a lack of access to real-time data and insights. 

This lack of real-time access to data has left retailers paralyzed by the fluctuations in fuel; only to move when the competition moved. There are some great data sets for that (OPIS for example offer a great retail pricing survey), but if you don’t combine that with other information, you could be missing out on key customers, margins and profits.

It’s great to see that the market is taking this more seriously. Many retailers we speak to have tried to create a WAM sheet or a blended margin, or a multi-day average of the rack to try and flatten those fluctuations. 

There are only a handful of retailers that don’t look at cost when pricing. So why wouldn’t every retailer price using a weighted average? 

Truthfully, it’s a pain in the backside. In order to get a real time-weighted average of fuel in the tanks, the most exact cost of your fuel at a given time, you have to get connections to the P.O.S., the ATG’S, the fuel suppliers etc. The status quo of pricing is here because the data is hard to get.

This is why we built EdgePetrol (and why I joined last year). We are changing the way retailers think about fuel pricing, and it’s working. 

Sure, we’ve made pricing fuel more efficient and have some sexy looking software that you just can’t put down (one retailer said they have replaced Facebook with EdgePetrol), but weighted and blended cost prices have led to 18% increases in profit, 10c on the gallon and 35% volume increases in case studies across our customer base.

So, next time you go to follow the competition- up or down- take a second to think a little bit more about the real cost of product in your tanks.

And if you want to talk it over (or just talk about food), give me a call. 😉

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