How To Grow Gallons When Degree Days DisappearMarch 19, 2020 | By: Energy Engine
The sky is falling, the sky is falling!
Yup, it looks like the winter of 2019-2020 will go down as another one that never showed up. Degree days are anywhere from 10%-20% below normal (whatever normal is these days). Gallons are down about the same and even more depending on who you talk to including propane dealers.
This causes smart capable people to slump in their chairs and shake their heads in disbelief, rattling off bad news facts, acting as if this somehow has never happened before. But of course, it has.
So why a collective surrender that portrays a belief that there is nothing dealers can do? As an industry, we cannot just accept that warm winters will continue to cause financial damage to the dealer community. As if nothing can remedy it. The truth is we don’t have to accept it. There is, in fact, a sustainable way to overcome the greatest profit-risk to our entire industry…in this case, the weather.
Perhaps it’s far too convenient to say “I can’t control the weather”. Instead, say “but I CAN control my business”.
It was once said about basketball great Michael Jordan that you can never stop him, you can only contain him. In other words, don’t focus on an outright unachievable goal when facing a serious problem, focus instead on a plausible strategy to mitigate the best you can. The same holds true for mild winters.
There is no way to literally make it colder but there are several important ways you can manage the potential damage to your bottom line (and sanity). If nothing else, it will help you reassert control over your business destiny rather than accepting some fate you absolutely fear and loathe. It just takes a mindset shift and some good old creativity.
What if we told you that you do have the power to make it colder?
Sit back for a minute and think about what “cold” really means. It is a synonym for gallons. Lower temps and more degree days mean you sell more fuel. The weather is simply an enabler of increased volume and what you want most. Revenue and profits. More gallons are the same as more degree days. Growth equals colder weather. Basic algebra right?
Play the “Forecast Your Profit For Next Year In 2 Minutes” game.
If you’re a mainly Full-Service automatic company, anyone with minimal experience could do your budget for next year in about 2 minutes. Simply take your automatic customer count, factor in some 15-30 year norm of degree days, then anticipated margin. Lastly, multiply it by average usage. Presto, we have just accounted for about 95% of your profits. Gallons drive your P&L, make no mistake.
Oh, but what if the degree days don’t show up? Well, then the whole model falls apart and you are left scrambling. Like this year. Gallons are everything. Preserving them and hopefully growing them is all that counts. But there are headwinds facing dealers.
Although controversial to say out loud, banking only on the Full-Service customer is just too fraught with pitfalls. It makes your business one dimensional which is in and of itself risky. Add the recognition that this is not your father’s fuel business. The world has been turned on its head in the past decade and “Digital First” consumers are not taking a shine to how we traditionally do business. Still, growth is essential to your long term success so it’s not exactly negotiable that you must find a way to attract this new breed of customers.
“Duh, tell me something I don’t know, I need more gallons and revenue”.
There is no doubt that the Full-Service automatic customer is the historical pillar of our industry. It is irrefutable that this sticky consumer aligns well with our long-standing value proposition. But growing this segment is becoming a zero-sum game. Dealer gains equal losses in most cases. Outright organic growth is rare indeed.
The ever increasing costs of Full-Service customer acquisitions (exceeding $500 per gain) and eroding loyalty rates (50% will defect within 18 months) make growing the old fashion way very challenging. Yet dealers continue to hold onto the belief that this is the cornerstone of their future despite evidence that a major correction is needed. It is unlikely you will ever grow your Full-Service base without an acquisition, something that is increasingly expensive and out of reach for most. Therein lies the problem.
You need to find new gallons in new places. Luckily, they are hiding in plain sight.
Will-Call gallons have been part of our business for generations. In fact, that is all there used to be for decades. Somehow, over the years, they were devalued and treated like second class citizens. Fast forward to today, and an increasing number of fuel customers are choosing to buy Will-Call. And they are solid folks. Good jobs, good credit, happy to be loyal to a good brand. What used to be a headache is now your greatest opportunity.
This new fuel customer demands to be in control of everything, will push and shove until entire industries bend to their will, all while assuming they can serve themselves in a digital environment. Using the phone is heresy (“haven’t you noticed we hate talking to people?”). 8-4 office hours are absurd. And if they cannot do it online from their phone, then they will dump you like a bag of rocks. Harsh but true. Yet this flies in the face of how we have always done business. And that is a problem.
Ecommerce is how to reach this new fuel customer. There is a huge upside if you do it right.
There are two main reason dealers don’t like Will-Call. The first is, well, because they call. This bogs down CSRs and crunches all your resources.
So, stop the calls. It is super easy.
Using ecommerce for Will-Call allows you to deliver the entire customer journey touchless from awareness to order to cash. Same great company in an online world. Customers can find you, engage you, and then do business with you in a fully automated way. They are happy and you and your team are happy.
The second reason is the impression that the margin is too low. This is not true with ecommerce. You can service the Will-Call customer in an automated online engagement where costs are significantly lower. Data shows this reduction to be close to 15 cents per gallons. A huge enhancement to gross margin.
The potential for growth is enormous. This segment is growing, partly by a shifting demographic to younger more digitally savvy consumers. Give them what they want and be the company who gained the upper hand by offering something for everyone. Full Service for some, online Will-Call for others.
Stop saying no to good profitable business. Say yes to ecommerce.
Oh, and by the way, these new ecommerce gallons diversify your portfolio of customers. This takes away the risk of making a bet on only one kind of customer. This makes for a more intelligent and modern customer strategy.
And these new gallons do make it “colder”. Moving more fuel through existing infrastructure pushes more money directly to the bottom line. The same way a cold snap would.