Ethanol and the fuel retail inustry: establishing a price advantage

1. ethanol and the fuel retail industry: establishing a price advantage
growth energy white paper series:
ethanol and the fuel retail inustry:
establishing a price advantage
A survey to better define the value higher ethanol blends (E15 to E85) offer to retailers.
Summary of Results
The fuel retailing industry is a very large, fragmented group with Roughly 81 percent of these retailers state they are satisfied with
more than 90,000 owner operators of convenience stores across their decision to install flex fuel pumps.
the United States. In February 2012, Growth Energy commissioned In addition, findings in this report also indicate that if the etha-
a study with a third party research firm, Irwin Broh Research, to nol retailer is able to advertise the ethanol price advantage, they
better define the value higher ethanol blends (E15 to E85) offer experience even higher levels of success in selling ethanol blends.
to retailers.
Initial results demonstrate that the vast majority of retailers
are able to establish a fuel price advantage in their markets, are
likely to see increased fuel sales, are able to simplify inventory,
and have seen increase store traffic in large part due to the ad-
dition of flex fuel pumps offering higher blends of ethanol fuel.
Summer, 2012 Page 1

2. Ethanol and the
Fuel Retail Industry:
Establishing a Price Advantage
Creating a Fuel Price Advantage Better Fuel Margins
The timing of this report was immediately following the elimina- Just above forty percent (42 percent) felt that fuel margins im-
tion of the VTEEC incentive for ethanol. Though the majority of proved by an average of 7.9 percent since they started selling
this subsidy was kept by oil refineries, ethanol retail prices were higher blends of ethanol.
under heavy pressure during the survey. Of those retailers promoting ethanol, 60 percent feel that fuel
However, being a very fuel price competitive industry, more than margins have improved by an average of 7.44 percent. One of the
36 percent of the retailers in this survey stated that only a 1¢ or 2¢ primary reasons for fuel margin improvement was due to lower
price differential can lead to a price advantage in their market. delivery costs.
Approximately 81 percent believe there is a price advantage in
selling ethanol blends. Sixty percent (60 percent) of the retailers Better Fuel Inventory Management
included in this survey advertise the price advantage of ethanol Approximately 35 percent stated that their fuel inventory was simpli-
and survey results indicate that this group generates even more fied after adding ethanol blends. Approximate 42 percent said they
positive sales volumes, inventory turnover and even in-store busi- experienced better inventory turnover as a result of adding blended
ness large part in thanks to this price advantage ethanol offers fuel. And in some cases, retailers eliminated a premium grade of
their business. gasoline due to greater demand for higher blends of ethanol.
Better fuel inventory turnover implies less working capital is
Improved Fuel Sales Volume required for running this business and possibly improved cash
On average, fuel sales represent 60 percent of these retailers’ flow from their fuel operations.
business. Nearly 60 percent of the retailers believed that fuel
sales have increased thanks to ethanol. The average increase was In-Store Sales Increase
approximately 13 percent higher over-all fuel sales. Nearly 9 in 10 stated that there was a relationship between fuel
Of those retailers promoting ethanol pricing, 66 percent be- stops and in-store sales where they make the majority of their
lieve that fuel sales have increased on average 14.1 percent. profits. On average 2 out of 3 fuel customers come into the store
to buy additional items.
Because over-all store traffic has improved after installing flex
pumps, about 48 percent of the retailers participating in this poll
“We have really picked up a lot of business believe that in store traffic has increased. On average an 11 percent
increase was reported.
since the blender pump was installed. I’m
pumping about 2,800 gallons of ethanol Effective Ethanol Promotions
Since there is a fairly strong correlation between promotions and
each week, and the margins on that are increased success with higher levels of ethanol blends, the survey
far better than regular gasoline.” asked retailers what they felt are the most successful options for
promoting the renewable fuel. Here are the top tactics as reported:
— Timothy Newton, • Outside signage – advertising price advantage
Newton’s Service & Parts, Columbiana, Ohio • Local Media advertising
• Literature
• Online promotion
Page 2 © 2012 Growth Energy

3. ethanol and the fuel retail industry: establishing a price advantage
“Once you’ve
explained the
benefits of ethanol
and dispel the
myths you have a
customer for life.”
— Scott Zaremba,
Zarco66, Kansas
• A “personal touch” at the pump. Educating the consumer as • The selling of a locally produced product benefiting the local
well as station staff on the benefits of ethanol and how the economy.
choice allows the customer to experiment to obtain the best • Cleaner, renewable, “greener” fuel.
gas mileage at lowest cost. • Eliminates dependency on foreign oil.
As one retailer put it, “The more that the customers are edu-
What Over-all Advantage does cated about ethanol use, the more of an advantage can be created.”
Ethanol provide Retailers Another retailer felt, “having the blended fuel gets us the price-
In the open discussion portion of the survey, retailers were asked sensitive customers.” And another retailer felt being the only store
what advantage does selling higher blends of ethanol offer their with ethanol afforded them with an exclusive advantage, “Flex fuel
operations. A variety of answers were given but they were along customers can find me and not the other guy.” Finally, one retailer
these themes: summed it up quite well, “Offering customers more choices at the
• Giving the customer a choice of fuel products. pump equals more change in everybody’s pocket.”
About the Survey
The majority (81 percent) of retailers contacted are independent
operators. These retailers are primarily located in rural locations
and most are located near state highways. On average, fuel sales
represent 60 percent of their business.
E85 was sold by 100 percent of the retailers surveyed with E10
and E30 accounting for 97 percent and 90 percent, respectively.
Nearly three-fourths (74 percent) of retailers were satisfied (very
+ somewhat) with their decision to install Flex Fuel pumps.
The survey was conducted via telephone with flex pump re-
tailers (10 percent of the total population) in the following states:
Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Ohio
and South Dakota.
Each survey consisted of an approximate 20 minute interview.
Interviews were conducted from Feb. 3 thru Feb. 17, 2012. Respon-
dents were provided with an incentive of $40 to compensate them
for their time. They were also given the opportunity to receive the American Marketing Association (AMA), the Marketing Research
results of the study, as well as the option to obtain a station kit. Association (MRA), and Qualitative Research Consultants Associa-
The survey was conducted by Irwin Broh Research a full-service tion (QRCA). For more information about Irwin Broh, please visit
marketing research firm founded in 1971 that conducts custom as www.irwinbroh.com.
well as syndicated survey research. Irwin Broh Research is a mem- For more information about ethanol retailing please visit
ber of the Counsel of American Survey Organization (CASRO), the EthanolRetailer.com.
Summer, 2012 Page 3

4. ethanol and the fuel retail industry: establishing a price advantage
Growth energy Market development
17220 Wright Street, Suite 150
Omaha, NE 68130
P h o n e : (402) 932-0567
W e b : EthanolRetailer.com
Page 4 © 2012 Growth Energy