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ethanol and the fuel retail induStry: eStabliShing a Price advantage

growth energy white paper series:

ethanol and the fuel retail inustry: establishing a price advantagea survey to better define the value higher ethanol blends (e15 to e85) offer to retailers.

summary of resultsthe fuel retailing industry is a very large, fragmented group with more than 90,000 owner operators of convenience stores across the united States. in february 2012, growth energy commissioned a study with a third party research firm, irwin broh research, to better define the value higher ethanol blends (e15 to e85) offer 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.

roughly 81 percent of these retailers state they are satisfied with their decision to install flex fuel pumps.

in addition, findings in this report also indicate that if the etha-nol retailer is able to advertise the ethanol price advantage, they experience even higher levels of success in selling ethanol blends.

Page 2 © 2012 growth energy

ethanol and the fuel retail industry: establishing a Price advantage creating a fuel price advantagethe timing of this report was immediately following the elimina-tion of the vteec incentive for ethanol. though the majority of this subsidy was kept by oil refineries, ethanol retail prices were under heavy pressure during the survey.

however, being a very fuel price competitive industry, more than 36 percent of the retailers in this survey stated that only a 1¢ or 2¢ price differential can lead to a price advantage in their market.

approximately 81 percent believe there is a price advantage in selling ethanol blends. Sixty percent (60 percent) of the retailers included in this survey advertise the price advantage of ethanol and survey results indicate that this group generates even more positive sales volumes, inventory turnover and even in-store busi-ness large part in thanks to this price advantage ethanol offers their business.

improved fuel sales volumeon average, fuel sales represent 60 percent of these retailers’ business. nearly 60 percent of the retailers believed that fuel sales have increased thanks to ethanol. the average increase was approximately 13 percent higher over-all fuel sales.

of those retailers promoting ethanol pricing, 66 percent be-lieve that fuel sales have increased on average 14.1 percent.

better fuel marginsJust above forty percent (42 percent) felt that fuel margins im-proved by an average of 7.9 percent since they started selling higher blends of ethanol.

of those retailers promoting ethanol, 60 percent feel that fuel margins have improved by an average of 7.44 percent. one of the primary reasons for fuel margin improvement was due to lower delivery costs.

better fuel inventory managementapproximately 35 percent stated that their fuel inventory was simpli-fied after adding ethanol blends. approximate 42 percent said they experienced better inventory turnover as a result of adding blended fuel. and in some cases, retailers eliminated a premium grade of gasoline due to greater demand for higher blends of ethanol.

better fuel inventory turnover implies less working capital is required for running this business and possibly improved cash flow from their fuel operations.

in-store sales increasenearly 9 in 10 stated that there was a relationship between fuel stops and in-store sales where they make the majority of their 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 believe that in store traffic has increased. on average an 11 percent increase was reported.

effective ethanol promotionsSince there is a fairly strong correlation between promotions and increased success with higher levels of ethanol blends, the survey asked retailers what they felt are the most successful options for promoting the renewable fuel. here are the top tactics as reported:

• outside signage – advertising price advantage• local media advertising• literature• online promotion

“We have really picked up a lot of business since the blender pump was installed. I’m pumping about 2,800 gallons of ethanol each week, and the margins on that are far better than regular gasoline.”

— Timothy Newton, Newton’s Service & Parts, Columbiana, Ohio

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ethanol and the fuel retail induStry: eStabliShing a Price advantage

• a “personal touch” at the pump. educating the consumer as well as station staff on the benefits of ethanol and how the choice allows the customer to experiment to obtain the best gas mileage at lowest cost.

what over-all advantage does ethanol provide retailersin the open discussion portion of the survey, retailers were asked what advantage does selling higher blends of ethanol offer their operations. a variety of answers were given but they were along these themes:

• giving the customer a choice of fuel products.

• the selling of a locally produced product benefiting the local economy.

• cleaner, renewable, “greener” fuel.• eliminates dependency on foreign oil.as one retailer put it, “the more that the customers are edu-

cated about ethanol use, the more of an advantage can be created.” another retailer felt, “having the blended fuel gets us the price-sensitive customers.” and another retailer felt being the only store with ethanol afforded them with an exclusive advantage, “flex fuel customers can find me and not the other guy.” finally, one retailer summed it up quite well, “offering customers more choices at the pump equals more change in everybody’s pocket.”

about the surveythe 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 results of the study, as well as the option to obtain a station kit.

the survey was conducted by irwin broh research a full-service marketing research firm founded in 1971 that conducts custom as well as syndicated survey research. irwin broh research is a mem-ber of the counsel of american Survey organization (caSro), the

american marketing association (ama), the marketing research association (mra), and Qualitative research consultants associa-tion (Qrca). for more information about irwin broh, please visit www.irwinbroh.com.

for more information about ethanol retailing please visit ethanolretailer.com.

“Once you’ve explained the benefits of ethanol and dispel the myths you have a customer for life.”

— Scott Zaremba, Zarco66, Kansas

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ethanol and the fuel retail induStry: eStabliShing a Price advantage

© 2012 growth energy

growth energy market development17220 Wright Street, Suite 150omaha, ne 68130phone: (402) 932-0567 web: ethanolretailer.com