By Lucas Witman
When most drivers stop to fill up their tanks, they expect to be faced with three or four available fuel options. However, a number of fuel retailers across the country are attempting to break out of this mold, offering a variety of alternatives to the traditional regular, premium and super varieties. Today, consumers are beginning to see natural gas, diesel, biofuel and alternative ethanol blends, as well as pure gasoline and even options for recharging electric vehicles, right alongside regular gas pumps.
A number of factors are driving this movement toward the increasing diversity of available fuel options. First, consumers are simply demanding more choices at the pump, seeking out fuel that is cheaper, more environmentally friendly and more socially conscious. However, the fuel industry itself is also playing a significant role in driving this demand. Especially for natural gas and ethanol, there is simply an overwhelming supply of these fuels currently available to the market, spurring the need to increase the customer base for these fuels. Finally, recent technological investments and breakthroughs in fuel production and vehicle manufacturing are making a number of alternative fuels viable consumer alternatives for the first time.
Many convenience and fuel retailers today find themselves faced with a huge decision as to whether to continue offering only traditional fuels or to invest in the new products just now beginning to enter the market.
Especially for independent fuel retailers, increasing the diversity of fuel options available can potentially be a great way to compete in a crowded fuel marketplace. By drawing in customers looking for a unique fuel alternative like biodiesel or pure gasoline, smaller retailers can make themselves stand out from the big chains. In short, offering new fuels can be a great way to increase a retailer’s customer base and profits.
However, there can be significant costs and risks involved in making the switch as well. In order to make the change, retailers must make at least some improvements to existing infrastructure. And this can be especially risky when there is no guarantee that the new fuel is here to stay and not simply a fleeting consumer fad.
One new product in particular that many fuel retailers are today undoubtedly considering adding to their locations, in light of its recent approval by the Environmental Protection Agency, is the new E15 ethanol blend. E15 has a number of potential benefits both for consumers and retailers.
“We like to obviously start with price,” said Robert White, Director of Market Development for the Renewable Fuels Association. “Ethanol is trading at more than a dollar less than gasoline.” According to White, E15 is unique among fuel options, in that it is simultaneously better for the environment than traditional gasoline, and it costs less to produce. “What we’ve seen is people will use renewables…as long as it doesn’t cost more,” he said. “Uniquely in this situation, that’s the case.”
Of course, as with any new fuel offering, adding E15 ethanol to a retail location does carry a degree of risk. Fortunately, the industry is mitigating these risks through the introduction of blender pumps to the retail space. “The good thing about blender pumps is they are using existing [infrastructure],” said White. Whereas when adding some new fuel options to a retail location, massive improvements in infrastructure are required, fuel station owners can build off of existing infrastructure in order to begin offering E15. In addition, blender pumps enable retailers to offer an array of ethanol blends as opposed to a single fuel option, increasing the potential customer base.
Another fuel option more and more retailers are choosing to offer is clean diesel. According to Allen Schaeffer, Executive Director of the Diesel Technology Forum, whereas in 1999, just one third of fuel stations had diesel pumps, today that fraction has risen to 52 percent. “In terms of alternative fuels, diesel leads the pack,” said Schaeffer.
Schaeffer argues that although diesel has been traditionally seen as an important fuel mainly just for the trucking and busing industries, today, everyday consumers are increasingly driving cars with clean diesel engines. “Consumers are investing in the new generation of diesel, and they’re liking it,” he said. “The new generation of clean diesel cars is growing like hotcakes.” Although today, just 3 percent of consumers are driving diesel cars, Schaeffer anticipates this percentage will rise to 10 percent by 2020.
“When I look at profitability, only diesel fuel has a growth future in terms of commercial fuel in the U.S.,” said Schaeffer. For retailers considering adding to their fuel offerings, Schaeffer argues that clean diesel is an optimal choice. Not only is there minimal cost involved, as diesel can be offered with just minimal improvements to existing infrastructure, but diesel is virtually assured to be an important product for both commercial drivers and ordinary consumers for the foreseeable future. “Many fuel retailers are looking to the future,” said Schaeffer. “We know diesel is going to be around for a long time, because new investments are being made in the new generation of clean diesel technology.”
As changes in fuel and vehicle technology make it almost inevitable that fuel retailers will be forced to transform the ways they attend to the needs of the future fuel consumer, the ultimate decision retailers may be forced to make is not whether they are going to change their available fuel options, but rather how they are going to do so. “To really play out the true term of ‘convenience,’ convenience stores need to offer the desired fuels and really play to the market,” said Schaeffer.
Still, there is some debate as to whether fuel retailers will need to continue to diversify the fuel products they offer, or whether this may be a temporary trend leading to a day when fuel and vehicle manufacturers settle on a single product or a handful of products that best serve the needs of their customer base. “The buffet style seems to be growing in popularity,” said White of the current fuel marketplace. However, he anticipates a sea change within the industry, where there may eventually emerge “a single fuel that works in every vehicle, in every engine.”
Ultimately, this may be the heart of the risk today’s fuel retailers face—anticipating where the industry is headed and on what fuels it may eventually settle.
*photo by Dennis Poulette
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