The heating oil industry isn’t the same as it was a generation ago. The heating oil industry is the same as it was a generation ago. This simple, yet confusing, dichotomy is at the heart of all changes that can be considered.
Technology continues to forge forward, bringing better, cheaper and smarter ways to communicate with customers, plan deliveries and manage expenses. However, as our industry is still a hands-on customer-centric one, we need to continue to differentiate in an era where differentiation has become quite difficult.
If you ask 10 dealers the top reasons for customer attrition (and customer growth, for that matter), somewhere in the top three will always be a mention of “price.” Yes, customers like prompt service. They like budget plans, and having a tank monitor and an app is always a plus. However, if you really want to cut down on attrition, you need to be sure that the price you charge is not too high. You don’t have to be the low-price leader, but even the biggest and best-run companies have come to the stark realization that “heating oil is heating oil,” and that their customers will only pay so much for a “premium brand.”
Although pricing programs have been around since the early 1990s, they remain a steadfast part of the value proposition for many dealers, and one that customers rely on each year for a measurement of certainty. At the beginning of January of this year, we had missile attacks by the U.S. on an Iranian leader, followed by Iran firing missiles in the general direction of U.S. military facilities in Iraq, with the world ebbing closer to a possible war in the heart of the world’s major oil-producing region. “World War III” was trending on Twitter and the U.S. Selective Service website crashed from too much traffic.
How high did oil prices spike? Don’t you mean how much did they fall? Yes, oil prices fell during that week of extreme tensions!
Did they fall because the temperature in New York hit 65°F in early January? Did they fall because tensions with the Iranians (temporarily) eased? Did they fall because Organization of the Petroleum Exporting Countries (OPEC+) plans to stick to their quotas this time? Who knows, and does it really matter? The simple truth is that oil prices are as hard to predict as they ever have been, and considering that rising prices cause customers to shop around, addressing price increases is, has been, and always will be a part of a dealer’s life—if the dealer wants to keep customers from shopping around.
Now that we are in a new decade, we can look back at the past one and have 20/20 hindsight. In the first half of the previous decade, heating oil futures regularly traded above $3.00 per gallon (with retail prices often above $4.00 per gallon). At the beginning of the second half of the decade (early 2016), heating oil prices fell to under $1.00 per gallon, just to triple in the next 33 months. Seeing prices move by 25¢, 50¢ or 75¢ per gallon over the course of a year is something that we pretty much take in stride; however, with the ability to shop around being greater than ever, how do we keep our customers happy?
How customers shop
With all the sophistication that comes into play regarding offering pricing programs, and hedging the risk to assure the earning of a reasonable margin, there are pretty much only three ways that customers buy oil. Each has benefits and drawbacks, both on the margin side of the ledger and on the customer retention side.
Regardless of your preferred method to hedge the risk of a price cap, knowing that regardless of where prices are heading next month, next year and for the rest of the new decade, you will be able to keep your price-related attrition under control, and might be the best way to keep your business thriving. The time to start planning for a price cap offering is generally in the spring.
Your best customers will be on a budget plan, with a service contract and a remote tank monitor. Don’t lose that most valuable asset (the customer) over something like a severe swing in prices when you can protect yourself and your customers by offering a cap. ICM
As insurance rates keep going through the roof (if you can even find someone willing to write a policy for you), the notion of having “those extra trucks” is facing more scrutiny than ever before. The theory that the older, “paid for” trucks were good to have around is flying in the face of the questions over the real costs to have some extra trucks for deliveries that just might (or might not) be needed. At a cost of $150,000 for a new truck, it is well understood that new truck purchases (leases, etc.) need to be carefully thought through, but we don’t see the same sharpening of the pencil when it comes to the size of the delivery fleet. The notion that “more is better” needs some investigation.
Of course you need enough trucks to handle all of your deliveries. You also have to consider the number of trucks that will be needed for your peak delivery days in the middle of the winter. But what is the right number? Is it “X trucks” per customer? Per gallon? Per heating degree day (HDD)?
We asked a number of owners and dispatchers a simple question: How many gallons does a truck deliver per year? Interestingly, many of those asked seemingly heard, How many gallons can a truck deliver per year? To that question, we often got responses of about a million gallons. So, that was our starting point—a truck can deliver a million gallons. Does it make sense? It definitely does. If you figure that a truck delivers about 4,000 gallons on a regular/busy day, and then consider that there are roughly 250 delivery days per year, the math is pretty simple:
4,000 x 250 = 1,000,000
However, not all trucks are delivering every day. Actually, most trucks are not even used every day. We surveyed a group of our clients and tracked the usage of 780 trucks over the course of the year. We looked at the number of days they were used, the number of stops, the number of gallons and the number of miles.
On average, a truck is delivering fewer than 500,000 gallons annually—not the million gallons that they can deliver. The average truck is on the road fewer than 800 hours per year, or about 40% of the time. It does make sense when you consider that for about half of the year, say May–September, almost all of your trucks are sitting around not doing anything.
As I walked through Boston’s Logan Airport last month, I noticed a quote on one of the rotating advertising screens at my gate: Data is out. Answers are in. Though I cannot take credit for the line, I was sure that it succinctly said everything we’ve been preaching for the past year—and I embraced it!
Data is everywhere. It is in our back-office accounting systems (BOS). It is in our business intelligence reporting tools. It is in our tank-monitoring data and it is in the reporting we get from our “Big Brother” driver analytics. There is a notion that data is the true commodity and will lead to profits and success—while partially true, it is also partially false. Just having access to information does not, by itself, lead to better decisions and greater profits.
It seems that technological changes are coming at us at the speed of, well, technology—from an app to deliver food to your door within minutes of your order, to the latest innovation that keeps your car in its lane while also keeping it a safe distance from the car in front of you. In ICM’s world, technology includes onboard computers, remote tank monitors and parts inventory management systems. In all cases, the technology was way out in front of the behavior, but eventually those who would benefit from the technology adapted to it and reaped the benefits.
We sometimes like to be nostalgic and think about the “simpler times” in our industry, when a handshake was a contract, attrition only happened when a home was sold and you didn’t have to compete against an online discount marketer. The truth is that, for the past 50 years, the most successful companies took advantage of an innovative technology very soon after it became available.
Many of us are starting to see around the bend as to the power of technology, and we—willingly or begrudgingly—are starting to accept that things are going to be different in three, five and 10 years from now. However, most of what will be “usual and customary” in five years is actually available now—if only we could change the way we act. Changes to behavior are hard to accept—and even harder to force others to implement.
Stocking the shelves
Due to the resistance to change, many in the technology world surpass the roadblocks to simply go out and get the job done. The largest retailers used to have inventory sheets on clipboards to track when replacement inventory needed to be ordered. Then there was an automated system that tracked sales at the checkout register and presented a report to the purchasing manager. That was better, but took time to adopt. Now, the purchasing manager—to his or her benefit—is totally skipped over, as automated inventory systems also act as automated inventory replenishment systems linked directly to suppliers. That is how Wal-Mart, Target and Starbucks keep supplied.
Fuel distributors, a.k.a oil dealers, are starting to look at their delivery businesses as inventory management systems. In this case, inventory is the oil in your customers’ tanks, and effective management is ensuring those tanks don’t run out. That is the way we have operated for decades. However, thanks to technology, we can start to bypass some of the human systems (changes in behavior) and realize tremendous savings from operating more efficiently.
The back-office accounting systems (BOS) that are used in our industry are excellent at what they do with regards to setting up deliveries according to the needs of the individual customer. The relationship between the BOS and the experienced dispatcher create the unique DNA that makes our ecosystem work. With the advent and adoption of remote monitoring and routing software, dispatchers are starting to look better—and be better.
Fuel oil dealers are used to dealing with challenging situations:
• How do I find enough drivers?
• If I drug-test everyone, will I have enough staff?
• How can I make enough money if I keep hearing from my customers that my prices are too high?
• How do I compete with “the big guys?”
These and many more questions are often very logical but nearly impossible to answer. In order to compete, you need to level the playing field; in order to win, you need to tilt the odds in your favor.
Making the change
Over the past few months, we have been focusing on different methods to improve aspects of your business including remote monitors as well as route optimization processes and software. In all cases, there are costs associated with achieving benefits, and there is also a good deal of uncertainty. Questions such as these can arise:
• Can I really change my Optimal Delivery?
• Will my technicians actually install monitors?
• Will I get the return on investment that I hope for?
It is always easier not to change things, especially if the amount of work required to achieve the results might not get done. How many times have you heard, Sure, that’s a great idea but I’m not sure when I‘ll have time to do it?
We all want better results, and even more so, we want them to happen without us having to put in a lot of effort or dramatically changing the way we operate. The old adage good things come to those who wait doesn’t hold water in our ever-changing, technology-charged world. It’s more like if you snooze, you lose. Increased profits will not happen by waiting around and it certainly won’t happen if you don’t modify your (and, by extension, your staff’s) behavior.
Without rehashing all the moving pieces, you should soon be in a position to decide whether you: like the size of your business and want to make just a little more money operating it, or would like to make a lot more money using the same assets and resources that you currently have.
Change is scary, and not changing can be even scarier.
• 40 years ago, as your company (if it was around) was transitioning from the “file room” to a back-office accounting system, you got a lot of push-back. Really, who wanted to type on a keyboard when all a person had to do was to scribble a note on a piece of paper and put it the file (after photocopying the check that just showed up in the mail!)?
• 30 years ago, you didn’t offer anything but “a fair price and good service.” There weren’t any pricing programs that have now become the industry’s biggest retention tool.
• 20 years ago, the thought of a customer going online to make a payment—without interacting with anyone in your company—would have made your bookkeeper scream.
And 10 years ago, how opposed were your drivers and dispatchers to the notion of on-board computers?
Industries do change, even ours, perhaps slowly. Every industry evolves or they cease to exist. In the not-too-distant future there will be technology “haves” and “have nots” in our industry regarding the best method to make deliveries (while not allowing for run-outs).
In the future, deliveries will be fewer and bigger. Summer deliveries will be a different size than the winter deliveries. High-K factor customers will be treated differently than others and your fleet will not spend nearly as much of the year sitting idly waiting for that “cold week in January.” Most importantly, it will all happen with the push of a button.
Old School customer care, employee training and “soft skills” are as important today as ever. However, companies who take those to the extreme, who say the way they operated 20 years ago was the perfect way and believe there is no need to take advantage of today’s technology, might find themselves searching for their old Hall & Oates mixed tape to comfort themselves when the competition heats up.
Panic? Absolutely not. Plan? Absolutely. ICM
Over the past few years, as Angus Energy has expanded its legacy hedging-based business into the broader approach of What can we do to help our clients run more efficient and profitable businesses, the company has spent a lot of time focusing on business intelligence and remote monitoring offerings. The base premise is the more you know about every aspect of your business, the fewer surprises you will have and the better positioned you would be to use that information to make better decisions.
If you look at the expense pie that consists of customer acquisition costs, selling, general and administrative expenses (SG&A) and delivery costs, the biggest expense for any fuel oil retailer is the cost to make deliveries. It requires many vehicles—most of which sit idly for most of the calendar year.
It requires one of the hardest-to-acquire commodities (truck drivers), especially those who are not actually driving for the full year. It also requires a lot of fuel, fleet maintenance, unscheduled repairs, insurance premiums, tire replacements, dispatchers, on-board computers, routing expertise, etc. Although this is widely known, the industry hasn’t done much to make deliveries more efficient over the past few decades, but that is starting to change.
To accomplish anything in the business world, you need a mixture of know-how, foresight and tools. The battle between know-how (sometimes referred to as “experience,” other times referred to as being “old school”), and forward-thinking (sometimes referred to as “next generation thinking,” sometimes as “these kids don’t know anything”), is challenging. The choice presumes that you need to be either completely retrospective (why innovate when everything seems to be working?) or completely prospective (look at all the new technology that is available, to heck with the old school thinking).
I prefer to have the conversation start with the notion of being introspective. In our digital world, choices are usually presented as either/or rather than as a balance of perspectives. Simply because something is “old school” doesn’t mean it is bad or even outdated, it may well have become common practice because it was and still is the best way to do things. On the other hand, just because something looks futuristic but may not be guaranteed to succeed doesn’t mean it is not worth exploring.
The best tools
Over time, all industries use the best tools that are available to them at that time. Toll collectors were replaced by EZ-Pass systems, on-site server rooms were replaced by “in the cloud” services and beepers were replaced with Smart phones. While your parents or grandparents may have struggled with moving from file folders and index cards for customer accounts and K-factor deliveries, they eventually moved to a back-office accounting system. That change didn’t mean that index cards were ever bad, but over time, they simply were not the best tool.
Every time there is an improvement in the available tools, lengthy discussions ensue as to their benefits and value of changing “the way we’ve always done it.” Never lose sight of the fact that change is not easy for many people or for companies. All change, as simple and logical as it may seem, will raise challenges. It is almost always easier not to change, yet it is also almost always a mistake to push off beneficial changes.
Although we take pride in the fact that our industry is very hands-on and customer-facing, not nameless, faceless and algorithmic, we have always embraced change—from back-office systems to on-board computers, from email communication to on-line customer enrollments, and so on.
Did your grandfather ever imagine his customers would receive a “push notification” alerting him that there was a service tech arriving in the next 30 minutes? Yes, we take our time, we wait for other industries to lead the way, but the windows of adoption are shrinking. For those who embrace new tools, the competitive advantage and positive impact are growing more quickly than ever before.
Finding the right balance
When quality drivers are hard to find, you can either spend more money to retain and attract them (while likely lowering your standards) or you can find a way to deliver the same number of gallons with fewer drivers. If the price of gasoline and diesel fuel for your fleet is both expensive and unpredictable, you can just “pay whatever it costs” or you can look to hedge your fuel costs and do a better job of routing than just letting the driver decide on the order of deliveries.
Your biggest delivery expense is the cost of a truck—whether used all year long or just for a few routes in the winter. However, the argument that you needed to buy those three trucks otherwise the acquisition wouldn’t have gone through is not an excuse to keep those trucks in your fleet if they are no longer needed.
Delivering 150 gallons in January to customers whether they have a K-factor of three or 13 is going to require more trucks, drivers and wages than if you pushed or pulled back the “13” into a shoulder month. Also, if 150 gallons is the right delivery size in January, is the same true in May?
The biggest changes in technology are not changes in philosophy. There was always a desire to make the biggest deliveries with the fewest trucks, lowest wage costs and least amount of fuel—all with the absolute requirement of have little or no run-outs. None of that is new. What has changed is that the tools to accomplish that have become far better and more affordable.
If you knew what was in a tank, your deliveries would be far more predictable. If you knew the best route, you would make more stops per hour at a lower cost per delivery. If you knew the best times to make deliveries to customers—not based on when there was enough room in the tank, but based on using the data you already have to spend the least amount of money, while not increasing the run-out risk—would you change the way you operate?
It is already happening and it will happen to your company. The question is whether you will “lead” and look to do it or “follow” because you must. Bridging the past and future requires introspection. Introspection requires the ability to identify the benefits of having a better, more profitable, more valuable business, not the excuses of why you should just keep waiting. ICM
If you ask a heating oil dealer for the one thing they would wish for in December and January, my guess is that nine out of 10 would hope for frigid temperatures. The 10th might be someone like me, holding out some misguided belief that his or her team could beat the Patriots in an important late-season game!
Last winter those wishes came true, and along with it was heard the common phrase: Be careful what you wish for. Cold weather is great. Cold weather is welcome. Cold weather is necessary. However, too much cold weather, especially without a break, can tax the delivery systems of companies despite the best forms of planning.
Always Up for a Challenge?
The late-December through mid-January cold snap in the Northeast in 2017 led to a series of challenges. Although most were predictable, they ended up being problematic for dealers. In some cases there were run-outs, in many cases there were fears of run-outs. We saw a lot of homes that simply couldn’t get or stay warm (insulation issues?) and equipment failures that were more common than anyone would have liked.
When it came to the frustrations of run-outs, a lot of people simply pointed to the growing use of remote monitors as a way to know which deliveries were needed, and (of equal importance) which deliveries were not needed. I fervently echo those sentiments and believe that remote monitoring of tank levels would have gone a long way to impact and lower the number of run-outs.
However, I wanted to look at this from a different, perhaps supplementary, angle. I had many conversations last winter about the impact of those few weeks, and how, despite the high number of heating degree days (HDDs), the “damage” it caused really impacted the entire years’ profits and losses. Very often within those conversations, there would be a comment along the lines of: Of course, we knew that there would be run-outs, but I had my guys working 14 hour days, seven days a week. There was simply no way to keep up with the demand. Sure, tank monitors would have helped, but the trucks were out all day long, and we simply couldn’t get to everyone. In other words, the need simply outweighed the ability to deliver.
Supply and Demand
The logic is there. Just too much demand. Really, what could have been done differently? Without the ability to use Uber to request a delivery truck, how do you meet the needs of your delivery tickets when it has been cold for so long?
We have been thinking about deliveries for a long time and wondering why the process of planning hasn’t really changed that much over the years—while all other technologies and efficiencies seem to have improved.
The transition has been coming for several years, and it is now as stark as ever. There is a line of demarcation that separates the companies that are stuck in the past or are trying to catch up and those that have embraced the future.
We speak with hundreds of fuel oil/propane dealers every month. Shockingly, we still hear the familiar refrains:
While that is indeed the mindset of some dealers, we believe that much of the resistance is simply the fear of change. Doing things the same way for years, decades even, can lead to comfort and complacency. I’d like to believe that there isn’t really opposition to beneficial change in the form of improved decision-making, efficiencies and profits. For some, however, it’s just too damn scary.
With all decisions, especially game-changing decisions that can impact your business for decades, a good deal of confidence is required. If you are not confident in the decisions you make, it is very easy to find problems and simply say: I knew that wouldn’t work. You need to feel confident in the decisions you make and the expected improvements.
Whether you are aware of it or not you, you have embraced change, especially in the form of new technology. As with many things in life that seem to just “happen,” the changes might not have been fully planned, but the improvements have worked out.
Since the future is inevitable, I want to share with you Best Practices we’ve witnessed and coached other dealers on as they proceed through the adoption of new technologies, in order to make the transition more predictable:
Plan, execute, communicate and gain the confidence needed in this not-so-new millennium! ICM
As the owner or decision-maker of a company, one of the most important things that you need to do is prioritize your time. Very few people can be experts in sales, marketing, operations, purchasing, hedging, service and technology, yet those are just some of the important aspects of your business fighting for your attention. In addition to the obvious advice of hiring the best people for the job(s), you need to optimize your time, and of equal importance, be aware of and avoid things that you should not be spending time on.