By Shane Dyer
Since the early 1980’s, those marketing Pacific Pride and CFN nationwide have carefully developed a lucrative enterprise around the unattended commercial fueling and reciprocal cardlock networking business model. Customers have likewise valued the opportunity to fuel in highly controlled, highly efficient environments that lower the total amount its costing them to fuel their vehicles. These marketers have successfully developed a unique competitive niche by being able to provide a level of service that is not available in the more common retail fueling environment.
In recent years, those marketing CFN have been presented with an argument that they are missing “share of wallet.” The premise behind this theory is that if you blindly extend to your customers the ability to fuel in retail locations, you will enjoy increased volume by picking up the fueling that is occurring outside of where your card works. Pacific Pride franchisees are now being presented with the same theory as they are being assimilated into the Fleetcor business model.
Over the last several months, we at PowerUp Fleet have carefully studied dozens of these marketers’ customer’s buying habits using a transaction analytics engine and financial revenue analysis tool. Our conclusion is that the share of wallet is more fiction than fact.
We have found that a large percentage of fleets are perfectly content fueling only in the cardlock locations because of the value provided. In most cases, a large number only fuel at the marketer’s own locations and don’t even use the other unattended reciprocal sites. A majority absolutely do not want their drivers fueling in locations where there are no gallon limits, product grade restrictions and where Twinkies may end up on their fuel bill. It defeats the purpose of the fuel purchasing policy they’ve implemented which is being enforced through the technology at the highly controlled, unattended cardlock locations.
Our analysis clearly suggests there is great risk in the share of wallet theory, particularly if you don’t properly manage the exposure of retail to your customers. Of the CFN marketers we’ve analyzed who have embraced the retail concept; they have all experienced what we are calling “retail bleed.” This is where your customer’s employees learn the card works across the street at the Chevron and opts to fuel there instead of at your site. When this occurs, the revenue shifts from you to both the retailer and your network provider.
The impact of this is particularly devastating when we are enjoying higher rack to retail spreads. For example; assume your cardlock pool margin is $0.25. After your network’s transaction fees, you will be making $0.243 per gallon on that domestic sale. If that customer bleeds into retail, you will be making (after your network’s transaction fees) a mere $0.022 per gallon.
* Analysis based on a 30 gallon fill with a retail price of $2.50
Where does your revenue go? Based on a transaction in the Chevron network (assuming the station owner is making the same rack to retail margin), the retailer picks up $0.189 CPG. Your network picks up an estimated $0.038 per gallon (inclusive of their fees and based on an estimated realized interchange rate of 2.4%), and the rest is lost to interchange with the major.
But wait a minute! The share of wallet theory claims you will enjoy more profitability because you will pick up all of that customer’s additional volume that you are missing. Let’s do the simple math. In order to make up for one gallon of retail bleed, that same customer will need to buy eleven more gallons outside of your locations to compensate for the loss of revenue on that one gallon! Each marketer needs to take a realistic look at whether there is that ratio of additional spend available.
Based on our analysis, the share of wallet theory is resulting in a net loss for many marketers. We are seeing bleed that is not being recouped by the necessary additional gallons. This is not to say that we are negative retail. In fact, we see it as a strategic component, but only if introduced to your clients in a controlled manner. What we define as controlled is to ensure that your customers are initially introduced to your most profitable fueling environments, and then, after review, exposed to the lower margin retail locations on as needed basis. Additionally, they should gain access only after they sign a revised card use agreement that ensures they understand the lack of controls in the retail fueling environment. Failure to do so has led to financial losses for some marketers in the courts.
Today, many marketers are not managing this process, and the networks are adding their own layer of difficulty. In the case of CFN, each time a card is issued through the system, the marketer needs to physically select all 50 states on each individual card in order to lock out retail. For Pacific Pride Franchisees, who are all facing a complete card conversion, this is a more substantial issue as the current indication is that cards are to be issued without any retail restrictions. After the cards have been shipped to the customers, the franchisees will need to physically enter up to five zip codes on each card to lockout as much of the retail environment as possible. Under this structure, it’s not possible to completely lockout all retail locations.
The simple fact is, the franchisees don’t have the bandwidth to go back and modify thousands of cards manually and the network knows this. In our opinion, they are banking on the franchisees failing to lock the cards out as they make more money when the cards are used in retail. Equally important is that this process is taking place largely outside of the franchisees’ control. The materials being shipped to customers are touting that the “new” card will work in 55,000 fueling locations, and the back of the card makes the same claim along with the branding of a major retailer. The franchisee’s customers can’t avoid the exposure even if they wanted to.
Earlier this year a letter was sent to all of the merchants who accept the Fuelman card (which the new Pacific Pride card is based upon). It was touting that the new Pride Advantage card would “…for the first time allow a large, new group of customers to fuel at participating Fuelman Network Locations. This represents a tremendous opportunity for our merchants to receive the valuable benefits of truly incremental gallons.”
Maybe the marketers need to be asking: “Whose share of wallet are you talking about?”
Shane Dyer is the president of PowerUp Fleet, Inc. He possesses over 29 years petroleum automation, operations, and executive management experience with a focus on commercial fleet fueling and cardlock networks. PowerUp Fleet, Inc. provides sales force automation/CRM solutions specific to the petroleum industry along with sales training, sales management, and executive consulting services. Contact: (541) 388-5120 or [email protected] and visit PowerUp Fleet at: www.powerupfleet.com
