Change is inevitable, key retail considerations for alternative fuels like E15
TIMES ARE CHANGING Significant consumer shifts are occurring in the United States. Demographics are shifting toward older consumers who drive less and toward younger drivers who don t currently own, or in some cases, don t even want to own automobiles. There is much media attention paid to the next wave of auto technology; electric, CNG, hybrids and hydrogen. They all garner a great deal of media attention whether real or imminent. However, odds are, like all market trends, the shift in fuel retailing will likely be more subtle over the next decade. This paper is intended to identify some of the market shifts taking place that garner little attention but added together will have a significant impact on fuel retailers in the foreseeable future. GOVERNMENT REGULATIONS; READY OR NOT? Government regulations are a part of life in the fueling retail world. Some of the regulations proposed or nearly finalized will make it an even more competitive fight for consumer business. Most people are aware of the increasing CAFE standards required for automotive manufacturers to meet in the near future. But what most people don t consider is that the 2016 requirement of 35.5 mpg is a 47 percent increase over the 2012 target of 24.1 mpg. By 2025, auto manufacturers must meet a target of 55.4 mpg, or a 100 percent increase vs. 2012! Though implementation of these new standards will take time, eventually CAFE effects will be felt through decreased consumer demand for fuel. Then the retail landscape will be even more competitive.
ENGINES CHANGING AND A WORD ABOUT OCTANE In order to comply with government changes, auto manufactuers are deploying a number of new engine technologies. One move, though very prevalent, is receiving little coverage in the main-stream press. Quite simply, downsizing engine size, increasing compression ratios and turbo chargers are resulting in cars that deliver better mileage but acceptable consumer performance. The fuel for these high performance engines will need to change in order to optimize performance and mileage. Octane is a key component of that change. Ethanol s 113 octane rating, makes it the lowest cost octane additive by a factor of close to 300 percent. Given engine changes, regulatory changes like Tier III and CAFE standards, the stage is set for higher ethanol blends, like E15 and even E25, having a much larger role in fuels. DO CONSUMERS CARE ABOUT WHAT S IN THEIR GAS? A recent nationwide poll conducted by Carbonview research took a closer look at consumer attitudes toward ethanol in their gas supply. With nearly 1,000 interviews completed, less than 30 percent of those polled knew ethanol was in the fuel they currently purchase. When pressed further, 19 percent of consumers surveyed had strong positive feelings about ethanol while less than 1 percent had negative feelings about ethanol.
WHAT DO CONSUMERS CARE ABOUT? No surprise, in the same Carbonview consumer survey, consumers stated they are simply interested in finding the least expensive fuel that their car can operate on. E15 has been available for three years and by the end of 2015 will be available at more than 300 major retail locations in 20 states. E15 typically retails for $0.05 to $0.10 per gallon less than regular 87. When told they could save $0.05 per gallon with E15, 49 percent of the consumers polled stated they would try E15 while another 42 percent stated they would consider E15. When told they could save about $0.10 per gallon with E15, more than 60 percent of consumers said they would try it while an additional 34 percent stated they would consider E15. The bottom line is consumers care about savings at the pump. GENERATE MORE GREEN WITH E15 Retailers offering E15 to 2001 and newer vehicles are finding early sales success. Given the typical price advantage of $0.05 to $0.10 per gallon for E15 consumers are responding with using the new fuel. Retailers reporting their sales have seen E15 climbing as a percentage of total sales from 12 percent in November of 2014 to more than 18 percent in March of 2015. Some sites are reporting that E15 gallons sold are now exceeding gallons of 87 regular.
THE ROAD TO SUCCESS The only constant we can count on is change. Given shifting consumer demographics, government regulations, automotive technologies, oil market shifts and constantly changing consumer preferences, one thing is certain. The fuel market will change in the next 10 to 15 years. History will likely repeat itself during these changing times. Those that embrace and drive change in the fuels market will likely prosper the most.