By Joe Ciccarello, CPA, MST, Managing Partner, Gray, Gray & Gray, LLP
The price advantage that pipeline gas currently holds over oilheat and propane is substantial. In many cases, a home can be heated by gas at half the price of oil or propane. It may be several years before the market returns to any sort of pricing parity.
This is a reversal of positions from decades ago, when the gas companies were at a competitive disadvantage due to limited supplies and high costs. Now, thanks in large part to ramped up exploration and techniques such as fracking, formerly inaccessible gas deposits are providing ample product to the market. This has driven down costs, which in turn has led many customers to convert their home heating systems to pipeline gas.
It is easy to sit and grumble about how the gas utilities won’t play fair, how their environmental claims are exaggerated, how their marketing efforts are intrusive, and how their conversion incentives are devious. But complaining won’t stop your customers from leaving or replace the revenue lost from shrinking oil and propane sales.
Companies that rely heavily (or exclusively) on oil and propane fuel sales are in trouble and face an uncertain future. In many areas, gallons are down despite the very cold winter we have just endured. It is time for these companies to reassess their product and service mix, and perhaps make some significant changes to the very nature of the business model they have established. Watching fuel sales dwindle without taking action is a recipe for eventual failure.
Plan to Grow or Plan to Go
One option is to exit the business. Some dealers are simply not up for another difficult fight, or do not have the desire to restructure their company. For these owners, the sale of their company to a competitor may be the best way to salvage what value remains in the business.
But if you are committed to seeing your business survive and thrive, you need a solid strategy for growth. No business can remain static – if you aren’t growing, then you are shrinking. Since the prospects for growing oil or propane sales are slim, you’ll need to find other areas in which to generate revenue.
Many oilheat and propane dealers have come to stop thinking of themselves as “fuel” companies and started to act as a service company. Indeed, many proactive dealers are going so far as to rename their businesses, removing the words oil, propane, or even fuel from the company name.
My point is this: You must change or die. That is a very dramatic statement. Tough times call for tough measures. The current state of the market demands that you adapt and adjust to meet the needs and desires of your customers. But you must do so carefully and thoughtfully.
Assess and Evaluate, Then Act
I am not suggesting that you convert your bulk plant to an ice cream storage facility, or that you start selling arts and crafts at your customer service desk. The new sources of revenue you create should fit with your company’s most valuable asset: your customer list.
Your customers know you as the company that keeps them warm and comfortable. Any new services or products you offer should capitalize on the trust you have built up with your customers. Strive to become an even more valuable resource for them. Some examples to consider, which have been successful for other dealers, include air conditioning installation and service (which has the advantage of generating off-season revenue), plumbing services, home security systems, septic system installation, home improvement services, or solar hot water system installation.
Finally, under the heading of “if you can’t fight them, join them,” some dealers are offering gas conversions, along with service for gas heating systems and gas appliances.
Don’t limit your opportunity for growth by remaining steadfast in your self-image as an oil dealer or propane dealer. Evolve your thinking so you can transform your company into a more diverse business that is in tune with your customers, and more realistic about the changing market.