Tuesday, June 18, 2024


The Financial Fight of Your Lifetime

by Larry Richmond, Richmond Financial Services


Drastic measures must be taken to protect your margin

As I pen this, it’s May of 2022 and fair to say that the sand is shifting beneath our feet.

Average hourly earnings continue to grow significantly, pushing our entire economy further and further into an inflationary three-headed monster. Historic inflation is driving down Real Average Hourly Earnings. In other words, workers’ purchasing power has decreased even though their wages have increased. Real Disposable Personal Income (DSPIC96) has been volatile since 2020, and the increasing rate of inflation is standing in the way of growth.

Indicators like this are anything but good news. Ignore them at your own peril. High market conditions present significant challenges for fuel dealers. As things “tighten up,” fuel dealers must execute all aspects of their businesses with supreme precision in order to survive, much less thrive.

The rules are changing as we speak, and we have reached a unique crossroads with no margin for error. Utilizing tech-nology to help run your business more effectively is paramount. Some expenses associated with running your business are 50%-100% higher than just 18 months ago.

On both personal and business levels, COVID-19 turned our world upside-down, forcing us to rethink virtually everything we did and how we got it done. Lockdowns imposed previously unimaginable challenges on our methods. I cannot think of any business that was not affected in some way.

Fast forward to May 2022 and BAM — all of a sudden retail fuel dealers are staring down the barrel of a $6 heating oil gallon. Notwithstanding the optics of having to sell your product at a 100% higher price, this has far-reaching implications and ripple effects for dealers nationwide.

The tenacity of our industry to continuously overcome adversity and continue servicing the public is admirable. Millions of consumers around the country rely on fuel dealers for comfort and peace of mind, knowing we are there to help our communities no matter the challenges and obstacles standing in our way.

A War on Multiple Fronts

It’s coming at us from all sides, and make no mistake: this is a triathlon, not a marathon. You have to be good at more than one thing.

It reminds me of the Clint Eastwood movie Heartbreak Ridge, where, as a U.S. Marine near the end of his career, he says “Improvise, adapt and overcome.” If today’s environment does not call for this, I don’t know what does. You need to fine tune your strategies across the board, and your payments strategy is but one, since fees are tied to volume.

Customers facing rising prices find themselves having to change their purchasing decisions. They have to modify their behavior, and so do you.

Higher prices tend to result in so-called “demand destruction,” forcing consumers to purchase less product, because they simply cannot afford to buy in typical quantities, or at all. In either case, they may stop or reduce consumption of “Product A” in favor of a less expensive “Product B.” Even if behavior modification is short term, the effects are like ripples in a pond.  Sooner or later, they touch everything.

Higher prices also force some customers to defer purchases, For example, they buy only what they need right now, i.e., perhaps 100 gallons instead of “topping off” with 200 or more.  

Consider the phrase, “You can run, but you can’t hide.” For heating oil, propane or gasoline retailers, the current state of fuel pricing hits home on a number of fronts. Rising cost of goods is eating away at margins. This impacts the bottom line. We struggle with how to mitigate the math associated with managing replacement costs as prices climb. This also impacts the bottom line.

You and your customers are dealing with extreme and dramatic cost increases as a result of high retail fuel prices. The consumer is squeezed to afford the cost of filling their tanks. Retailer lines of credit are maxing out in many cases in an effort to keep supply on hand, and high retail fuel prices equate to greater processing expenses, all of which eats at our margin.

Maneuvering the Minefield

Every fuel dealer needs to look at their payment acceptance strategies and gravitate their customers (and their company) to the payment options that are most friendly and cost-effective to their respective bottom lines.

For reference, in March 2021, the U.S. Energy Information Administration reported heating oil nationwide began flirting above $3 a gallon and settled at less than $3 a gallon the last week of the month. At $3 a gallon, a $600 customer transaction for 200 gallons of fuel equates to processing fees half of what they are today!

Consider that, today, with heating oil in some areas topping $6 a gallon, a delivery of 200 gallons will cost the consumer $1,200. Now, I hope you’re sitting down. Depending on which payment methods are offered and utilized by the consumer,  that single transaction will cost you anywhere from $3 to $30.

Yes, unfriendly payment decisions can cost you 10 times as much! This wreaks havoc on your bottom line, eating up your well-earned profitability, or, in certain transactions, all of your profitability.

As I’ve said before, using Visa Credit translates to big fees that you or your customer must pay. I can’t stress enough how important it is to work with a payment professional who can help you interpret this and support you in your efforts to maneuver the minefield of credit card processing interchange fees.

No matter how you cut it, fuel dealers currently pay 100% more in processing fees than in March 2021. The massive increase in Visa Credit fees over the past year only adds insult to injury, further compounding the cost on fuel retailers.  

The good news is that utilizing more debit cards (any brand) and e-check/ACH will be a huge help. Mastercard and Discover credit cards are certainly more “friendly” for you and your customers. It’s not a heavy lift and telling your customers about it puts you in a very positive light, as cost reductions help you pass on better value.

It’s a new world and only the strong will survive, but those paying attention and  leveraging technology will thrive by capturing perpetual savings as well as cost savings now essential to the bottom line.

Larry Richmond is President of Richmond Financial Services. He can be reached at 617-843-5700 or larry@richmondfs.com.

Fleets and Fuel Delivery
2022 Energy Crisis
Payment Processing
June 2022

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