Fluctuations in product costs and availability, as well as fluctuating levels in demand from consumers, have necessitated agility in every section of the convenience store—and the forecourt is no exception.
As the fuel market remains volatile in the wake of the pandemic, retailers are seeking ways to make flexibility an evergreen characteristic of their strategies—and adding E15 to their lineup of fuel offerings can help.
To that end, Mike Lorenz, Senior Vice President of Global Market Development for Growth Energy and former fuel supplier in the oil industry, discusses pricing strategy, regulatory changes, consumer preferences and other considerations for retailers navigating the current landscape.
In recent months, customers across the country have been experiencing sticker shock at the gas pump. What’s driving these prices?
ML: There’s a supply-demand imbalance; we have demand exceeding supply, and when that happens, prices will rise as we’ve seen. Last year, demand plummeted due to COVID-19, causing a supply gut, which drove the price of WTI oil negative, which was unprecedented. This year, it’s the speedy recovery coming out of COVID-19 leading to higher demand and rising prices. So, it has been rapid changes in demand vs supply that are causing the wild price fluctuations.
What has the U.S. government’s response looked like?
ML: The Biden administration has asked OPEC [the Organization of the Petroleum Exporting Countries] to increase oil production to lower prices. The administration is calling for a supply response when, in reality, we need a demand response.
Last time we hit $4 a gallon retail prices, people started trading in their SUVs and replacing them with smaller, more fuel-efficient vehicles. There’s an increasing number of electric vehicles on the road, which is also reducing gasoline demand. This plays into the whole supply-demand situation, too. Supply has been reduced or slow to react, because companies are hesitant to make investments with an uncertain future.
The Biden administration has also made moves to reduce the use of fossil fuels. Doing so has an impact on fuel prices. But we have a homegrown solution right here in the U.S. which also fits the administration’s climate agenda: higher-ethanol blends, like E15. We could be replacing fossil fuels with cleaner burning ethanol. We have a solution that could lower gasoline prices and reduce greenhouse gas emissions. Talk about a win-win.
How can switching from unleaded 87/E10 to 87/E15 benefit c-store retailers?
From the retailer’s standpoint, the lower cost of E15 provides flexibility and optionality; that low cost gives the retailer the ability to either improve their margins or drive more traffic to their store and sell more gallons of fuel. In some cases, they can actually achieve both. But it all leads to higher profitability, which is what retailers are aiming for.
Another benefit is that E15 can help retailers meet their environmental and social commitments in that they’re offering environmentally friendly products. This aspect is becoming more important as companies realize that it has an impact to their brand image.
How does E15 appeal to consumers?
Because E15’s cost is lower, that can translate to lower prices at the pump. Consumers are highly price sensitive—price is the No. 1 reason behind where they decide to buy fuel. Also, as people are becoming more eco conscious, they prefer E15 because it’s better for the environment. In addition, its higher octane, which is better for your vehicle. Purchasing E15 is buying American, which also appeals to a lot of consumers. So, the question that I have always asked is: Why wouldn't you buy this product?
What does equipment and vehicle compatibility look like for E15?
Most retailers have compatible equipment that can be selling E15 today, and 96% of vehicles on the road today can use E15 so it can be mass marketed. That’s important for retailers, because gasoline tends to be a high volume, low margin business—and virtually everyone can use this product.
Our growing market development team stands ready to assist any interested retailers - large or small - with marketing, regulatory, and equipment compatibility questions before adding E15 to their fuel line-up. To learn more about how E15 can help retailers win amid a fluctuating market, visit growthenergy.org.
This post is sponsored by Growth Energy