Why propane retailers are hesitant to enter the autogas market

October 12, 2015 By    
Photo: Propane Education & Research Council

Photo: Propane Education & Research Council

Q: What’s preventing propane retailers from breaking into the autogas market?

A: This question has caused me to pause. Is it designed to treat the symptoms or to try and diagnose the underlying cause of the symptoms?

History, belief, focus, desire, capital, potential lost opportunity and failure to see opportunity – any one or a combination of all could be stated as reasons (or symptoms) why propane retailers haven’t charged into the autogas market.

  • History: The retail propane industry has a sordid history with autogas. Talk with propane retailers who have been in the business for the past 50 to 75 years, and they will share with you the boom and bust of the autogas market. While much has changed regarding the stability and growth opportunities for the propane autogas market, past experience and history are often very difficult to overcome.
  • Belief, focus, desire: For anything to be successful, it needs someone to believe the opportunity can and will work. If retailers don’t believe in the autogas market or the opportunity, regardless of their reasoning, it will fail. Without the belief, as well as focus and desire, there will be no effort or resources (emotional, financial, time) dedicated to its success.
  • Capital and potential lost opportunity: Entering the propane autogas market can be very capital intensive. Many retailers may see the capital investment as too much risk. Any project has two sides: the opportunity (which is the profit you are making) or the lost-opportunity cost (which is the potential profit you lose by focusing on one project over another). Many retail propane marketers see the lost opportunity (from traditional propane business) to be greater than the profit they would make after their time and capital investment.
  • Failure to see opportunity: Having vision when running a business is critical for continued growth. If propane retailers cannot see the vision of the propane autogas market, most will not enter the marketplace.

We could debate that some of the above are not valid reasons for entering the propane autogas market. The root cause could be directly tied to the company’s philosophy, goals and long-term commitment to being in business. It is similar to how owners manage their propane businesses. Do they manage them for short-term cash or to build long-term value?

Take that thought process and apply it to the autogas market. If a company believes it needs an immediate return on its investment, it likely will not enter the autogas market. The companies entering the autogas market have a long-term commitment to their company and to building the autogas infrastructure. The autogas market is a little like the debate of what came first, the chicken or the egg. Retail propane marketers struggle to invest in a market that lacks immediate ROI (return on investment), and end users hesitate to switch to propane without the autogas infrastructure.

History, capital investment and lost opportunity offer an easy excuse for many retailers not to enter into the autogas market. It’s going to take the forward-thinking retailer to see the big picture and the potential of the autogas market.

 

Tamera Kovacs is a financial consultant and industry expert in business valuations and sales with Propane Resources. She can be reached at tamera@propaneresources.com or call her at 913-262-0196.

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Allison Barwacz

About the Author:

Allison Barwacz is the digital media content producer for LP Gas magazine. Contact her at abarwacz@northcoastmedia.net or 216-706-3796.

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