Why propane irrigation engines present an opportunity

July 23, 2015 By and    

In the Know is a monthly partnership between LP Gas magazine and Propane Resources. Our focus this month is on propane irrigation engines, addressed by financial consultant and business valuations and sales expert Tamera Kovacs.

Photo: Propane Education & Research Council

Propane faces irrigation engine competition from electricity. Photo: Propane Education & Research Council

Q. Propane irrigation engines are being touted as a big opportunity to grow gallons – provided farm customers are within retailers’ service territories. Is that consistent with what you are hearing from your clients? What can retailers do to tap this ag market?

A. There is one key question that must be answered before we can determine if there is a new opportunity to grow propane gallons – whether it is propane irrigation engines or any other use. That important question is this: Are retail propane marketers prepared to do what it takes to build a new market opportunity?

Propane irrigation engines provide an opportunity to grow gallon sales, but before we can tout these engines as a new profitable product, retailers must be willing to build a new market in order to seize the opportunity.

As with any new propane application, education is the key. Retailers and their staffs need to be educated about how to market and sell irrigation engines. Retailers also need to understand what it takes to make a profit and provide education for the end user, in this case the farmer. There are, at minimum, four critical things to consider when entering the propane irrigation engine market:

Contributory gallons and profitability: Propane irrigation engines are an opportunity to grow gallons, but it is important to treat irrigation engines with the same attention to detail as other propane applications. Retail propane marketers should treat these gallons as incremental gallons, as weather will play a key role in the gallons gained from irrigation engines. Irrigation engines will benefit the retailer by providing a spring-through-fall propane load. Retailers need to understand the cost to service these irrigation engine customers so they make money on these additional gallons. It doesn’t make sense to deliver gallons for the sake of building volume without making a profit.

Education and marketing: Farmers are familiar with diesel or electric engines, but few farmers know about propane irrigation engines unless a propane retailer informs them. When a farmer needs to add or replace an irrigation engine, his first inclination is to call the person who either sold him an engine in the past or call the person who typically works on his current irrigation engines. Propane retailers need to invest time and money to educate the end user, as well as local dealers that sell irrigation units, about propane irrigation engines and the benefits to using them. Educating and marketing will need to be a constant focus.

Financial benefits: The retail propane marketer must be able to communicate the cost benefits of propane irrigation engines to the end user. The primary irrigation engines used today are diesel or electric engines. Depending on where you are located, the cost to run an electric irrigation engine due to the low electric rate may be very comparable to the cost of running a propane irrigation engine. If the end user has to pay for any initial upfront infrastructure, electric engines may be more costly to them. There have been instances where a farmer has been asked to spend anywhere from $20,000 to $40,000 in upfront costs before purchasing an electric engine. In the case of diesel engines, the upfront cost for a diesel Tier 4 engine will be roughly double that of a comparable propane engine. Additional benefits for a propane engine over diesel is the fuel-cost savings, providing there aren’t any significant propane price spikes or availability issues. With wholesale prices being so low this year, offer to lock in gallons for a farmer’s irrigation use for the next two years.

Education and maintenance: Retailers have a couple of options for servicing irrigation engines. They can train service technicians to work on the irrigation units and charge for this work. A retailer can also build alliances with engine dealers or the propane irrigation engine companies to service these units. The propane irrigation service timeline must be competitive with electric and diesel alternatives.

Propane irrigation engines present an opportunity as a seasonal contributor to increase gallon sales. To succeed, the retailer needs to understand the costs associated, charge enough to build a profit and develop a marketing plan so farmers can see the benefits of propane irrigation engines. Keep the marketing messages simple and focused on benefits to the end user. And the most important thing to remember is to ask for the sale.

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 913-262-0196.

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