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State of the Industry

December 1, 2001 By    

Despite terrorism and a slowing economy, the propane industry reports sustained growth and optimism

Industry veterans joke that you can start a healthy debate on most any topic with two or more propane marketers in the room. So we were pleasantly surprised at the consistency of responses when LP Gas Magazine asked propane retailers across the country to share opinions and details of their business for collective analysis.

According to the survey, propane sales overall climbed in 2001 thanks to a healthy winter heating season. Record cold followed three consecutive warm winters, driving sales volumes and revenues despite the first significant nosedive in the national economy in nine years.

More than ever, propane industry leaders are investing big dollars to expand off-season sales. Yet our survey indicates that more than half of the retailers selling less than 600,000 gallons per year still rely on cold weather for 61 to 80 percent of their yearly sales. Overall, respondents report that winter heating season sales account for just under 69 percent of their annual propane sales.

Acquisitions continue to drive growth for multi-state and regional operators. They also provide a timely opportunity for many long-time business owners to negotiate a profitable retirement settlement, and create opportunity for new independents and non-traditional competitors to enter the market.

Many marketers expressed concern for the impact that the terrorist attacks will have on the economy, product and infrastructure in 2002. Still, most are projecting moderate increases in the number of customers and gallons sold.

The second annual LP Gas Magazine State of the Industry Report represents anonymous responses from 437 propane retailers, almost 22 percent of those surveyed.


Acquisitions continue to drive growth for the multi-state and regional propane retailers. They also provide a timely opportunity for many longtime businesses to execute a profitable retirement settlement. Meanwhile, a stream of new independents has entered the market in the last 10 years to fill the void created by consolidation.

Despite that influx of new business, the propane industry overall remains a veteran business. From the 100,000-gallon-per-year mom-and-pop dealer to the multi-state marketer selling millions of gallons, the folks who answered our survey have been in business a long time, averaging 29.4 years.

Indeed, few industries can boast stability that matches the average of our survey respondents – from 20.1 years in business to 39.4 years.


Despite a staggering national economy, a solid winter heating season has retailers projecting larger sales growth than the 5 percent annual growth rate the propane industry has historically chugged along at for decades.

Survey respondents selling less than 2.5 million gallons per year are projecting sales increases ranging from 7 to 21 percent over 2000 levels. That good news wanes for the larger companies, however. Retailers selling more than 2.5 million gallons expect to finish the year off an average 7 percent from last year’s mark, pulling down the overall industry averages.

Similarly, the smaller retailers see a healthy growth in the number of customers, ranging from an average of 6 to 11 percent. But the largest retailers are projecting a stiff 17 percent drop.


Our survey indicates that more than half of the companies selling less than 600,000 gallons per year still rely on cold weather for 61 to 80 percent of their yearly sales. Overall, retailers report that the winter heating season accounts for just under 69 percent of their annual sales.

Residential accounts still dominate sales with 66.8 percent of the total gallons being used in U.S. households. Agriculture represents almost 12 percent of sales, but the shrinking number of farms nationally may be taking its toll. Survey respondents who reported no agriculture sales range from 12.9 percent to 47.2 percent.

Other sales numbers: commercial (10.4 percent), industry (4.4 percent), cylinder exchange (4.5 percent) and motor fuel (2.1 percent).


Even though total secondary and tertiary storage equates to more than 100 percent of annual propane sales by all U.S. retail marketers, a major bottleneck exists at the dealer level. Total secondary storage is only 3.6 percent of total storage, and U.S. propane marketers have drastically cut back on third-party storage.

In an effort to expand retail storage capacity, propane industry officials have been pressing U.S. Senate Finance Committee members to include a fuel storage tax incentive to fully expense new propane storage properties. The industry argues that increasing fuel storage capacity will help mitigate the factors that contribute to fuel price spikes, such as distribution bottlenecks caused by severe weather and demand surges that result from interruptible contracts.

According to our survey, propane retailers are adding storage at their current sites as their companies grow. The pattern of storage growth appears consistent from the smallest marketer up through the largest.

The numbers verify recent industry estimates by Purvin & Gertz that the stationary storage owned by dealers equates to less than 5 percent of annual sales. On a seasonal 2-to-1 basis, that figure represents an inventory turnover of 26 times per year – 1.4 times per month during April through September and 2.8 times per month during October through March.

Despite an ample overall supply of product in primary storage, propane marketers are being urged to increase bulk storage capacities, buy more product during the summer months and keep more inventory on hand to avoid winter supply problems.

Overall, 27 percent of survey respondents say they plan to add storage in the next 12 months, up from 22.4 percent last year.


Nobody is calling us a high-tech industry yet, but computer use by propane retailers is unmistakeably on the rise.

Survey respondents report that basic billing/accounts receivable continues to be the most frequently used computer function (80.1 percent), followed by customer database (72.8 percent). And while no other business application averaged more than 50 percent, companies of all sizes reported consistent increases in computerization for inventory, sales, fleet management, sales, and purchasing/ordering.

Website presence has grown since last year, too. Just 31.3 percent of survey respondents had a website last year, compared to 43.2 percent in 2001. Those using the Internet to take orders is 16.2 percent, up from 8.5 percent last year.


Verbatim responses to survey questions:

What is the Number 1 issue in your business today?

  • Competitive pressures from RECs
  • The total helter-skelter energy situation
  • Maintaining profit while competing is an expanding market place
  • The fly-by-night cut throats that have no morals
  • BS required by DOT and Feds and liability
  • Where is the price of propane going this winter?
  • Margins keep going down and health insurance costs keep rising
  • Continuing a high level of service while riding a wave of 30-50% growth
    per year
  • Reducing ‘Will call’ customers
  • Telling customers about old tanks and valves
  • Finding qualified employees who have a work ethic
  • Unsafe propane systems
  • Competition wanting to give gas away
  • Bobtail automation, degree-day routing
  • Non-weather sensitive revenue
  • Storage at the local level
  • Too much paper work


What development will most impact your business in the next 12 months?

  • Insurance requirements, costs, deductibles
  • Cost of converting bobtails to remote shutoffs
  • Cylinders without OPD valves being phased out
  • Automatic routing system
  • Sept. 11 attacks
  • Nation’s economy
  • Furnace selection to compete with heat pump
  • Mapping and routing
  • Mideast product supply
  • Terrorism
  • Poor infrastructure
  • Computerized manage-ment of inventory, delivery, degree days, etc.
  • New modern product line (fireplace, vent-free heaters)
  • Consolidation of small companies
  • Developing written policy and procedure/safety action plans
  • PERC’s consumer education program to increase propane demand
  • Middle East crisis/crude oil prices
  • Tank monitoring
  • Hours of service
  • Employees (retention and training)




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