Ready for the future?

One year into the new century, the propane industry is coming to grips with challenges that can launch growth opportunities or deal mortal blows to propane marketers unprepared for change.

At a seminar to help marketers identify those challenges and give direction for future strategies, four prominent industry experts shared their views on what it will take to successfully compete in the propane market of the new century. The seminar was given June 13 at Pinnacle, the National Propane Gas Association’s annual education conference.

Gene Bissell, president and chief executive officer of AmeriGas Propane and vice president of the National Propane Gas Association, admits he can’t predict the propane industry’s future. But his years of work with one of the nation’s largest propane retailers has opened his eyes to the forces that will impact the future, particularly in the areas of globalization, new technology, and changes in the competitive landscape.

For all of the progress made by the industry in the last decade, Bissell says it still faces major problems that hamper its ability to collectively push the industry forward. With $11 billion in revenues, the propane industry remains a small, fragmented cottage industry of more than 4,000 players. As such, it can only be effective if it works together to fend off competitors and grow its markets.

“Our industry is like a small boat on a great sea of threats and opportunities. Our competitors are like the great ocean liners that ply the same lanes of that sea, and if we are not careful we could easily get lost in their wake,” he said.

The propane industry overall remains too fragmented, too disorganized and too slow to act if it wants to compete with the growing threats to its long-held markets, Bissell said. It is vulnerable to the well-organized, competing fuel providers and those new entities with monopolies and government protection.

According to Bissell, our industry’s safety developments pale in comparison to those of competing industries. Investment in new technologies and applications such as fuel cells likewise lags. Overall, our industry lacks imagination while our market keeps us slaves to weather and volatile price swings.

The industry also needs to recognize that business opportunities extend beyond the U.S. borders. We have lots to learn from propane operations that are part of bigger, more sophisticated, multi-national companies. It is those firms that lead the way in innovations in product packaging, cylinder filling and motor fuel consumption, he said.

Bissell says the industry’s immediate agenda should include the following:

• Improved safety performance. Surveys consistently show that customers still question propane’s safety. Our industry has too many employee injuries, and spends too much money addressing accidents.
  Safety improvements will be tough to implement if the industry cannot identify the magnitude and sources of the problems nationwide. To date, it has no comprehensive data to assess its needs and drive solutions.
  “We desperately need credible safety statistics. It’s something we’ve been working on for five years without any real progress,” Bissell said.
• Supply dependability. The inability to get propane to our customers during the peak winter months clearly points to inadequate pipelines, storage facilities and transportation systems. Supply reliability is critical to grow our markets and help curtail price spikes.
• Reduce price volatility. Propane customers consistently complain about the uncertainty of propane’s price. Yet in the last two years, peak retail prices have jumped 91 percent. Alliances between propane marketers and producers must be formed to lock prices for customers without jeopardizing retail operations.
• Customer visibility. Consumers still don’t grasp all the benefits offered by propane, and many think of the industry as a stodgy, unsafe business overall. We need to aggressively reach out to prospective customers who are bombarded with sophisticated marketing tools from competing energy sources.
• Innovation. Bissell maintains that our industry is on the cusp of potential game-changing discoveries that can swing the evolving energy picture.Although its impact may yet be five years away, distributive generation (fuel cells) could be the best opportunity to grow our volumes and decrease our reliance on the weather. Forming alliances with researchers and manufacturers now is vital to position the propane industry as the ideal fuel source to operate those units.
  “We need to get aggressive to show the RECs that if they sell propane, we will sell electricity,” he said.
  The standard use of remote tank reading equipment should eliminate run-outs and decrease deliveries by as much as one-third.
  The Internet will not transform the industry as once predicted. But it will allow businesses to streamline functions such as billing, purchasing, accounts payable and customer service in ways that will increase profitability.
• Aggressive defense. Lastly, Bissell told attendees that the industry needs to recognize that its market is under attack. The Rural Electric Cooperatives are big, powerful and can leverage advantages that will lower volumes and
  profit margins for propane marketers. Likewise, competing alternative fuels are working hard to claim as much of the promising motor fuel market as they can.

He urged marketers to work together through the National Propane Gas Association, the Propane Vehicle Council, the Coalition for Fair Competition in Rural Markets and the World LP Gas Association to provide the input and financial assistance needed to be effective.
“Working together through these organizations, we’ll win the battles and we’ll thrive on the game-changing discoveries that lie ahead,” he said.
Dan Myers, NPGA’s executive vice president , and Roy Willis, president of the Propane Education & Research Council, say they concur with Bissell’s agenda. Both noted that their respective organizations have taken bold steps to focus efforts on the industry’s toughest issues.

Myers said the association has made significant strides in the area of consumer and industry safety. Programs such as Gas Check, CTEP and Propane Emergencies have proven to be both well received and effective. The association also is working on a compliance handbook and is exploring the feasibility of starting a safety “seal of approval” program for marketers.

The association this year also launched two new task forces to address challenges in improving the infrastructure and guiding the development of a national energy policy. Both are designed to address long-term future needs, Myers said.

“We constantly have to ask ourselves, “What are we doing? Do we need to change it? Do we need to improve?”

In answer to those questions, NPGA has undergone significant changes in the last year. Three committees – Engine Power, Market Development and Research and Development – were disbanded. The association revised its mission statement and strategic goals, effectively abrogating some traditional duties to avoid duplication of efforts with PERC.

NPGA also is working hand-in-glove with PERC to promote the use of marketing materials using the slogan “Propane. Exceptional Energy” to marketers throughout the country.

Willis said the effort to uniformly “brand” propane to the general public is crucial for the industry to move forward in a united front. The materials are meant to supplement – not replace – the messages already being used by marketers, he said.

The materials are part of a $5.8 million nationwide PERC campaign aimed at changing the way consumers view propane. They include television, radio and print ads as well as logos that are available to everyone in the industry. The materials have proven to raise consumer awareness and their likelihood to buy propane in test markets conducted last year.

The campaign is critical because it enables the propane industry to define its image, rather than having it defined by the media or its competitors, Willis explained.

“If we don’t cast an improved image, we may go away just as General Motors’ oldest and most venerable automotive brand – Oldsmobile, that foundation of G.M. – is going away out of the market. Not because of the quality of the product; Oldsmobile is just as good as Ford or Chevrolet. It’s because the brand image died on the vine from lack of attention from General Motors,” Willis said.

In order for the campaign to succeed, Willis said every propane marketer must feel a sense of urgency to extend the message to the communities they service.

“If this is not a priority for you, or if you feel you can put this off for another year or so, then we won’t succeed.”