Retailer strategies for future harsh winters

May 13, 2014 By    

A January blizzard is in full effect, bringing 2 feet of snow, sub-zero temperatures and wind chills that can be felt to your bones.

Winter supply issues

Unfortunately for propane retailers, no single solution exists to solve propane supply challenges. But answers can be found in a combination of areas and strategies.

The snowstorm motivates propane customers – fearing the loss of home heating – to venture into the cold and check the level of propane in their tanks.

Many customers are shocked by their discovery – a tank hovering around 5 percent full. They’re panicked, so they race back inside to call their propane retailer and demand an immediate delivery.

“All of a sudden you get 100 or more calls like that, and you’re worn out,” says Joe Buschur, owner of McMahan’s Bottle Gas in the Dayton, Ohio, area. “Customers need to be educated – No. 1 to watch their tank and No. 2 to get it filled in the summertime.”

A number of will-call customers own their own tanks, and a wise course of action would be for them to add a tank-monitoring device. But many will-call customers, by their very nature, are unwilling to spend extra money.

Still, many of these customers aren’t keeping a watchful eye on their propane use, and their lack of attention to the tank can cost propane retailers time and, ultimately, money during the most critical time of the year for their businesses.

“When they’re on 3 percent or 5 percent, you have to do a special leak test on the tank,” Buschur says. “So your drivers are spending half an hour instead of 10 minutes at those stops. In the wintertime, that’s huge when you get four, five or six of those per day.”

The problem is especially compounded during a winter like last year’s, when other problems continuously sprout and demand your attention – problems such as pinpointing supply sources and moving that supply from the place where it’s available to the place where it’s needed. Not an easy task when every propane retailer in a four-, five- or six-state region is trying to solve that same problem at the exact same time.

Unfortunately for propane retailers, no single solution exists to solve these supply challenges. But answers can be found in a combination of areas and strategies – some of which can benefit your business come next winter.

Summer-fill programs

One thing Buschur plans to do leading into next winter is educate his customers about the advantages of keeping their tanks full.

“We’re going to send out a newsletter in June,” he says. “We’re going to explain to them how [pricing and supply] works and that it isn’t always about buying gas the cheapest. I think we’ll have more customers interested in locking in the price, and that will help us somewhat.”

GasTec Enterprises Inc., a propane retailer based in Warminster, Pa., did something similar last winter when the industry was faced with its greatest supply challenges.

“We ordered tens of thousands of pamphlets that went out with our deliveries,” says Adam Shantzer, GasTec CFO. “We explained what was happening with their pricing.”

Summer fill is another option retailers will likely explore to ease their pain come winter.

Rick Roldan, president and CEO of the National Propane Gas Association, discussed summer fill as part of testimony he delivered to the House Energy and Power Subcommittee in March. Roldan suggested summer fill as a viable alternative that can offer consumers the benefit of lower offseason propane prices.

“One additional way to increase certainty of propane supply in the winter heating months is for customers to enroll in a budget plan with their marketer,” Roldan says. “This allows the costs of fuel to be spread over the entire year, making it more affordable than paying for a full tank all at once.”

Scott Imus, executive director of the Indiana Propane Gas Association, expects many of Indiana’s retailers to ramp up promotion of their summer-fill programs.

“I think marketers are planning to market those as sort of an insurance policy, as an out-of-control option,” Imus says. “I think all marketers have a [summer-fill] program. It’s good for the customers to get a little bit of piece of mind, and it’s good for the company because they’re getting some cash flow in the summertime.”

Plus, more filled tanks in the summer means less short filling tanks when supply is limited in the winter.

“Some members were short filling tanks so they could spread out the product,” Imus says. “They incurred more labor and transportation costs. Their overtime costs were much higher than expected. They wanted to make sure the customers were taken care of.”

Allocation exploration

Another option retailers could explore this year is allocation, which Heather Haldeman, business manager of Blue Flame Inc. in Berkeley Springs, W.Va., says was fundamental to her company’s ability to avoid much of the chaos that consumed the industry last winter.

“Allocation is critical because in order to have gas at a reasonable cost in the winter you have to be a commendable supplier and not buy off the rack,” Haldeman says.

Haldeman admits pulling summer gas over the last five years has not been profitable. In fact, she says gas has been more expensive for Blue Flame during the summer. But this last winter reminded Haldeman just how valuable allocation can be.

“If you didn’t have your allocation, you were scrambling for every load of gas you could find,” she says. “Even though allocation [ultimately] hasn’t paid – and we’ve paid up for gas, which means we’re not as competitive in the summer with some other dealers – to us it’s more important to be able to supply customers in a winter like this one. We plan for a bad winter whether it shows up or not.

“Part of the benefit is we like to be able to sleep at night,” Haldeman adds. “If you’re working off the bottom of your tank – ever – you’re not sleeping very well because you’re worried about where that next load is coming from and how you’re going to take care of your customers. We don’t want to pick and choose which customers we take care of. Our job is to worry about the propane.”

And during a winter like this last one, the cost savings of not having to transport propane across three or more states is significant.

“The freight charge can be 40 to 50 cents [per gallon] depending on how far you run,” Haldeman says. “There’s a cost associated with having storage and locations where you maintain bulk storage. There are companies that run just-in-time inventory and try to minimize their costs and undermine the rest of us who are trying to do it right.”

Other solutions

GasTec’s Shantzer offers another simple solution to avoid stumbling through another winter like this last one.

“The biggest thing is this: You don’t wait for the catastrophe to hit before you plan for it,” he says. “The snowball starts in the Midwest, and you kind of see a few things lining up with crop drying. Put a pin in the map at that point. Then, once the Midwest starts going in every direction – once you start pulling from two hours away versus from one hour away – the writing is on the wall.

“In the future, as soon as these things start happening, [retailers] have to start prioritizing,” Shantzer adds. “Make sure there’s product available closer to home so it frees up trucking and you can run a little farther away [to source propane]. When the trucking’s not available, you’re stuck waiting in line at the closest point because no one can get there and back to deliver.”

And once retailers get to the point where transport drivers are waiting endlessly in long lines for gas, they’re at the mercy of the weather and other entities, Shantzer says.

“See the scenario unfold,” he says. “Once history starts to repeat itself, retailers should be preparing and taking a step to prioritize propane on the pipeline a little bit more. If they had pushed propane into the Midwest a little bit more this last winter, it might have fixed things a little bit.”

About the Author:

Kevin Yanik is the senior editor of LP Gas Magazine. Contact him at kyanik@northcoastmedia.net or 216-706-3724.

2 Comments on "Retailer strategies for future harsh winters"

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  1. maurice jones says:

    The problem I have received is that when you contract propane, and the supply gets short the supplier is suddenly OUT of contract gas, but does have limited supply of rack fuel. In the San Luis Valley of Colorado, we often have -45F temps and a high of 0F. This some times requires blanketing tanks. You can just use your imagination as to the problems incurred. Build the allocation and do not be greedy about the summer price.
    Maurice Jones
    President, Jones Oil Company, Center CO 81125

  2. jlininger@clarindacoop.com says:

    If they wouldnt sell our propane overseas we would have all the gas we need . We the american people are at the lp co. mercy. they sell it overseas at a cheep price we have to pay the high price. all the gas companys are subsidised by the gov. in some way so the people in america should come first. this is what i believe .