Time to refocus on the residential market

January 14, 2013 By    

Reversing the propane industry’s 25 percent gallon decline over the last 10-plus years is getting a lot of attention.

Many are pinning their hopes to the autogas market, but what about reversing the losses in residential? Since 2000, U.S. propane-heated households have declined 19 percent. In the 6.5-million water heater replacement market, electricity’s 43 percent market share is expected to grow. Where is propane’s response to the electric heat pump and geothermal units?

One reason for the residential market decline is that fewer marketers sell and service gas appliances, with estimates that less than 20 percent of propane marketers engage in this enterprise. This number is down 50 percent in the past 10 years.

Somewhere along the way, we got off track from what built the industry. Marketers during the industry’s growth periods understood that to grow gallons you first grew burner tips. Propane marketers sold and serviced appliances.

Myths and misunderstandings

If you ask 80-plus percent of propane marketers for the reason they do not sell or service appliances, they will give one of the following answers:

1. “Cannot make money selling appliances.” This position misses the point that selling appliances is first about growing propane burner tips and second about making a profit. Marketers who effectively manage their appliance business will earn a profit.

2. “Cannot compete with the big box stores.” The reality is big box stores do not market gas appliances. Big box stores rarely display gas appliances and carry the inventory. They do not educate their employees about gas products. As a result, the appliance consumer going to a big box store will buy an electric appliance without considering gas.

3. “My propane business does not go inside the home for liability reasons.” Imagine the customer’s impression about propane’s safety after hearing this comment from the supplier.

Propane marketers who do not sell appliances are logistics experts moving propane from the big tank to the small tank. Their growth focus is taking customers from their competitor.

On the other hand, the propane marketers who sell and service appliances advise consumers on the best appliance for their need. They have a passion for selling propane’s benefits versus electricity and fuel oil. They are positioned to serve customers when their appliance needs to be replaced or serviced. They grow the industry’s pie.

It’s easy to blame the Propane Education & Research Council (PERC) for the industry’s decline. In my opinion, this blame is misplaced. Recent PERC research found that taking customers from competitors is the top way to grow business. How can PERC help grow an industry that is self-focused?

Conclusion of the matter

To stop the industry’s bleeding in residential, more propane marketers need to sell and service appliances.

Propane burner tips must be installed in American households. We can’t count on anyone else to do this for us. HVAC contractors and plumbers won’t advocate gas appliances because their bias and incentive is toward electricity. Plus, electricity is easy and well accepted. Big box stores are not capable of selling gas appliances. That leaves us, the propane marketer, to work in collaboration with others to grow propane’s gallons in the residential market.

Our growth opportunities in the residential market will strengthen as a more abundant supply of domestically produced propane lowers costs to the consumer, making it more competitive to electricity. Propane’s competitive characteristics of a clean, American-made, versatile fuel, made possible by the appliance, will have increasing market appeal.

The marketers who are the propane experts will be positioned to capture market growth while increasing the industry pie. The marketers who remain the logistics experts will struggle by relying on growth from acquisitions and their competitors’ lost business.

Let’s hope for the sake of the industry that marketers who are the logistics experts expand their reach to become the propane expert. Then we will see the industry’s residential gallons grow if we get started now.

Randy Doyle is CFO of Blossman Gas in Ocean Springs, Miss. He can be reached at rdoyle@blossmangas.com.

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