Turnaround tips for the propane industry

February 25, 2014 By and    

Have we hit bottom yet? Industry leaders must step forward to initiate our turnaround.

This sobering question about our future, posed above, needs to be asked after a report from the American Petroleum Institute showed propane sales at 7.7 billion gallons in 2012, reflecting a steady decline from 11.9 billion gallons in 2002.

As an industry, this 35 percent reduction since 2002 represents a loss in gallons equivalent to three AmeriGases. It’s fair to conclude that the industry has struggled to grow and retain our customer base.

The precipitous nature of our industry’s decline begs the question of whether we are going the way of the buggy whip. Has propane become an unviable and uncompetitive fuel for the markets we serve? The industry’s decline in gallons sold would suggest we have. Where will our industry be in 10 years if the decline rate does not stop?
Let’s get the most important answer out of the way – propane is not going the way of the buggy whip. Propane will always fill a niche need in the residential, commercial, agricultural and autogas markets. Propane is one of the finest fuels known to man.

However, we can look to external factors that have led to our decline: a bad economy, a downturn in the housing market, high supply costs, the Propane Education & Research Council’s (PERC) marketing restriction and user conservation. But external factors alone cannot be blamed for the decline in gallons. Our industry needs a turnaround. Here are some things we can act on that will help change our destiny:

Examine ourselves. Turnarounds always start with leadership’s candid assessment for the current situation. A revived vision focused on growth and customer retention by our industry’s top 200 leaders could begin to turn around the propane industry. Turnarounds always start at the top.

Grow burner tips. Even at today’s relatively higher prices, propane competes with electricity for most applications in the home. But few propane marketers are focused on adding burner tips, educating homeowners or working with homebuilders, plumbers and HVAC contractors to install propane rather than electric appliances. Our industry needs an accelerated PERC-led collaborative effort among propane marketers, distributors, manufacturers, the National Propane Gas Association, consultants and state associations to grow the residential and commercial markets. We need innovation that builds upon the gas-burning appliances that deliver propane’s benefits and education for the propane industry’s employees and markets about propane’s benefits. Finally, we need to develop the next generation of propane service technicians.

Grow sparkplugs. Where are the pundits from several years ago worried that a successful autogas market would create higher propane prices in the residential market? Autogas is the perfect year-round market that would encourage investment in propane supply infrastructure. Further, the lawn care and small engine markets are waiting for visionary and enterprising propane marketers to develop those opportunities. Enduring industries demonstrate the ability to develop new markets for their products. Propane should be no exception.

Industry consolidation, not contraction. Consolidation is a natural evolution for all industries, including propane. But acquisition economics plan for operating synergies. Translated, this means our industry loses valuable human capital in management, sales, and service technicians. It also means fewer stores, trucks and drivers to serve and grow our customer base. In the end, we have a smaller industry.

Overused propane margin lever. The U.S. Energy Information Administration reports that U.S. average residential propane margins per gallon (since the early 2000s) have more than doubled. The margin increase is needed to offset the gallon loss in order to cover the high fixed-cost structure of the propane business making propane less competitive and unaffordable.

Has the propane industry’s gallon decline hit bottom? Probably not – with the exception of the gallon increase resulting from this winter’s cold weather. Turnarounds are slow, but now is the time to start. The propane industry needs this current generation of leaders to have an entrepreneurial spirit focused on growth and customer retention.

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

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