Sales of diesel cars are up 25% through the first six months of this year, more than six times that of overall auto sales, which were up 4%, according to the Diesel Technology Forum, Frederick, Md.
Of course, percentages are deceiving, especially when starting at a relatively modest base. Yet the landscape of the automobile is changing. What have perhaps been slower to evolve are forecourts, which by and large continue to provide the three traditional blends of gasoline: regular, midgrade and premium.
But drive around much of the country and you’ll see that, slowly, something is changing.
“We are going to lose market share on gasoline at some point, but diesel is a market that’s going to grow in the next few years as small trucks and cars are starting to flip over to diesel,” says Kevin Cashdollar, retail fuel manager for NOCO Express, Tonawanda, N.Y.
NOCO has had diesel at its stations since the 1980s but recently started ramping up installation of diesel tanks and dispensers due to the impending Corporate Average Fuel Economy (CAFE) standards, which are forcing carmakers to manufacture cars with double their current fuel efficiency by 2025.
In 2008, Wawa, long positioned as a food retailer until the Pennsylvania-based company added gasoline in 1996, decided to add diesel to its lineup.
“We began offering gasoline saying we’d never do diesel because it’s the fuel of tractor trailers, which did not fit our target customer base,” says Norman Turiano, who in those days worked at Wawa as senior manager of fuel business development. Today, as principal of Turiano Strategic Consulting, Cape Coral, Fla., Turiano reflects on the early anti-diesel sentiment: “Apparently, that was a short- sighted decision, in retrospect.”
A New ‘Old’ Fuel
Once reserved for truckstops and travel centers, diesel is wending its way into convenience locations. From NOCO sites in upstate New York to Wawa and Dash-In across the Mid-Atlantic region, diesel is not only winning space, it’s also capturing featured placement across the forecourt.
Many retailers are adding diesel at ground-ups and remodeled sites, says John Eichberger, executive director of The Fuels Institute and vice president of government relations for NACS, Alexandria, Va.
Consumers are doing the math and buying efficient, diesel-powered cars, he says. Retailers who ignore this trend are sacrificing sales at the pump and inside the store.
“Diesel engines can produce up to 40% better fuel efficiency,” Eichberger says, “and with the new engines you can get better performance, better torque and power, and lower emissions.”
The Diesel Technology Forum projects that by 2015, there will be 30 to 40 new models of diesel engine vehicles in the United States. The U.S. Energy Information Administration (EIA) projects the number of diesel cars will increase by 349% by 2023, by that point representing nearly 2% of the total domestic auto market.
Aiding in diesel’s increased popularity is a dissipation of the awful rap it earned a generation ago. Following government mandates in 2007, the fuel has changed, cleaning up its act to put the smelly clouds of fumes behind us.
Now, 30% to 40% of NOCO Express locations offer diesel to their customers, and more are coming. Every time the 35-store retailer upgrades a tank or dispenser, it adds diesel. And once Wawa got started, it realized diesel wasn’t as difficult as it had imagined. Now more than 60% of the company’s locations carry diesel.
Phillips 66 has been serving diesel for years at its Phillips 66, Conoco and 76 sites. At its branded sites, the fuel constitutes 15% of fuel sales, says spokesman Dennis Nuss. Just more than half of these stores sell diesel, Nuss says, and all new builds are being equipped to dispense diesel through newer multiproduct dispensers.
These retailers are not alone. In 1999, the Environmental Protection Agency (EPA) found that 32% of all fueling stations had at least one diesel pump. More recently, the Diesel Technology Forum found in a study conducted two years ago that diesel was available at 52% of all gas stations.
“We’ve seen a dramatic uptick in the availability of diesel fuel in consumer-friendly places,” says Allen Schaeffer, executive director of the forum.
More retailers are doing the math and realizing the hard costs to add diesel are well worth the investment. NOCO Energy generally expects to see a return on its investment within five years. Once diesel is added to a site, it typically constitutes 5% of sales—and up to 10% at some locations.
CONTINUED: The Cost of Entry
The Cost of Entry
Installation costs vary by site. If there’s an available tank—usually created by emptying out one premium tank and then combining premium and regular gas for midgrade gasoline—the cost simply comes from new dispensers, which run $10,000 to $12,000, plus the cost of installation.
“But when we’re remodeling or rebuilding stores, it’s expensive to add tanks and lines, and the cost really racks up,” says Cashdollar of NOCO.
To replace an aboveground tank costs $30,000, but if you have to handle under - ground tanks and piping and put new islands in, it costs closer to $100,000 to $150,000, he says.
At NOCO Express sites that offer diesel, there’s typically one diesel tank, and half of the dispensers offer diesel as well as gasoline. (The other half are gas only.)
One benefit of NOCO Express’ diesel tanks: They don’t require the expensive fire-suppression systems that are mandated for gas and ethanol pumps in New York, where all of the NOCO Express stores are located. Those fire suppression systems typically cost $30,000 to $40,000 to install, plus $2,000 every six months for inspections; every five years, the cylinders need to be replaced, at a cost of $5,000 to $6,000.
The cost to retrofit Wawa’s sites varies from $100,000 to $300,000, depending on whether the company has to convert existing underground tanks for diesel or add underground storage tanks, Turiano says.
Typically, like NOCO Express, Wawa will convert one of its regular tanks to diesel. The higher costs come from changing the dispensers to be diesel-certified and converting the tank, which involves some minor repiping and flushing. Plus, work is often done on the parking lot to put in the lines for the new diesel dispenser.
“All in all, that $100,000 was attractive,” Turiano says, referring to his experience at Wawa. “The entry volume was low, and you didn’t need to have too much diesel initially to support the project. The return on investment was good.”
In terms of its dispensers, Wawa converts two of them to be multi-product, so a site with 16 positions has 12 for gas and four for gas plus diesel. And at its sites in New Jersey—where consumers are not allowed to pump their own gas but can pump their own diesel—it has maintained 12 positions for gas with attendants and converted four to self-service.
“The integration of all fuels into one fueling island is now the norm, and that’s significant,” says Schaeffer. “Fifteen or 20 years ago, the diesel pumps were separate and relegated to less accessible places on the service-station property or exposed to the weather. Now they’re as easy to access as the gas pumps.”
Changing Perceptions
Diesel isn’t an entirely rosy story, however: It’s more expensive than gas, and the cars that use it are at least $3,000 to $4,000 more expensive than their gas counterparts.
Yet consumers are figuring out the costs, and the EIA projects diesel consumption will increase 24% by 2040; at the same time, gas consumption will drop by 18%. The Department of Energy’s projections are even more dramatic: a 26% increase in volume for diesel and a 24% decrease for gas.
“I attribute it to marketing, because it had been marketed as noisy, smelly, a truck fuel,” says Eichberger of NACS. “Perceptions have changed.
“So retailers are very much investing in diesel because that’s where the immediate growth is,” Eichberger continues. “Diesel is the biggest growth opportunity in the next five to 10 years. It’s very easy to handle, very easy to sell.”
Also, diesel margins are better than gas margins. According to the Oil Price Information Service (OPIS), diesel margins for the week ending June 30 were 26.5 cents per gallon, while gas margins were 19.5 cents per gallon.
A survey by NACS reinforces diesel’s growing popularity. Late last year, 38% of respondents said they would be likely to consider a diesel car in the next decade—up from 31% just six months earlier.
“Diesel fuel is one of the most profitable fuels that convenience stores are selling today, and it will be tomorrow,” Schaeffer says. “With clean diesel cars likely to take 10% or more of the U.S. auto market in coming years, it’s too large of a movement to ignore.”
CONTINUED: Overcoming the Obstacles
Diesel by Design
Education surrounding diesel was a challenge for Wawa convenience stores. The primary obstacle was that municipalities believed it was still the high-sulfur fuel it had once been and that only truckers used it. So that was where most of the education began, says Norman Turiano, former senior manager of fuel business development for the Wawa, Pa.-based company and now principal of Turiano Strategic Consulting, Cape Coral, Fla.
To prove its dedication to not bringing in too much noisy traffic, Wawa even put up signs saying tractor-trailers couldn’t fill up on diesel at its pumps.
And once it had the diesel available, Wawa had to educate consumers in New Jersey that they could pump their own diesel (but not regular gasoline) “and we had to make design changes so they’d realize there was a different product with no attendant,” says Turiano. “We branded our diesel dispensers in a bold yellow instead of the red for gas, and the canopy over them was also yellow to differentiate.”
It took a year before sales for light-use vehicles took off, and it came down to a simple change: Wawa changed its pole signs to highlight regular gasoline and diesel instead of regular and premium gas.
The marketing of diesel is mostly done very subtly once retailers add it to their pumps, perhaps because, as Kevin Cashdollar, retail fuel manager for NOCO Express, Tonawanda, N.Y., says, “we find once consumers buy a diesel vehicle, they’ll know where to buy diesel.”
Because of that, NOCO Express hasn’t yet put a lot of effort into getting the word out about its diesel. It’s mentioned on its website and on its signs alongside the cost of regular gasoline.
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