LAS VEGAS -- In a volatile fuel market, a huge part of being successful is connecting retail the fuel supply chain. So said John Mello, president of U.S. fuels for BP.
It is so consistent what the retailers who are thriving in this environment are doing; I've seen it time and time again, he said during a well-attended NACS Show session Tuesday. And I can tell you, the difference between those who get it and those who don't is about 2 cents per gallon.
Melo spoke during a portion of the General Session titled CEO Presentation on [image-nocss] Retail Business Strategy.
After noting that he is uncomfortable making predictions about gasoline prices, Melo started his presentation by offering one forecast he didn't think would backfire on him. The future will be more volatile, not less, he said. And whatever the price [of gasoline] is, you can bet there's a lot in the price that is intangible, that is, hard to understand, hard to explain and hard to predict.
As such, Melo, a comfortable and affable speaker, offered some context for his prediction, suggested some strategy ideas for operating in such a volatile market, and, more than anything, stressed the importance of executing those strategies once in place.
Melo suggested that gasoline pricing is determined on two levels: the first, a global supply chain and the second, a local supply chain. He said retailers need to toss out the notion that a national U.S. supply chain exists. Suppliers in Indianapolis vs. Miami or other markets are different, he said. It's a different supply chain with different motivations and different ways of thinking.
Thus, Melo said retailers should think of supply sources as a portfolio approach, not a single supplier. This included weighing how much gasoline is branded vs. unbranded (He suggested a 70/30 ration) and purchased on contract vs. the spot market (He suggested an 80/20 ratio).
Melo then said retailers should develop a supplier portfolio, a number of sources from which to buy product depending on the market. While Melo said he's seen many retailers work with more than suppliers, he said most are doing so simply to avoid putting all their eggs in on basket. Instead, he said, the goal should be to get the best supply margin.
Your supplier should be able to sit down with you and say, Tell me where you're going to go, and I'll tell you what our terminal portfolio looks like in that market,' he said.
Finally, Melo encouraged retailers to review more than one gas price index to determine the right suppliers. Picking those right is hugely important, he said. Look at how those indexes have played out over the past two or three years and develop a supply strategy around that, he said. Use different contract termsso you're always balanced.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.