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OPINIONFuels

The Next Evolution of Fuel Pricing

How automated pricing can deliver efficiency gains
Photograph: Shutterstock

ALPHARETTA, Ga. — Convenience retailers have come a long way from the days of managing fuel pricing based on static margins and a cursory check of their competitors’ posted per-gallon prices. Today, automated pricing tools—of varying sophistication—are available to every c-store operator, allowing them to more effectively balance attracting cost-conscious customers with earning the most profit per gallon possible.

Over the past decade, pricing strategies have evolved dramatically, and the pricing tools to execute them have advanced as well. As those tools have become more sophisticated and widely available, they’ve leveled the competitive playing field. So how can convenience retailers keep up with the pace of change in fuel-pricing technology and their competitors?

An Operation in Total

Automated fuel pricing can deliver efficiency gains across operations in addition to optimizing per-gallon pricing. While fuel margins increased last year by 7.5%, overall c-store industry gross profit has come in below direct-store operating expenses for three years running, reflecting a challenging operating environment. Given that c-stores sell an estimated 80% of all fuel in the U.S., getting fuel pricing right has an effect far beyond an operator’s raw margins on gasoline or diesel. It can mean the difference between attracting a fuel customer who then spends on higher-margin, in-store products, or losing out on that compound saleto a competitor down the road.

Alternatively, getting pricing wrong can mean pricing fuel so aggressively that it undercuts any profit earned on a convenience retailer’s core product. Understanding that intelligent fuel pricing affects the entire convenience retail operation is the first step toward achieving more profitability across all facets of the business.

However, simply knowing the importance of fuel pricing isn’t the same as embracing a solution. To do that, convenience retailers must weigh the variables associated with fuel pricing and choose the approach that makes best use of all data to present the optimal per-gallon price to customers.

Too often, convenience retailers don’t choose any technology tool at all. Instead, they manually manage and analyze data, tracking their historical sales figures and competitors’ prices in a spreadsheet, which results in a static, binary choice: pricing for volume or pricing for margin. At best, they can reactively set specific, data-driven businessrulesfor time-of-day pricing, seasonal pricing and event-based pricing, if they do so at all. And they don’t consider the effect of per-gallon pricing on in-store sales. Ultimately, it costs them significant man-hours to record, track and reconcile that data because they’re still using manual processes.

Connected Data

An effective fuel-pricing technology addresses each of these data-related issues in two significant ways: connecting to real-time external (competitor pricing indices, statistical models) and internal (back-office, point of sale) data sources and automating the price-setting process based on this combined data. As the number of data sources increase, the day-to-day pricing of a gallon of fuel becomes more optimal—but the complexity of the pricing process also increases. At this point, it may be impossible to achieve the “perfect” price of a gallon of fuel on a consistent basis using only manual methods.

Ultimately, convenience retailers will adopt the fuel-pricing strategy that’s right for them. Having the right technology in place will help consistently achieve optimal fuel pricing outcomes, regardless of the specific strategy. With an ever-increasing amount of data available, fuel pricing can no longer be a manual endeavor.

Convenience retailers should seek out technology partners that can help them balance fuel sales, volume and margin, applying both art and science to the practice of pricing, to attract more customers and maximize the profitability of their core product.

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