It’s no surprise that Kum & Go LC decided to sell E15, the 15% ethanol blend that is slowly inching into the retail fuel infrastructure. This is, after all, a retailer that was among the first to offer E10—the ubiquitous 10% blend—back in the 1970s, and then embraced the 85% ethanol blend E85 in the late 1990s. And many of the 11 states in which the 430-store chain does business are located in Corn Country.
But beyond its agricultural roots, Kum & Go, West Des Moines, Iowa, also clearly has a long-term fuel vision at work, one that emphasizes the company tagline—“Where & Means More”—and the promise of value.
“We feel that E15 is a natural addition to our fuel offering,” says Jim Pirolli, Kum & Go’s vice president of fuels, who joined the company in January after a career in agricultural processing. “It offers the sustainability component that aligns with our company strategy and also aligns with our strategy to offer customers a great value and great quality product.”
Another fuel that Kum & Go is folding into its fuel strategy is compressed natural gas (CNG), which made its debut in June in Arkansas. Here again, the fuel’s value and quality appeal—it sells at a considerable discount to diesel and addresses many fleets’ sustainability goals—made it a good fit for the retailer and its customers. Combined with conventional gasoline, diesel and biodiesel, E15 and CNG are helping Kum & Go perfect its fuel portfolio.
This burst of activity takes place against the backdrop of short-term low gasoline prices, long-term flattening gasoline demand, and an all-out effort by the government and ethanol industry to diversify the fuel infrastructure.
Right Product, Right Markets
Kum & Go’s decision to add E15 to 65 sites in the next two years—the first location opened in Windsor Heights, Iowa, in April—was itself a deliberative, two-year process. This follows its success with E85, which is available at more than 160 locations.
“This isn’t something that happened overnight; this is a project we’ve been considering and working on for quite a while,” Pirolli says. “The E15 launch was a culmination of a lot of work done internally and with groups outside K&G that supported our efforts.”
The chain’s biggest challenge was to get a firm grasp on E15 regulations. The Environmental Protection Agency (EPA) has approved E15’s use in vehicle model years 2001 and newer, but not in older vehicles or small engines such as motorcycles and marine engines.
As such, there are very specific pump labeling requirements, not to mention a swirl of anti-E15 public relations campaigns from oil industry, motorcycle and boating groups.
These drum up the danger of misfueling, perhaps one of retailers’ greatest concerns related to offering E15. As such, Kum & Go has been judicious with its introduction of E15. “We are 110% compliant in everything we do around flex fuels, from labeling to the equipment we use, and ... following misfueling mitigation plans, and trying to offer the right product portfolio in the right markets,” says Pirolli. Kum & Go is introducing E15 to stores in Iowa, Nebraska, Arkansas, Colorado, Missouri, Oklahoma and South Dakota. As a component of this rollout, it is emphasizing education.
“We definitely encourage folks to ask questions, pay attention to what manufacturers of their cars suggest, [and] how warranties read for their cars,” he says.
There is also a value appeal to E15. Ethanol is trading at a big discount vs. gasoline, and the retail price difference between E10 and E15 can range from 5 to 10 cents per gallon (CPG). The loss in fuel economy, meanwhile, is negligible. “That could really be a good driver, to be able to save $1 or $2 per fill-up,” Pirolli says. “The more stores that are offering it, the better off everyone is. Consumers definitely are.”
If E15 sales are strong at the more than five dozen Kum & Go sites that will offer the fuel, then probably more will join them, he says: “We can wind up with 80 to 100.”
CONTINUED: Ethanol 'Value Capture'
Ethanol 'Value Capture'
Ethanol blends have an economic upside for retailers such as Kum & Go in selling Renewable Identification Numbers (RINs)—the numbers the EPA uses to track biofuels gallons that producers are required to blend into motor fuel to be in compliance with the Renewable Fuel Standard (RFS). Blenders such as Kum & Go receive RINs for each gallon of ethanol blend they produce, and they can sell them to refiners who need to meet RFS obligations. When RIN prices are trading high—such as before the EPA’s recent announcement of proposed RFS blending volumes—blenders can make a tidy sum. When they are trading low, blenders accrue them until fortunes change.
That said, RINs alone do not drive Kum & Go’s ethanol engine. “For us, it’s not really a RIN play. It’s more of an overall value capture,” says Pirolli. While offering higher ethanol blends contributes to RIN requirements, it serves other purposes for Kum & Go, including providing cost savings for customers.
For a product such as E85, the economic effect on price is an even bigger factor. When ethanol prices are down, retailers have more flexibility in pricing E85 competitively.
“Over the winter, when the price differential was really narrow between ethanol and gas, that didn’t provide enough incentive. E85 sales decreased and people switched to E10,” Pirolli says. “Since the differential widened back out between E85 and street-grade product, E85 sales ramped back up dramatically.”
Another factor that drives E85 demand, says Pirolli, is education. “We see a difference in markets where there have been consistent, long-term education campaigns around flex fuels and ethanol, compared to those without as much education and promotion as in the past,” he says. This summer, Kum & Go is partnering with ethanol advocacy groups on E85 promotions in Iowa, Nebraska, Colorado and a few other markets with the goal of driving awareness of the environmental and economic benefits of ethanol, “but also the value different blends bring consumers,” he says.
A Swing at CNG
Kum & Go knows its way around ethanol. But this spring, the chain entered into a completely new world: CNG.
The alternative fuel debuted at a site in Springdale, Ark., in June. Kum & Go chose the site because it sits near a growing, high-volume traffic corridor in northwest Arkansas, and because of interest from local fleets. It also received a $400,000 rebate from the Arkansas Economic Development Commission’s Energy Office for installing the equipment.
While Kum & Go is an old hand at ethanol, tapping multiple sources and buying at the terminal, preblended into gasoline or straight at the rack, it took a much more straightforward approach to CNG. For the Springdale location, the chain has a supply agreement with the local natural-gas utility, while another company—Wooten Equipment and Preferred Service CNG LLC—maintains the equipment. This includes two high-capacity compressors, an 481-gasoline-gallon-equivalent (GGE) storage tank, and two high-flow and one slow-fill dispenser.
But from the customer’s perspective, Kum & Go is clearly the retailer, providing its logo and signature red-and-yellow coloring to the dispensers and handling the sales transaction. The anchor tenants include the town’s gas and water utilities. Some local businesses with sustainability initiatives have also pledged to send CNG business Kum & Go’s way. And the price differential—diesel at $2.59 per gallon and CNG at $1.59 per GGE, at press time—will be a big economic driver.
So does this mean Kum & Go is officially in the CNG business? Or is this a test? It’s a little of both, Pirolli says.
“It’s a test in the sense that we really are interested to see what the uptake is longer term, but we’re dedicated to doing it,” he says. CNG is a much different animal from ethanol blends, and Kum & Go wants to learn as much as possible from the fuel before expanding. A second potential Springdale site is in mind, but it’s not in the works.
“This was a big project,” Pirolli says, and Kum & Go hopes to learn from its choices: the dispenser layout, storage and compression capacity, etc.
“We don’t want to commit to another until we fully understand and learn from the first one. We worked with several customers and used their input throughout the design process. Now that the terminal is in operation, the feedback has been very positive.” he says. “We are focused on making our first CNG venture as successful as possible.”
Kum & Go introduced CNG at the above site in Springdale, Ark., in June.
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