Is it possible to boost gross profit dollars even as fuel margins shrink to their lowest levels ever? The answer is yes, and savvy owners are doing just that even in the midst of heavy competition. Here’s how these owners, large and small, in both rural and metro markets have managed to increase their gross profit dollars despite lower per-gallon fuel margins.
Wholesalers have done it by:
Implementing service fees — Savvy owners are starting to charge fees for extra services such as same-day orders, dirt-road deliveries, special pump-offs, equipment installation at dealer locations, etc.
Cross-selling — The low-margin, fuel-only game can be countered with high margin specialty chemicals, lubes, spill kits, etc. Smart owners have taken the time to discover what products their customers buy regularly then proceeded to market them. Someone is making money from your customer, so it might as well be you.
Supplier price negotiation — Some owners are under the mistaken opinion that rack price is their only choice. This thinking is not only narrow, but also wrong. Most suppliers will negotiate price based upon volume commitments.
Changing suppliers — Many owners have found sweeter deals by changing major suppliers. This may go against your loyalty instincts, but if your long-time major is not giving you service and support, they may not deserve your continued business. At least nose around a little to see what deals are possible.
Adding unbranded — Owners who were completely branded have reconsidered their position and added unbranded fuels. Marketing unbranded product opens up new markets to you. Be aware, however, that unbranded pricing can also be volatile and majors with unbranded supply can also be fickle both with supply and pricing.
Buying out the competition — If your margins are eroding because of a single low-end competitor, consider buying the company. And don’t concern yourself with size. It’s not uncommon for owners to buy competitors two and three times larger in volume. Talk merger rather than buyout, and most owners will listen.
Hiring the competitor’s salesman — When you can’t buy the company, the next best thing may be to hire away. You’ll not only get sales horsepower, but you’ll also learn your competitor’s buying and pricing strategies.
Expanding geographically — Some owners have found they needed new customers to boost gross profit dollars, and those customers could only come through market expansion. Most frequently we see metro owners boosting gross profit dollars and margin by reaching out into more rural areas with less competition.
Now on to the retail side of the house. Savvy retailers have done it by:
Diligent, ongoing inside margin management — Through sophisticated software, savvy owners are optimizing mark-ups, finding the exact price-point that provides the highest dollar return. This is not always the highest price, nor does the lowest price insure big turns. To truly optimize gross profit, you need item-by-item price management capability that comes with scanning, not just category management.
Marketing savvy extraordinaire — Starting with target customers, to what gets that customer in the door, to store design, to plan-o-grams to in-store promotions; high gross profit retailers understand the marketing game. You won’t find these guys copy-catting the big boys. They create the ideal gross profit environment through innovation and customer research coupled with lots of common sense.
Supplier negotiation and management — The most successful store chains have a professional buyer who formerly worked for a supplier. These folks more than earn their keep. They are constantly working volume, rebate and promotion deals that boost gross profit dollars.
Ancillary profit centers — Savvy owners are finding unique ways to make money, including renting out parts of their stores to other entrepreneurs for a percentage of sales or profits. Others are adding new services you wouldn’t expect, generating new customers and profits. Get creative if you want to drive up gross profits!
Inventory management — From less shrink to higher turn rates, savvy owners have made inventory management into an art form through efficient product procedures. They start with the right stuff, in the right amount, tracked properly with theft deterrence procedures. Easy to say, but hard to do, this takes complete management commitment and focus.
In summary, falling fuel margins do not need to equal lower gross profits. owners who sit back and hope that margins will get better will go broke. To make your company thrive as fuel margins plummet, find ways to boost your gross profit dollars—new customers, new products, new territories, competitor buyouts, and jazzy marketing. When you think about it, isn’t it exciting?