Some companies with long histories in the fuel oil business eventually expanded into propane distribution ‘ and vice versa. Today, offering both fuel oil and propane service can benefit the bottom line, according to some suppliers.
‘People perceive us more as energy experts than suppliers of one particular product,” said Chris Keyser of Owner Services, Proctor, Vt., whose company supplies heating oil and propane, among other fuels, as well as heating, plumbing and air conditioning equipment and services. ‘For that reason, potential customers don’t view the company as having a vested interest in promoting one fuel over the other. We can be consultative sellers. In this market, that works much better than a hard sell.”
FON takes a look at some companies that have made the move to provide diversified fuel sales.
Owner Services is a corporate holding company that acquired other companies over the years and retained them as separate units, with their original names, for marketing and customer service purposes; other functions, such as bookkeeping have been centralized.
Companies like Owner Services and others that have made acquisitions over the years tend to have developed into multi-faceted operations.
For example, there are five separately named entities under which Owner Services markets its products and services. Two of the largest entities have been combined in one office; each of the other three units has its own office location. ‘It’s a little difficult to market but we use common colors, same themes,” Keyser said.
One of the units has been doing business in Vermont for 150 years under the name Bixby’s, Keyser noted, so when he acquired it in 1982 he didn’t change the name because it had brand equity. Another such case is Proctor Coal, whose roots in Proctor, Vt., go back to the 1920s, when it was strictly a coal company. ‘Now if you call Proctor Coal you can get an air conditioning quote, order B5 delivered, and apply for a credit card for unattended fueling sites,” Keyser said.
By maintaining four local offices, Owner Services is maintaining personal contact with customers, Keyser pointed out. A customer entering one of the offices is greeted by a customer service representative stationed at the front desk; there the employee can consult a computer for information, schedule an oil delivery or a service tune-up, or take a credit application and forward it to the credit control department.
‘The idea is that customer service is driven down to the local level,” Keyser said, ‘whereas corporate services like cash control and accounts payable are centralized. We don’t want to eviscerate our customer service. If we put our customer service people in some city somewhere else where they’re just looking at a screen it destroys customer service.”
Owner Services has close to 30 employees, some with many years with the company, Keyser said. The veterans are an important resource, contributing to both institutional memory and providing valuable on-the-job training to newcomers.
There is some specialization within the company, Keyser said. ‘We’ve got people that are good at bookkeeping and not good at working with people.” He chuckled as he added, ‘Hopefully you know that and put them in the right spot.”
Owner Services studied the propane business for three years, devised a business plan, and trained employees before beginning to market propane to its existing base of heating oil customers in 1992.
As part of the study of the potential propane market, drivers were assigned to collect information about each customer they delivered fuel oil to: this included whether the customer already had a propane tank and, if so, its size and who the current propane supplier was.
‘I was after customers who used heating oil for primary energy and propane for other purposes such as heating water and for ‘light’ space heating,” Keyser said. Once those potential customers were identified ‘ ‘We found that over 20 percent of our customers had existing propane tanks,” he said. His company then conducted a direct mail campaign to sign them up.
Keyser knew that he would have to be mindful of economy of scale when it came to deliveries ‘ that is, if tanks tended to be too small the result would be an escalation in the number of delivery trucks and employees needed, and that would drive up operating costs.
In the Northeast the customer’s tank is typically owned by the propane supplier, and this is considered an advantage to the supplier, Keyser noted, because it’s assumed this gives the supplier a ‘lock” on the customer. But that approach also means that the supplier is making a capital investment in each customer’s site ‘ anathema to an operator who aims for the smallest capital expense.
In the Midwest propane market, by contrast, customers often own the tank or rent it from the propane supplier.
‘We decided to take the Midwestern model and apply it to what were doing,” Keyser said. ‘Most of our retail customers rented their tank from us and that’s a monthly cash flow item. We used that monthly cash flow to lease the tanks from tank manufacturers, and that allowed us to expand more quickly.
‘We gave discounts to encourage people to get larger tanks and decrease our operating expenses,” Keyser added. ‘That is typical in the retail market.”
Even though the propane side of the business is now well established, Keyser said he still likes it when a customer chooses to rent a tank because it generates cash flow. Selling the tank to the customer is a close second choice. ‘We sell about one-third of the tanks we install,” he said.
Doubters might argue that selling the tank to the customer frees the customer to go to any supplier. ‘That’s absolutely true,” Keyser said. ‘But if we’re not doing good by them we shouldn’t be working for them. Why should we hold them hostage? That seems like such an adversarial type of relationship. I’m a really nice guy. I don’t want to get in a fight with anybody.”
Palmer Gas & Ermer Oil
Bill Ermer, owner and president of Palmer Gas & Ermer Oil, Atkinson, N.H., ventured into the heating oil business in the early 1980s, though it wasn’t new to him; his father had started an oil business in the 1930s, and others in his family have always delivered heating oil. Today, Palmer Gas has approximately 15,000 to 16,000 propane accounts, and Ermer Oil, a division of Palmer Gas, has a bit more than 3,000 heating oil customers, Ermer said. The company delivers in New Hampshire and northern Massachusetts. Some of the customers buy both oil and propane.
The company, which has about a dozen service technicians who have been cross-trained in heating oil and propane service, operates approximately 18 propane trucks, and six heating oil trucks.
Propane customers include residents of former summer cottages that have been winterized for year-round occupation. They use propane to heat their homes, for hot water and for cooking.
Asked about his marketing methods, Ermer said, ‘Usually, it’s a lot of word of mouth. People come to us because of our service. It’s not so much we’re putting one fuel against the other, because people have their own preference. We’ll let the customer decide.”
In new houses, Ermer said, ‘The builders today in our area are going with propane more than oil. I think it’s less cost for them to put in the propane system than the oil.”
The company owns the propane tanks rather than selling them to homeowners. ‘If the homeowner owns the tank he would have the responsibility for making sure it’s up to code, and it’s painted,” Ermer said. ‘There is a lot of maintenance that needs to be done over the years and the typical homeowner isn’t going to do it. I prefer us to be in control of that, from a safety standpoint.”
When DOT tanks are due for re-testing they are sent to a company in Canada where they are inspected, refurbished and painted. ‘Then they’re good for another 12 years,” Ermer said.
Although outsourcing the re-testing incurs an expense, Charlie Ermer, the delivery supervisor (and Bill Ermer’s son) said that a side benefit is clean, good-looking tanks that enhance the company’s image.
The company, which serves as a through-put for other delivery companies, is building a second plant, scheduled to open in Raymond, N.H. this summer. It will have four 30,000-gallon propane tanks and storage for 50,000 gallons of heating oil, said Charlie Ermer. The expansion will bring the company’s total propane capacity to 300,000 gallons and its total heating oil capacity to 150,000 gallons.
Buckley Heating & Cooling, Wakefield, R.I.
Buckley Heating & Cooling, Wakefield, R.I., is owned and operated by Jeff Buckley, whose family has a long history in the fuel oil business. Buckley said he represents the third generation of his family in the fuel oil business. ‘My grandfather got into it in 1919,” he said.
In the late 1990s Buckley expanded into propane. He had acquired a company in southern Rhode Island that maintained a 200-gallon propane tank for local residents to fill the tanks on their barbecues. Those customers repeatedly asked Buckley whether he delivered, and eventually Buckley sent a survey to 1,000 households with the heading ‘A request and a reward.”
The request was for information about the respondents’ propane use, and the reward was a phone card with 30 minutes’ worth of calling time. About 100 completed surveys came back. ‘Overwhelmingly they said, ‘Get into propane,'” Buckley recalled. The respondents complained that national companies delivering propane often took days to respond to delivery requests, and during that time customers were unable to use their stoves.
‘So we started,” Buckley said, ‘by buying a used truck in 1999 for $15,000, and a truckload of propane tanks. I hired a service technician from one of the national companies so we would know what the heck we were doing. And as of today we’re at 1.3 million gallons of propane per year, with about 3,700 tanks in the field.” That is a complement to his heating oil volume, which he said is almost 7 million gallons annually.
Buckley noted the propane customers include residential, commercial, and restaurant locations. The company now has four service technicians, each hired away from a national propane company. Two years ago Buckley had two 30,000-gallon propane storage tanks installed at his base in Wakefield, which also has storage for 120,000 gallons of fuel oil.