The 2008 edition of the Fuel Oil News Sourcebook’s industry study is based upon an e-mail blast to over 5,000 members of our readership and was facilitated by an online answer process. As noted with each issue of the survey, there are no claims that this is an absolute, granular insight into every market and business model being practiced by industry members. Look on it, rather, as a general overview of a slice of the industry.
What this represents is a regional break down of each year’s group of respondents. Some respondents might be a smaller dealer operation and others, larger marketer supplier operations that offer some retail service. That mix will dynamically change each year, with some regions being more heavily represented by smaller operations, some by larger operations and some balanced. We comb through the data to eliminate failed survey responses and then look to provide a more median based average, where we eliminate the largest and smallest companies from the mix, since, in some cases, a particularly large respondent can dramatically skew the general results relative to the average Fuel Oil News reader.
With this approach we try to identify the general demographics of the regional respondents for casual benchmarking purposes in the text portion. One consistent factor is that all companies sell fuel oil to customers.
With tighter qualifications and requirements in the survey portion, we had fewer responses from last year, but still had a useful total of 147 responses. The tougher requirements generally provided more consistent responses to all questions. As is typically the case, and as is reflected in the industry footprint nationally, the responses were weighted more towards the Mid-Atlantic and New England regions, with a much lighter response from the Midwest, South and West.
One change this year is that we generally rounded up or down to a whole number, as the general and changing nature of the respondents and data from year to year make decimal level precision less critical for analysis purposes.
This year’s panel
Tables 1-3 outlined the general business models of this year’s respondents. According to Table 1, petroleum accounted for an average of 72% of their total income, which is in line with last year. However, while the results last year were fairly even, this year there was greater regional disparity with both New England and the South leading the pack.
Table 2 goes into greater detail on these sources of business income covering both specific petroleum products and other common industry services. The percentages reflect companies that reported these areas as primary or secondary sources of income (but not necessarily THE primary or secondary source of income).
Where primary sources of income are concerned, retail fuel oil sales average out at 61%; bulk fuel oil sales at 22%; retail gasoline at 17%; bulk gasoline at 16%; propane at 17%; heating equipment at 34% and air-conditioning at 23%. Generally, there was a stronger representation of propane among this year’s respondents, and while heating equipment was down as a primary source of income, it came in slightly ahead in total compared to 2007 when primary and secondary are combined.
Some 28% of respondents cited ‘other” sources of income as a primary or secondary source of income. These included mechanical contracting, c-store and QSR; plumbing; service contracts; lubricants; humidifiers, air cleaners, duct work installations; water treatment; diesel sales; natural gas storage; environmental services; and plumbing.
Table 3a covers the average size of the business by charting the average number of retail customers, commercial customers and employees. In general, these figures were slightly down from 2007 (more notably among commercial customers). Specifically, the New England figures suggest that significantly smaller dealer operations responded to the survey compared to last year.
Where the average volume of product distributed is concerned (Table 3b), we see a general reduction in all of the categories. As would be suggested by Table 3a, New England has a significant reduction in volume.
As was the case last year, the data suggests that respondents from both the Midwest and the South had a higher participation from higher-volume petroleum retailers (with even larger operations in the Midwest) that were also involved in fuel oil sales. This is reflected by the Table 2 data on HVAC as a source of business. That is the exact opposite of respondents from the West.
As with last year, there were insufficient respondents to provide accurate propane data for the Midwest and Western regions. However, there were notably larger propane volumes reported by dealers/marketers in New England and the Mid-Atlantic that were also reflected by increases in Table 3a, where primary and secondary sources of business are concerned.
Table 4 provides an overview of the respondents’ customer base. As is typically the case, the majority of the customers, 77%, were residential. New England, Mid-Atlantic and the West had retail customer statistics averaging approximately 85% while the Midwest and South came in much lower at an average of 65%. The only notable source of apartment business was the Mid-Atlantic. As with last year, the South and the Midwest led the way with commercial business.
Where annual company dollar revenue is concerned (Table 5), roughly 42% of the companies fell in the $1-5 million range with 70% of New England respondents in this category. Some 73% of all respondents had revenues under $10 million. Table 6, which covers pretax earnings, generally corresponds to annual company dollar revenues.
In summary, the New England, Mid-Atlantic and Western regions generally reflect companies that would be considered smaller and midsized fuel oil marketers and dealers (and a smaller scale than last year). The South and the Midwest in particular, reflect fuel oil marketers that are also heavily involved in petroleum retailing and marketing and are likely a bit larger than last year. There was more petroleum volume among respondents this year compared to last year.
Where computerization is concerned, there remains a surprising number of marketers and dealers that still do most if not all of their business tasks in the manual processes that were common before the 1980s. However, this year’s respondents are more tech savvy than last year’s with 86% (Table 7) using computerized data processing and a whopping 96% in New England.
Where specific applications are concerned (Table 8), accounts receivable (91%), general ledger (86%) and accounts payable (83%) were by far the heaviest used by respondents from all regions. As would be expected, word processing and payroll software saw heavy use. Few listed unique software that would support diversified operations.
Tanks and tank trucks
These are big-ticket, indispensable items for our core readership. In the core heating oil markets of New England and the Mid-Atlantic, the average number of trucks came out at 3 (Table 9). The other regions averaged over twice that. In the Midwest and South, that total included more Class 8 trucks reflecting bulk motor fuels delivery. Geography likely plays a role in the West with more Class 7 trucks combined with virtually no motor fuels business.
Dealers and marketers overwhelmingly used, and preferred to use, diesel engines although in the Midwest and West that was less apparent (Table 10). Where tanks are concerned, there was a clear preference for aluminum construction over steel’another continuation from 2007.
As to purchasing trends (Table 11), the average age of the oldest to newest trucks was fairly consistent throughout all regions, with 1991 being the purchase date for the oldest trucks and 2002 the date for the newest trucks. A total of 42% of respondents noted they would be buying an average of one new truck in the coming year, and 13% noted they would be buying approximately one new tank in the coming year.
Companies use a variety of methods to communicate with their drivers for dispatching, routing and service (Table 12). The use of cell phones was almost universal, coming in at 98%. Two way radios followed at 48%, and 23% used pagers. Digital dispatching systems that rely on PDA type hardware saw 17%, with the greatest penetration (as was the case in 2007) in the South where 26% of respondents used this technology.
Although the numbers are somewhat different, the sheer statistics again showed that the 275-gallon basement tank had a dominant position in the market at roughly 66%, 550-gallon underground tanks coming in at 26% and all other tanks around 8% (Table 13), with smaller basement tanks being far more popular in New England and the Mid-Atlantic and being least common in the Midwest and West. As with 2007, the West also saw the greatest percentage of customers using a variety of atypical tank sizes.
Operation of bulkplants
Some 51% of the respondents in this panel operated bulk plants (Table 14), with the majority of those being found in the South, Midwest and West. Some 60% of those operating bulkplants also stored other products, predominantly in the South, Midwest and West. The average storage capacity of No. 2 fuel oil (Table 15) was 142,800 gallons, with the greatest capacity being found in New England, Mid-Atlantic and the Midwest. The New England (in particular) and Mid-Atlantic numbers reflect the participation of some very larger fuel oil marketers. The Midwest and South likely reflect large multi-product petroleum marketers. An ‘average” ball park figure for a typical fuel oil dealer when removing the large suppliers might come in at 30,000 ‘ 40,000 gallons, according to most responses.
Roughly 63% of all respondents used additives (Table 16). The additives were blended in a variety of ways and typically multiple ways by each marketer or dealer. Blending in customer tanks and blending in trucks came in second at 49% each, while blending at the bulkplant came in at roughly 41%. The New England, Mid-Atlantic and Midwest reported the most blending, which should not be surprising given the climates.
To wrap up the purely oil side of the business, 33% of respondents reported working the futures market to seek advantage and cover risk (Table 17). This number was higher than in 2007. Regionally, the most activity was found in New England and the Mid-Atlantic regions.
Not every respondent was involved in the HVAC side of the industry, and it was generally seen as a lesser source of revenue (though perhaps not profits in the previous heating season) compared to oil sales. As a reminder, heating equipment was a primary revenue source for roughly 34% of our respondents, a secondary source of business for roughly 25% (Table 2), air conditioning was a primary source of business for nearly 23% of companies and a secondary source of business for nearly 21% of companies. However, the following questions are weighted to explicitly reflect the experience of those who are involved in that critical industry activity.
So, how did the industry fare in the past 12 months? According to our panelists, 62% enjoyed an increase in residential business and 53% enjoyed an increase in commercial business (Table 18). The residential business was slowest in the South, and the hottest in New England. On the commercial side, the South, Midwest and West were out in front, among our respondents.
Where the sale of residential equipment is concerned (Table 19/20), 100% of respondents sell oil burners, with strong business in boilers, furnaces, warm air systems and domestic hot water. Air conditioning was sold in the South and other seasonal climates. Gas burners and radiant electric heat were far less popular in all regions.
Service is a critical aspect of the industry and a key differentiator from competitors like natural gas. Roughly 59% of respondents have a service department (Table 22). New England, the Mid-Atlantic and West approached roughly 80%, while the South and the Midwest were particularly lower at 27% and 32%, respectively. Again, this is likely due to the broader petroleum marketing nature of respondents from these regions.
The average number of service calls was 887, with the most hectic pace in the West and Mid-Atlantic at 1,205 and 1,085, respectively. Both regions were staffed comparable for the need compared to other regions. The average value of the service inventory carried came out in 59008 in 2008 and the average number of technicians was 4.6 with fairly consistent results regionally except for the West where the average was 4. This was directly reflected in the number of service vehicles (Table 23), which also averaged out at roughly four, with seven found in the West. Some 47% of respondents noted they would be buying at least one new service vehicle in the near future.
The gas threat
It’s no secret that this industry has long faced a notable challenge from natural gas. Nearly 55% stated that they consider it a major threat and nearly 72% noted losing customers to gas during the previous year (Table 24). The average number of customers lost was 34. Compared to 2007 respondents, more lost customers, but they lost fewer customers.
Some 41% of respondents noted taking active efforts to combat the penetration of gas inside of their specific efforts:
· Noting oil is a cheaper and more efficient product.
· Provide direct mail and personal contact on the oil advantage.
· Customer education and loyalty incentives.
· One noted sending out PPMCSA flyers along with a newsletter containing reasons not to convert.