Capitalizing on the Commercial Side

Building up a commercial customer base can yield benefits beyond the advantage of volume buying, including more preventive maintenance, more demand for parts, more labor ‘ more opportunities, in short, to generate invoices. But there are more challenges, too, fuel oil distributors said.

‘There’s a lot more involved in trying to pick up a commercial account than a residential account,” said Ray Scarfo, owner of Ranco Enterprises, Medford, Mass. Ranco sends mailings to potential commercial and residential accounts. Homeowners who are interested will call. ‘You may land it right on the phone,” Scarfo said of a residential account, though sometimes a visit to a homeowner’s residence may be required, to explain the services offered.

The process is more complicated when it comes to prospective commercial customers, which for many fuel oil distributors is a category that includes large-scale residential accounts ‘ apartment buildings and condominiums ‘ as well as office, commercial and industrial buildings.

Ranco serves a number of apartment buildings and condominiums, including some in the Beacon Hill and Back Bay neighborhoods of Boston. Those customers often have tenant or homeowner associations that, in turn, hire management companies to manage the property. Ranco targets the management companies with its marketing efforts.

‘If you can get involved with some management companies, you’ve got a good shot at picking up some commercial accounts,” Scarfo said.

The mailings that highlight Ranco’s services encourage potential customers to view the Ranco Web site, where a home page presents separate buttons for visitors, depending on whether they are interested in residential or commercial service.

If that prompts a call to Ranco from an apartment or condo association, or its management company, discussions and e-mail exchanges often follow. Even though the property might be managed by a management company, the residents’ association is often involved in the discussions.

‘With most of the commercial customers we’re usually talking to an association, where there are four or five or six people we have to discuss everything with,” Scarfo said. ‘You’ve got to try to sway five, six, maybe as many as ten people. It’s not like a homeowner you can sit with and talk to.”

A fuel oil company makes a considerable commitment when it takes on a typical commercial account. Because of the larger volume of fuel going through the equipment in, say, an apartment building, at least two and sometimes four preventive maintenance visits may be required annually, Scarfo said, in contrast to one visit annually to a single-family house.

In the case of a commercial customer heating exclusively with oil, there can be practical advantages for the fuel oil dealer: burner parts, for example, might be the same as those for residential customers, which can simplify inventory management and ordering.

But some commercial customers have systems that switch between natural gas and fuel oil, which requires mostly specified parts. ‘You have to make sure you know what you’re servicing,” Scarfo said. ‘You need to know the customer, and keep the right parts on hand, because if a commercial account goes down it’s usually 40 or 50 apartments. You want to make sure you can get them back online as quickly as possible.”

To that end, Ranco has arrangements with some of its suppliers for round-the-clock service.

‘If we have a major problem, we can call them ‘ even at one or two o’clock in the morning ‘ and meet them at the supply house to pick up what we need,” Scarfo said.

Ranco Enterprises has been in business for more than 20 years. About 15 years ago it diversified, installing and servicing gas heating equipment and doing conversions from oil heat to natural gas systems.

‘We had to diversify,” Scarfo said. ‘We jump in with both feet, try to handle everything.”

About five times in 2008, Scarfo succeeded in persuading commercial customers to choose a combination gas/oil heating system rather than one that would be exclusively gas.

‘The gas company was going to give them all this equipment,” he recalled, ‘and we persuaded them to do something different.”

How did Ranco Enterprises make the case?

‘We explained to them the pros and cons of both,” Scarfo said and suggested a combination gas/oil burner. ‘That’s what we’ve been doing the past couple of years.”

Scarfo emphasized that a combination setup could protect the customers from both oil price fluctuations and gas service interruptions. ‘If [oil] prices do climb and it’s more advantageous to switch over to gas, go to gas,” he told the customers. Conversely, if gas flow is interrupted the customers would be able to switch to oil and avoid a shutdown. Commercial customers can be more receptive to that argument than single-family homeowners, he said.

Scarfo also plays up the difference in energy content between fuel oil and natural gas. A gallon of heating oil produces 140,000 British thermal units (BTUs), while one therm of gas produces 100,000 BTUs. (A therm is approximately the energy equivalent of burning 100 cubic feet of natural gas.)

‘You get 40 percent more BTUs out of oil than natural gas,” Scarfo said. When the price of fuel oil is high, customers who have the choice are better off burning gas. ‘Now this year it’s more advantageous to stay on oil because the price is so low.”

That highlights the advantage of fuel oil to commercial accounts, which use a much higher volume of fuel oil and typically get a lower per-gallon price than residential customers. ‘You can persuade them to stay on oil this year” more easily than a year ago, Scarfo observed.

Urging commercial customers to carefully scrutinize their gas bills is another effective tactic. Scarfo said he tells commercial customers that they’ve got to take into consideration fees, or charges, besides what they are paying per therm. ‘They need to work out the figures to see what they are actually paying per therm,” he said.

Another useful role for an oil company is to become more than a supplier, to become an ally of commercial customers.

‘Our goal is to become a business partner to them and help them manage their fuel oil needs,” said Chris Dimovski, commercial fuels manager for Hop Energy’s five Connecticut branches, which include Automatic TLC in East Hartford and Connecticut Refining Co. (CRC) in North Haven. (Hop Energy’s main office is in White Plains, N.Y.; besides Connecticut, it operates in Massachusetts, New Jersey, New York, Pennsylvania, and in parts of Delaware.)

By becoming ‘energy managers” for commercial customers, Hop Energy can differentiate itself from competitors, Dimovski said.

‘It’s no longer simply, ‘Here’s your price for fuel see you next year when you have a new contract,'” Dimovski said.

In his dealings with commercial accounts and commercial prospects in Connecticut, the debate over the merits of heating oil versus natural gas doesn’t come up a lot, Dimovski said. Much of his focus is instead on acting as a source of information about the oil market, and its potential effect on heating oil.

‘After what we saw the market do this past year ‘ and it’s obviously still in a lot of turmoil right now ‘ a lot of people decided they wanted to go ahead and fix their pricing,” Dimovski said, which means he spends a considerable amount of time keeping them in the know.

‘We don’t have a crystal ball, but we can tell people what the market’s doing currently, things that are happening. 

‘Today, for example,” ‘ Dimovski was speaking in mid-December ‘ ‘we know that OPEC is meeting to make a production cut. So that could very well drive up the price of the barrel again. It’s my job to let people know that if they’re still considering fixed pricing. I don’t ever tell them what they should do. I tell them what the market’s doing and allow them to make the decision.”

Acting as the conveyor of such information has become an important part of his role over the past 18 months or so, as the market showed continued volatility.

‘There used to be a time here when if the market moved a dollar in a day, that was considered a big movement,” Dimovski said. ‘We see dollar movements in the market within minutes now.”

Being a partner extends to installing and servicing oil and gas equipment. ‘We service everything,” he said, noting that the direction of those activities is handled by Rich Hyland and Reggie Duby, the general manager and service manager, respectively, of Automatic TLC and CRC.

The marketing approach includes e-mail, surfing the Internet for prospects, regular mailings, print advertising and a call center to reach out to businesses. ‘The days of strictly being a salesperson, going out door-to-door, doesn’t quite do it anymore,” Dimovski said. ‘You need to be in a lot of different media channels.”

Allan Cohn said most of the accounts that his company, Cohler Fuel Oil in Brooklyn, N.Y., serves have come through referrals. The company serves a mix of approximately 1,000 residential and commercial customers, and operates four delivery trucks. The commercial customers are mostly apartment buildings consisting of up to 50 or so dwellings, along with some warehouses.

‘What I find brings in business, in general, is lousy service from their current suppliers,” Cohn said, citing a litany of offenses: ‘Lack of experienced mechanics, lazy mechanics, stuff as stupid as wrong pump pressures, wrong nozzles, wrong assembly fittings, over-fired, under-fired, not enough draft, no tune-up, no maintenance.

‘It’s always the same stupidity that brings us business,” he said.

Apart from poor performance by others prompting disgruntled customers to seek an alternative supplier, Cohn said his company’s listing in the telephone book, a modest Internet effort and word-of-mouth from friends of his who are in related trades all contribute to building up new business.