Strategy

On demand fuel companies have earned my respect, because each one is building a logistics company from the ground up.

Marc Andreessen, in his famous 2011 WSJ article, “Why Software is Eating The World”, outlines his theory in which “software companies are poised to take over large swathes of the economy.” He points out that “Six decades into the computer revolution, four decades since the invention of the microprocessor, and two decades into the rise of the modern Internet, all the technology required to transform industries through software finally works and can be widely delivered at global scale.”

The Borders Mistake

Andreessen uses Borders as a prime example:

“Perhaps the single most dramatic example of this phenomenon of software eating a traditional business is the suicide of Borders and the corresponding rise of Amazon. In 2001, Borders agreed to hand over its online business to Amazon under the theory that online book sales were non strategic and unimportant…Oops…Today, the world’s largest bookseller, Amazon, is a software company – its core capability is its amazing software engine for selling virtually everything online, no retail stores necessary.”

Logistics

Andreessen touches on logistics too, “ Today’s leading real-world retailer Wal-Mart, uses software to power its logistics and distribution capabilities, which it has used to crush its competition. Likewise for FedEx, which is best thought of as a software network that happens to have trucks, planes and distribution hubs attached.”

Amazon started with Books; These companies are starting with Fuel

Ben Thompson astutely points out the changes in Amazon’s ambitions over time, “the company stated in its 1997 S-1, ‘Amazon.com’s objective is to be the leading online retailer of information-based products and services, with an initial focus on books.’ Even if you picked up on the fact that books were only step one (which most people at the time did not), it was hard to imagine just how all-encompassing Amazon.com would soon become; within a few years Amazon’s updated mission statement reflected the reality of the company’s e-commerce ambitions: ‘Our vision is to be earth’s most customer centric company; to build a place where people can come to find and discover anything they might want to buy online.’ A few years ago Amazon reduced its stated goal to just that first clause: ‘We seek to be the Earth’s most customer-centric company.’ (emphasis added)”

So what do these new on-demand fuel delivery companies have in common with Amazon? For starters, they are software companies at the core and they are earning customer trust one delivery at a time.

The logical path to grow these new companies is through market share and complimentary products such as windshield wipers and other auto parts. (As a side note, we’ve recently seen the acquisition of an auto parts supplier by a lubricants distributor.)

But what if the real value is in the logistics? These companies are tackling the same problem that Amazon is struggling to perfect – the last mile delivery. Think about this for a minute: Amazon has been rolling out locker delivery in markets since 2011. Many of these lockers are located in convenience stores by the way. If you don’t have something delivered to the office or home, where else would you have it delivered?

While it’s fun to sit around and think about what these startups may one day grow into, perhaps the more relevant issue is what the established companies in our industry might evolve into.

Evolution

At the end of the day, every oil jobber and fuel jobber is a logistics company that delivers a specific range of products.  Who’s to say those products won’t change over time? In fact, they already have in recent history. Since 2010 the gallons of DEF (Diesel Exhaust Fluid) delivered has been growing exponentially. That’s a product that didn’t exist in the market 10 years ago. I have even seen a company offering bagged mulch in the summer and salt in the winter. Heating oil companies often provide HVAC services as well as plumbing repair. It was before my time, but the predecessors of some of today’s oil companies used to deliver ice prior to refrigeration.

Consolidation in the industry is creating very large companies with sizable geographic (think national) footprints. These established companies have made significant investments in warehousing, transportation equipment, sales force, customer service, point of sale outlets (some own C-Stores)…and technology. There is enormous value in these distribution networks.

I’ve heard it said the smart man learns from his mistakes, and the wise man learns from the mistakes of others. Maybe it’s time to start thinking like Amazon.

This is the third article in the series. Read the previous article  Part 2 – “Déjà Vu All Over Again” or continue reading with Part 4 – “What does the future of on demand fuel delivery look like?”

On-Demand Fueling will succeed – because it already has. On-Demand Fueling is simply onsite mobile refueling 2.0. It is the natural progression of a business model developed many years ago. If you are wondering how long mobile refueling has been around, then look no further than Dan Abrams’(Chairman of Diesel Direct) personal history of the industry…

“My earliest recollection of mobile refueling dates back to 1952 when I was six years old. My Dad had a one truck heating oil business and he would park the truck at Mulherns Sunoco Station on Route 9 in Newton, Massachusetts. Parked next to my Dad’s truck was a fellow named John Casey, who owned and operated a dump truck. One day I noticed my Dad filling John’s fuel tank from his oil truck. That was my introduction to onsite mobile refueling.”

I’m not sure exactly when mobile fueling began, but it’s pretty safe to say it’s been around for at least half a century.

He goes on to outline the way fleets used to fuel their operations…

“Diesel powered trucks generally obtained their fuel primarily from three different sources. The first source was truck stops throughout America that catered to the over-the-road truck operators and fuel stations that carried diesel fuel at spotted locations across the country. Fuel card services sprung up to cater to these truck operators by stringing together diesel fuel sites where the cards would be accepted. The second source was underground tanks on site at a vehicle operator’s domicile. This method was primarily used for large fleets that could afford the investment of a fuel system that could typically accept bulk deliveries up to 10,000 gallons. The third option was to purchase fuel from a fleet operator’s truck leasing company. Regardless of the source, the common denominator was labor. It takes time to drive to a destination and refuel a vehicle.”

Note that last sentence. Sounds a lot like the situation today’s auto owners face, doesn’t it?

Abrams then discusses when the industry began experiencing significant growth…

“By 1997 many companies that delivered heating oil jumped into the fledgling industry of on site refueling. The industry gained traction around 2000 and expansion of the idea gained popularity across the nation. Companies that traditionally fueled at truck stops began to obtain more of their fuel from the mobile refueler. New companies sprung up that were dedicated just to this industry along with heating oil companies starting new divisions that could redeploy existing assets at night, that were used for delivering heating oil in the daytime”

Hmmm, “new companies sprung up dedicated just to this industry”?  Deja Vu all over again.

So what are these new on-demand fueling companies doing that is different? Simple – they are addressing a market that was previously ignored and deemed unprofitable due to its logistical challenges and inefficiencies. Can they overcome these hurdles and make money in the process?  My prediction is they will. Our industry has a long track record of using technology to its advantage. Just look at what’s happened in the last 5 years in the oil fields.

I think the real question is how the rest of the downstream sector will handle new entrants in the marketplace.

Dan goes on to conclude, “The market for on site refueling is growing up. It has certainly been through its adolescent period and is now an industry of consolidation. Technology, efficiency and best practices are making great strides to ensure that the cost effective fuel delivery method is a permanent part of the nation’s fuel distribution system.” Those words were written in 2012.

Well said.

What was your first experience with on-site refueling?

Note: All quotes appearing in this article were sourced from the OPIS Fleet Fueling Special Supplement, May 2012. Emphasis added (underlining).

This is the second article of the series.  You can read the previous article – Part 1 – It’s not about disruption, it’s about segmentation.  Or continue reading Part 3 – It’s not about the Fuel.

I’ve read several articles now about the new on-demand fuel companies that are popping up across the country. Recently, Doug Haugh had a good article that profiled 11 of these companies. The general feedback I hear mostly discounts these companies’ ability to upend the industry, and on that point I am in agreement.

However, there is no need for these companies to disrupt the industry to succeed. As Doug pointed out, the fuels industry in the US is over half a trillion dollars. How much of the pie do you need to be considered successful? This brings me to my point – many tend to think about new business ideas in terms of winner-take-all scenarios. I’m guilty too. So I tried to think of an analogy in the business world and pizza came to mind.

Papa John’s has over 4,700 establishments around the world, including around 3,500 in the U.S.  I think by anyone’s standards this company has been very successful. Was Papa John’s a disruptor to the pizza industry? For all the growth this company has enjoyed over the 33 years since the founder started with one location in Indiana, it’s only the 4th largest pizza chain in the US (Pizza Hut is #1 in case you are wondering).   Do you still have local pizzerias in your town? I can think of dozens of places to get pizza – including my local convenience store. I would argue that rather than being a disruptor, Papa Johns was a segmentor. They identified a segment of the market, customers that wanted pizza delivered to them and were willing to pay for it, and served it.

There will be customers that are willing to pay to have fuel delivered to them too. How large this market will be is anyone’s guess. But I think it might be bigger than most would imagine. Often times I hear the world “luxury” used with on-demand services.  Consider this: the average hourly earnings for employees in the US for May 2017 was $26.22, according to the Bureau of Labor and Statistics. Using that number we come up with a minute figure of $.43. Now, it doesn’t take long for those minutes to add up and equal dollars. I think most consumers are very rational and will spend their time and money the best way they can. Will they choose to use this service? Time will tell.

What do you think?

Continue reading…Part 2 – Déjà Vu All Over Again