Fueling Growth: Keep On Trucking?
- Keywords:
“There are two ways to extend a business. Take inventory of what you’re good at and extend out from your skills. Or determine what your customers need and work backward, even if it requires learning new skills.”—Jeff Bezos
Wholesale distributors are an essential part of the oil and gas supply chain, and they will continue to be so for several years, as the mass adoption of alternative fuel vehicles is still quite a few years away. And with the supply chain having so many links in the middle, distributors have important decisions regarding how many links of that chain they want to occupy.
By definition, distributors will always be the ones selling the fuel to retail operators, but how should they grow their businesses? Should they expand their regional coverage? Or should they expand their downstream involvement and invest in transportation and logistics to also be the ones delivering the fuel?
There’s no one-size-fits-all answer. In our first piece on expansion, we discussed growing retail operations. There was one key takeaway that also applies to wholesalers: Be aware of how your growth plan will change the way your business operates.
Expanding Your Skills Into New Geographies
One way to grow is to take what you’re good at and do it over a broader area. While distributors are constantly looking to win new business within their coverage areas, they don’t have obvious gaps that can be filled in by buying a lot on a street corner as retail operators can.
Instead, distributors have a couple of different options for growing organically: 1) follow an existing customer to a new region, or 2) work to win new business within the current area. For example, crossing over state lines (or even just into different counties) may require adhering to new sets of rules and taxes and fuel management software that can easily track these differences. So there are challenges beyond just signing up a new client.
A wholesaler could also look to make an acquisition to increase their economies of scale. Again, wholesalers differ significantly from retailers because they’re not buying real estate that can be held in perpetuity. What are the supply contracts that you’re buying? How many years remain on the contract? There is significant value in those contracts, and they can impact a distributor’s sales multiple (as well as how much banks are willing to finance). The benefits of an acquisition include increased gallonage, potentially leading to better pricing or gaining new fuel brands that could also be brought to existing territories. When you acquire other wholesalers, your existing overhead costs could manage the new operations, improving margins in the process. Or if the acquisition brings new skills and lines of business, retaining the staff can aid in integrating these skills into your existing operations.
Bringing New Skills to the Table
Freight and delivery represent the last mile from the exploration fields to the customers’ vehicles. Though end-users rarely see who delivers the fuel, retailers appreciate a strong relationship—having a reliable partner delivering fuel supports consistent operations. (One dry day at the pump could have long-term impacts by changing consumer habits.) And because it’s an important part of the supply chain, there are profits to be made by delivering the fuel, whether for yourself or other wholesalers. Integrating operations could enable marketers to be price-competitive with other freight haulers while still boosting their bottom line. There are some key risks, though, including logistics, maintaining a trucking fleet and the ongoing competition for drivers. Ask yourself:
- How are you at handling logistics?
- If a truck breaks down, can you rely on your own fleet for backup vehicles to ensure you can still deliver on time?
- Can you retain drivers?
- Do you have the appropriate insurance to cover the unique risks?
Rising minimum wages create less-arduous jobs with paychecks comparable to truck driving, increasing competition for reliable drivers. The continued rise in wages can also eat into margins—do you have sufficient cash flows to support a truck fleet, including buying new vehicles and operating/maintaining the existing fleet? Each of these considerations requires experience to manage properly, and wholesalers can’t take that step without considerable thought.
Like retailers, any growth strategy would require funds to support the expansion, whether it’s additional working capital to support geographical expansion or term debt to support an acquisition. Remain thoughtful and proactive throughout the process. Be ready to explain to your team your integration plans and why this path is the right one. Finally, be able to show your capital providers—whether they’re the owners, business partners or your bank—that you can manage the growth.
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Doug Chinery
Fuel Services Relationship Manager
“There are two ways to extend a business. Take inventory of what you’re good at and extend out from your skills. Or determine what your customers need and work backward, even if it requires learning new skills.”—Jeff Bezos
Wholesale distributors are an essential part of the oil and gas supply chain, and they will continue to be so for several years, as the mass adoption of alternative fuel vehicles is still quite a few years away. And with the supply chain having so many links in the middle, distributors have important decisions regarding how many links of that chain they want to occupy.
By definition, distributors will always be the ones selling the fuel to retail operators, but how should they grow their businesses? Should they expand their regional coverage? Or should they expand their downstream involvement and invest in transportation and logistics to also be the ones delivering the fuel?
There’s no one-size-fits-all answer. In our first piece on expansion, we discussed growing retail operations. There was one key takeaway that also applies to wholesalers: Be aware of how your growth plan will change the way your business operates.
Expanding Your Skills Into New Geographies
One way to grow is to take what you’re good at and do it over a broader area. While distributors are constantly looking to win new business within their coverage areas, they don’t have obvious gaps that can be filled in by buying a lot on a street corner as retail operators can.
Instead, distributors have a couple of different options for growing organically: 1) follow an existing customer to a new region, or 2) work to win new business within the current area. For example, crossing over state lines (or even just into different counties) may require adhering to new sets of rules and taxes and fuel management software that can easily track these differences. So there are challenges beyond just signing up a new client.
A wholesaler could also look to make an acquisition to increase their economies of scale. Again, wholesalers differ significantly from retailers because they’re not buying real estate that can be held in perpetuity. What are the supply contracts that you’re buying? How many years remain on the contract? There is significant value in those contracts, and they can impact a distributor’s sales multiple (as well as how much banks are willing to finance). The benefits of an acquisition include increased gallonage, potentially leading to better pricing or gaining new fuel brands that could also be brought to existing territories. When you acquire other wholesalers, your existing overhead costs could manage the new operations, improving margins in the process. Or if the acquisition brings new skills and lines of business, retaining the staff can aid in integrating these skills into your existing operations.
Bringing New Skills to the Table
Freight and delivery represent the last mile from the exploration fields to the customers’ vehicles. Though end-users rarely see who delivers the fuel, retailers appreciate a strong relationship—having a reliable partner delivering fuel supports consistent operations. (One dry day at the pump could have long-term impacts by changing consumer habits.) And because it’s an important part of the supply chain, there are profits to be made by delivering the fuel, whether for yourself or other wholesalers. Integrating operations could enable marketers to be price-competitive with other freight haulers while still boosting their bottom line. There are some key risks, though, including logistics, maintaining a trucking fleet and the ongoing competition for drivers. Ask yourself:
- How are you at handling logistics?
- If a truck breaks down, can you rely on your own fleet for backup vehicles to ensure you can still deliver on time?
- Can you retain drivers?
- Do you have the appropriate insurance to cover the unique risks?
Rising minimum wages create less-arduous jobs with paychecks comparable to truck driving, increasing competition for reliable drivers. The continued rise in wages can also eat into margins—do you have sufficient cash flows to support a truck fleet, including buying new vehicles and operating/maintaining the existing fleet? Each of these considerations requires experience to manage properly, and wholesalers can’t take that step without considerable thought.
Like retailers, any growth strategy would require funds to support the expansion, whether it’s additional working capital to support geographical expansion or term debt to support an acquisition. Remain thoughtful and proactive throughout the process. Be ready to explain to your team your integration plans and why this path is the right one. Finally, be able to show your capital providers—whether they’re the owners, business partners or your bank—that you can manage the growth.
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