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29 September 2022

Using Data to Optimize Your Fuel Retail Business: A 5 Step Guide

We receive data from the moment we’re born, until the moment we die. As a fuel retailer, you probably generate a lot of it.

While having all this information is a blessing, it can feel like a curse, as extracting valuable insights and putting that knowledge to work is not easy.

We’ve created this framework to support you in optimizing your fuel retail business, whatever your specific aims and challenges.

This is about helping to put your data to work in whatever way matters most to you. At the time of writing, many of our customers are using similar processes to combat the effects of cost price volatility.

If you feel that you could be using your site data more effectively, but aren’t sure where to start, this is for you.

Step one: choosing a meaningful goal

Setting clear goals now will help to keep us focused as we start digging into the data. No one knows your business, its needs and difficulties, better than you, so start with a goal that’s appropriate for your own situation.

For now it’s best not to get too caught up in how you’re going to achieve this. So long as your goal feels achievable, desirable and relevant to your business.

To show you how this process works we’ll use a case study of a familiar, but not an easy, challenge that a lot of retailers are facing with the current cost price volatility.

So, you want to increase your volume, without losing too much of your fuel margin. Where do you start? Once you know what you’d like to do, it’s time to start developing your high-level goal further.

Step two: find the right metrics

Next we need to start considering how we’re going to achieve our goal, by figuring out what success actually looks like.

It’s an old cliche, but setting SMART (Specific, Measurable, Achievable, Relevant, and Time-bound) goals will keep you focused and honest.

Most fuel retailers that we work with know which of the following ‘five pillars’ of fuel pricing matter most to them; volume, margin, competition, profit and price execution. You probably already have a good idea which of these are the most influential for your sites.

In our example, we want to increase our volume without a significant drop in fuel margin, so we’re going to track volume and margin as our key metrics.

So let’s say your stations are moving an average of 2 million gallons per year right now. Where do you want them to be? 3 million? Is your target realistic? And how long will your tests last for? Three months? Six?

Answering questions like these keeps you more accountable and helps you to develop a clearer understanding of what we need to change. Once you’ve defined success in this way, it’s time to dig a bit deeper and find out what’s going to make this change happen.

Step three: identify the right questions

Optimization requires us to know not only how our sites respond to change, but also how much they respond to any given change. For example:

  • How long can your site(s) hold their prices when a local competitor drops, before their volumes start to fall?
  • To what extent can you use higher premium grade prices to subsidise your regular grades?
  • How much does the real blended cost of the fuel in your tanks vary from the replacement cost?* Does knowing, and calculating pricing based on, the real cost enable you to increase either your volume or margin?**

Answering these questions can help you to establish yourself as a fuel retail exceller, through an intimate and evidence-based understanding of your operation.

Returning to our example, we want to find the sweet spot between a significant increase in volume and an acceptable margin. So we need to understand how variations in our own pricing, relative to our competitors’, affect our volume, testing this in the real world.

Step four: observe and test

This is where things get exciting, as you start using X to test your stations and their markets, deepening your understanding of the forces that drive your business. Make the changes that you expect to bring in the results that you want, and see if they do. Even if you can’t ultimately reach your goals, the fact that you’re aiming for them is improving the efficiency of your operation

It’s time to put what we think we know for sure on hold, and see what the numbers say.

Make similar decisions and start to study the outcomes. This will allow you to validate the things you are getting right, before you change anything significant. You are now being ‘data inspired’. And through this process of experimentation and observation, you are well on your way to becoming a data-driven fuel retailer, and that’s a good place to be.

Step five: becoming data-driven

You’re data-driven when you can say something like this with absolute confidence: “If I see X, I am going to do Y, because of Z.”

For example, “If I see my competitor’s price dropping, I’ll hold my price for a day, because I know that more often than not it does not impact my volumes when I move 24 hours later.”

Whether you choose to action these changes automatically or after a sanity-check, you’re now making data-backed decisions that reflect the true nature of your local markets. And because these decisions are based on evidence, you’ll know for sure if and when the nature of your markets has changed. Then you can use variations of this same process to figure out how you

The questions you can start asking, and answering, when you take a methodical approach to your data are pretty much infinite.

The bridge from data inspired to data-driven is the quality as well as quantity of the data you introduce to your business. Getting you more timely, accurate and useful data is our mission at EdgePetrol.

Click here to book a demo today and find out how EdgePetrol can help your business. Alternatively, call +44 020 3865 8689

* The blended cost is calculated based on the value of fuel from each delivery present in the tank. Explained further here.

**Clue: the answer is generally yes!

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