By Tim Rudnicki, Esq.
The business case for E15 is compelling. On June 18, the Minnesota Bio-Fuels Association hosted a seminar on the business case for E15 and E85. A diverse group of fuel supply chain stakeholders participated in the seminar. Included among the participants were retailers, service and equipment suppliers and State officials from the Minnesota Pollution Control Agency and the Minnesota Department of Commerce Weights and Measures Division. A major take away from the seminar was the strong evidence that supports the growing move by fuel retailers to offer their customers E15.
Most individuals associated with the fuel supply chain probably know about the many benefits E15 offers consumers. Perhaps two of the most appealing consumer benefits associated with E15 is its price and performance. Based on local information, E15 has been selling for $.10-$.20 below the price of a gallon of regular gasoline. Of course another important benefit is the performance of the fuel based on its octane rating. For less than the price of a gallon of regular gasoline, consumers can get 88 to 89 octane fuel.
These consumer benefits are fantastic, but what are the benefits for retailers? One of our guest presenters at the seminar was Robert White with the Renewable Fuels Association. Robert covered many topics that were germane to fuel retailers and others in the fuel supply chain including questions about E85, E15, fuel storage and dispensing options, renewable identification numbers, margins and much more. Rather than attempt to highlight all the many topics Robert addressed in nearly two hours, I will focus on just a few points.
For retailers contemplating offering E85 to customers, consider these points:
• Half of all vehicles produced by the top three auto manufacturers are flex fuel vehicles and more companies will be offering flex fuel vehicles;
• Retailers currently offering E85 are showing success with sales gains ranging from 300% to 327%;
• The latest consumer survey by the National Association of Convenience Stores shows 62% of those surveyed would consider a flex fuel vehicle; and
• Ethanol plants based right here in Minnesota can provide the type of local supply which helps lower costs, increases margins and lowers consumer price at the fuel dispenser.
Retailers can further expand their line of competitive product offerings with E15. Following 6 million miles of testing, the U.S. Environmental Protection Agency approved the use of E15 in all flex fuel vehicles and all non-flex fuel vehicles manufactured since 2001. That’s more than 8 of 10 vehicles on the highway today.
E15 continues to have a very positive impact with consumers and retailers. At present, E15 can be found in 12 states at 75 retail fuel stations. While the actual sales varies by station location, fuel retailers are generally finding E15 comprises 20% of overall sales with some stations averaging closer to 40%. E15 is actually bringing new customers to retail stations as evidenced by the overall increase in sales. Since E15 is a higher octane fuel that is typically priced less than E10 regular gasoline, it is an excellent value for consumers. In addition to the price benefit, there is the peace of mind that comes with knowing E15 now has over 75 million consumer miles of trouble free driving and the number of miles keeps growing!
What can a busy retailer or petroleum marketer do to take advantage of the business benefits of E15? We have a simple six step process that can be used to help you join the E15 club.
1. Review your equipment and fuel supply for E15 suitability.
2. Contact your marketing or branding and insurance company.
3. E15 can be sold as a pre-blended fuel or, using a blender pump, a retailer can actually blend their own E15. If a retailer will be blending E15 they need to comply with a misfueling mitigation plan. To do so is a very simple process which involves reviewing and adopting the model misfueling mitigation plan already prepared by the Renewable Fuels Association.
4. Register for a fuel survey at www.RFGSA.org .
5. Notify state regulatory officials such as the Minnesota Pollution Control Agency and Fire Marshal.
6. Once all of the above are addressed, place the proper orange and black E15 labels on the dispenser, as well as the octane label, and begin offering E15.
Retailers and petroleum marketers can contact the Minnesota Bio-Fuels Association for either a hard copy or electronic version of the Renewable Fuels Association’s E15 Retailer Handbook. The Handbook outlines all of the requirements and the steps to be followed to bring E15 to consumers and start a new revenue stream flowing.
In Minnesota many retailers have straightforward options to offer consumers E15 since their underground storage tanks, piping and dispenser systems are already compatible. Other retailers may require some additional components or to upgrade existing components. The first E15 station simply had to affix labels to the dispensers. Depending on the particular issues at each retail fuel site, a basic upgrade could cost from $1,200 to $4,200. Since each location has a unique set of factors to consider, you can contact the Minnesota Bio-Fuels Association for further information and details.
The momentum for E15 and E85 will continue to grow based on consumer interest and demand. According to a survey by the National Association of Convenience Stores, 26% of consumers knew what E15 is and 59% said they would try it. Some polling data after respondents were read a short description of E15 found a strong majority, 82%, said they support having it available at their local gas stations. Furthermore, approximately 76% of Americans would also support higher blends such as E20 and E30 at their local gas stations.
Here’s the bottom line for what it means for retailers and petroleum marketers to offer E15 or
E85 or both:
• More product choices for consumers on the same footprint.
• Typically uses existing storage tanks and pipes which is a huge cost savings.
• Minnesota-based ethanol plants can sell direct and thereby bypass the terminal markup.
• Flexibility for future approval of mid-level ethanol blends.
• Dispenser paid for by the sale of all products not just E85.
• Faster inventory turnover, protection against market swings.
• If the right equipment is purchased, you are E15 ready.
• Potential of renewable identification numbers.
• Differentiate your business.
• Increase overall fuel sales (the average regular unleaded sales are 87.2% while premium is 3% to 5%. E15 is averaging above 20% and E85 above 10%).
• Offer E15 or E85 or both because you can make a greater margin while lowering the consumer price at the pump, incentives are available now and you can increase overall instore sales.
For the full story on the momentum that continues to grow for E15 and E85, contact us here at the Minnesota Bio-Fuels Association. We can provide you with accurate and reliable information so you can make informed business decisions.