The Power of CPL - Crazy People Lining up on a forecourt

The consumer response to the supermarket 4-cent deals eroded the fuel and non-fuel markets of nearly every other retailer in Australia. Now there is a petrol price discount program for everybody.

When everyone ? from national home loan provider, Wizard, through major shoppingtown, Centro Bankstown, to my local farmer?s market ? advertises up to 10 cents per litre (cpl) refund based on fuel receipts, you know the petrol discount concept has reached the crazy stage.

It makes you wonder whether 10 cpl is where things are headed when you consider that four cents for an average fill (30 litres) is only $1.20. Most drivers could save that amount, and improve their health, by walking to their local shops regularly. It is therefore hard to explain why the ?4-cent deal? keeps working. We only know that it does.

?We know it is dumb, but we know it is done,? reflects David Van Leeuwen, General Manager, Savesmart. ?Petrol discounts work because people resent buying fuel,? suggests Phyllis Dunn, Director, Servo Savers.

According to Motormouth (www.motormouth.com.au), over 80% of their price-conscious survey respondents regularly (often or always) use a fuel discount voucher. This is supported by the finding by the Automobile Association of Australia that three out of four surveyed motorists had used a fuel discount docket recently.

It is not surprising that a number of independent petrol discount programs (that is, offers not aligned with Coles or Woolworths) have appeared. Here we look at four of them.

Servo Savers

Australian Convenience Store News featured Servo Savers in our article, ?Petrol Price Discounts: the new pull? in March 2005, just after the launch in February. Now with 1,537 participating retail businesses and 379 participating service stations along the eastern seaboard, Servo Savers plans to have 3,000 businesses and 600 service stations nationally by 2006. There is a maximum of a five kilometres between any partner business and a service station

You will recall that Servo Savers works by creating a network of local business that offer fuel discounts through their shopper dockets. Participating businesses include all types of retailers including stand-alone convenience stores. With only one of each type of business in each network, the service station shop does not participate directly in Servo Savers. The role of the service station is to redeem the discounts that are funded by the retail businesses.

?Servo Savers is a networking opportunity for participating businesses,? says Phyllis Dunn.

?Dockets can be collected at any Servo Savers participating business and redeemed at a Servo Savers service station anywhere in Australia. Each docket is worth up to $1.50, and that is $4.50 with just three dockets.?

Beep

beepp offers dollars off a tank of fuel, rather than cents per litre. The program supports a network of local businesses, and the discount can be redeemed at any participating fuel outlet nationally. The fuel outlet can also participate as a non-fuel retailer.

Beepp was developed by EPP Australia, a company that specialises in helping small businesses reduce costs and increase customer traffic.

?Over the past seven years more than 14,000 small businesses have saved over $80 million with EPP,? says John Wyke, Director beepp program, EPP Australia.

EPP offers its members the My Rewards(TM) book and points-based electronic rewards systems as well as operating as a buying group for services such as EFTPOS, telecommunications, gas and electricity.

Over 542 businesses and 359 fuel outlets in New South Wales, Queensland, Victoria and Western Australia are participating in the beepp offer, and EPP aims to increase this substantially to 3,000 businesses and over 500 fuel sites by the end of 2006.

?We are targeting several thousand businesses to be a force to be reckoned with,? says John Wyke. ?If enough retailers are involved, the beepp program will be effective competition for the two big supermarkets.?

The reward mechanism for the beepp program is the discount card. Customers of participating retailers receive one or more $1-cards as a reward for purchases. The cards can be accumulated and then redeemed at participating fuel outlets for dollars off fuel to the value of cards collected. There is no limit to the number of cards that can be accumulated and therefore no limit to the fuel discount.

?We considered electronic vouchers and smart cards during the 12 months of research, and decided that the dollar cards would be more effective,? says John Wyke.

?They give the customer something of value to take with them, they are easy for fuel outlet staff to redeem, and they are flexible because they can be attached to a product, a group of products and specials, as well as the total bill.?

Participating businesses pay an annual fee to cover administration, listing in the directory, marketing and point-of-sale material, as well as membership of EPP?s cost reduction program. Members of beepp receive a monthly newsletter. The dollar-cards cost $1.22 each to cover the cost of the security hologram but, because promotions are tax deductible (and discounts are not), the real cost is only 77 cents.

Easyfuel

easyfuel refers to its local business networks as ?hubs?.

?There are at least 10 participating non-fuel merchants for every fuel outlet in each hub,? says Nathon Jones, General Manager, easyfuel. ?The average is 30 merchants. We do not launch the program in an area until the hub is complete.?

easyfuel was developed by Andy Fischer at his network of service stations in Adelaide. After a 12-month trial in 2004, the program was launched nationally in early 2005. As at July there were about 400 merchants and fuel retailers in total. easyfuel?s goal is between 1,000 and 2,000 fuel outlets supported by up to 20,000 merchants. The participating non-fuel retailers include the likes of furniture stores, clothing stores and hair stylists, as well as the more familiar butchers, greengrocers, liquor outlets and newsagents.

Fuel discounts are awarded through a ?smart? card which is swiped through an EFTPOS-approved terminal. Customers have until the end of the following month to redeem their discounts on fuel to a maximum of 50 litres.

?Merchants can award as many cents per litre as they want, and the average cardholder redemption through accumulated discounts is about 20 cpl,? says Nathon Jones. ?Because the discounts accumulate, customers can potentially get free fuel.?

Fuel retailers can also participate as merchants for their shop sales. Merchants pay for the discount and there is a small administration fee for both merchants and fuel outlets. This covers advertising and promotion as well as the cost of the smart cards and the terminal.

?With a smart card, merchants can use the program in different ways ? to give different levels of discount to different levels of sales - to reward the purchase of single products or bundles of products, or to clear stock,? says Nathon Jones.

?For example, you can offer big discounts as end-of-day specials such as 10 cpl for the last couple of hot roast chickens. Merchants also get the additional benefit of reports on information such as the store?s demographics.?

Savesmart

The newest of the fuel discount programs, Savesmart, also uses smart card technology to award and redeem fuel discounts. However, it approaches the concept from a different angle by linking the program to suppliers.

Each month, a 4-cent fuel discount is attached to a selection of promoted products. Customers who buy a promoted product receive the discount through a smart card. They can accumulate discounts which can be redeemed in 60 days at participating fuel outlets. The discounts are funded by the program partners ? the suppliers of the promoted products.

As at July 2005, the thirteen partners included Arnotts, Streets, Cadbury Schweppes, Buttercup, Tip Top, Pauls and CRC. Promotions tend to be in the $7 to $10 price range. This makes it worthwhile for suppliers and does not compete with other in-store offers such as ?2 for $2?. Suppliers and retailers sign up for three years. The cost to the fuel retailer is a modest joining fee plus about $50 per month which covers the rental on the smart card machine, a stock of smart cards, and all point-of-sale material needed to promote the program and that month?s products. Each month, there are three food and beverage promotions and one car accessory product.

?In this the first stage, the main benefit to retailers is through shop sales,? says David Van Leeuwen. ?It suits convenience fuel retailers that want to increase shop sales. The fuel retailer gets to sell the promoted product at full retail margin.?

In Stage 1 of the program from 1 July 2005, Savesmart is rolling out to service station locations at the rate of 50 per month with a national target of 1,000 sites. These sites are signing customers to the program, and redeeming single 4-cent discounts per fill to a maximum of 50 litres.

?The full impact on fuel volumes will not be experienced until Stage 2,? says David Van Leeuwen. ?Once we have a national network of fuel outlets we will extend the promotions to a wide range of commercial partners in areas as diverse as liquor, white goods, hardware and financial services.

?The smart card will facilitate innovative offers from the partners, and the redemption of multiple discounts from participating fuel outlets. Many suppliers are very keen to participate, but the national suppliers need a national network of fuel retailers.?

Join in all?

With each of the four independent petrol discount programs aiming to attract a large number of independent service stations, the challenge for fuel retailers is two-fold ? whether to join a program and, if you do, which one?

The second decision is not as critical as it first seems because, for the most part, participating in one program does not exclude you from being with the others.

?Servo Savers fuel outlets can offer other redemptions if they wish,? says Phyllis Dunn. ?In the end the consumer will decide.?

?If we can all keep independent doors open then that is a good thing,? says Nathon Jones. ?Many service stations redeem discounts for more than one program. But, it makes practical and financial sense to participate in just one rewards program.?

All join in?

It is clear that fuel discount vouchers worked for Woolworths and Coles.

?Petrol is one of our strongest performing divisions and our fuel volumes keep increasing,? says Clair Buchanan, Corporate Communications Manager, Woolworths. ?We believe our offer continues to grow because our service stations are situated near our supermarkets and we have around 700 supermarkets where people shop regularly.?

Similarly, Coles? customers are still responding to the Coles Express offer. In its fourth quarter results presentation on 16 August 2005, Coles claimed that quarter completed its two-year objective of adding 2% same store sales growth in food and liquor through the introduction of the Coles Express fuel offer.

When asked about the potential impact of the proliferation of petrol discounts, Peta McKellar, Corporate Affairs Officer, Coles Express commented, that ?competitive deals are great for the consumer who can now make savings on fuel just about everywhere?.

?In the future we will continue to look at innovative ways to delight our customers,? Ms McKellar added.

That?s a scary thought ? with the Service Station Association (SSA) and Australian Petroleum Agents and Distributors Association (APADA) estimating that the two alliances already retail more than 50% of petrol volume through less than 15% of total sites.

The power of the ?cpl? is illustrated by Mobil?s decision to trial a fuel discount offer at 32 Mobil and Quix sites in Adelaide. The program is relatively simple with customers receiving four cpl off a fuel purchase up to 100 litres when they spend $5 or more in the shop.

"We have been closely monitoring what is happening in the Australian retail fuels market and the growth of discount deals and have developed an offer focused on simplicity and convenience which we believe customers will find attractive," says Alan Bailey, Public Affairs Manager, Mobil Oil Australia.

FYI, across Australia we have some 900-1000 Mobil branded sites (including the Quix network) which are operated by franchisees and independent dealers and distributors, with almost half of those sites in the major East Coast metropolitan markets.

If the trial shows that the offer works financially, it will be offered to Mobil dealers in other markets over 2005-06. There are between 900 and 1,000 Mobil-branded sites (including the Quix network), with almost half of these in the major east coast metropolitan markets.

Likewise, to succeed, the independent petrol discount programs will have to work financially. The four independent programs featured in this article claim success in attracting customers and increasing sales.

?We have redeeming Servo Savers service stations that have increased fuel volumes by 25,000 to 40,000 litres per week,? says Phyllis Dunn.

And, as at July 2005, 20,000 beepp cards (ie $20,000) were being redeemed each week.

?Fuel retailers love it because they see new customers,? says John Wyke. ?Small businesses are working together to support other small businesses in each local area.?

Savesmart, on the other hand, is not aimed at ?saving the local servo?.

?Our aim is to create a third force of fuel retailers linked with a common discount offer,? says David Van Leeuwen.

?Savesmart started as a program for the SSA network of service stations, but it quickly became obvious that all independents needed to match the supermarket alliances. This program works. For example, the two 200-gram Kettle Chips promotion transformed a planned purchase into an impulse purchase, and was a great success in July.?

With the four new programs all claiming to be successful in restoring the performance of participating service stations, we canvassed the views of representatives of independents.

?The outcome varies, with APADA members finding that the programs stem the tide rather than bringing customers flooding back,? says Garth Symington, General Manager, APADA.

Jim Lamb, President of the Petroleum Marketers Association of Australia, agrees: ?Those customers sold on the concept of a 4-cent discount by the major supermarkets will not come back to the independents. The ones that are coming back do not want to wait in queues on the forecourt,? adds Mr Lamb.

?Our (the independents?) share of the fuel market is based on being convenient.?

As with all key business decisions, it is up to you to decide which program is best for you. That might mean no discount program at all ? BP is showing that can be done. You might also devise your own discount offer to suit your customer base. Or, you can take advantage of all or some of the independent petrol discount programs featured here. Whatever you decide, make sure it is rational decision based on sound analysis. Just because your customers are crazy does not mean you have to be too.