It is a rare, often inspiring moment when a single innocuous event or brief snapshot in time can somehow capture a long standing complex situation and make it all instantly crystal clear. As if in the span of a few minutes everything comes into focus and all the important elements become distilled down to the most relevant.
I was moderating one of the Hedge Solutions Round Table events last year when one of these amazing moments occurred. Our four annual Round Tables allow a dozen or so non competing dealers to share best practices and brainstorm innovative ideas surrounding an organized agenda of topics. At the outset of the discussion, each participant is asked to introduce themselves, give a quick profile of their business, and the reason they chose to attend. It is this last point that is always the most provocative.
On this particular morning, I had made it halfway around the room when I found myself staring into the eyes of a very serious looking and well-dressed attendee. He was the president of an independent Northeast oil company who had been a client for many years, one who is widely respected for his knowledge and experience. After going through the pleasantries, he approached the hard question of why he was there. As if rehearsed, he said “I am now in control of a third generation company…I am doing everything my grandfather and father taught me and somehow I can’t make money anymore”. At this point it became abundantly clear he was getting emotional, and with tears welling in his eyes and voice breaking, he continued, “I cannot bear the thought of having this business crumble on my watch…how would I explain that to my family?”.
It’s true what they say about being able to hear a pin drop. I am not sure I had ever been in a room driven to such absolute silence. Here is a polished professional fighting back tears as he tells of the weight he has on his shoulders, the weight of family legacy. Truth be told, others fought back tears as well and I readily admit I was one of them. It was intensely moving.
The current generation leading our industry drew the short straw. After decades of immovable profits, strong customer loyalty, and an unshakable reputation (the “last milkmen”?) we are now facing shrinking demand and eroding profits. The lessons of the past and, seemingly, the new ideas from the brightest minds somehow appear powerless in the face of myriad challenges.
The challenges have become woven into the fabric of our industry’s culture and most dealers could recite them with little effort: oil prices that are elevated and volatile, a new consumer who is not sold on our historical full service value proposition, and, of course, natural gas.
So where does a dealer find hope? It can be encapsulated into two maxims: become a student of your business to a level of detail unheard of until now and be prepared to become a change management organization. If you do these two things and do them well, you will be a survivor.
Measure everything you can and put together a list of KPIs (key performance indicators) that drive your daily objectives. Manage to the goals with militancy and hold your team accountable. Quickly learn that cutting headcount is easy but driving process efficiency can be more effective financially, albeit harder. Many dealers have maintained their staff size while using efficiency to cut costs.
New consumers (and we all fit this category) are brutal. They want high quality service at low prices, they want to be catered to, and they want instant gratification. Loyalty doesn’t enter into the equation. Rely on marketing professionals to help you understand these new behaviors (it is a science and not gut feel), how to effectively use the internet and social networking to reach consumers, and what retains them once acquired. In an industry quickly being defined by transient consumers, being the best marketer will lead to strong competitive advantage. Learn this and prosper.
Natural gas is cheap and will likely stay that way for at least 3-5 years. The cycle will turn in our favor again, mainly after the export ban is relaxed in 2016. Until then it is a dog fight. Immerse yourself in this market because knowledge is power. Learn about what is driving global prices, learn about the strategic plans of the majors, and learn about potentially reselling gas yourself. At the very least, you must be in the gas service business where profits can be huge. As an aside, for those of you in rural areas who aren’t directly impacted by cheap natural gas, keep your eye on the advent of NGL (natural gas liquid) being delivered to small end users by truck. Although hard to believe, it is actually cheaper per BTU than grid-based natural gas.
Price volatility is a beast but it can be a beauty. In truth, it is not volatility that erodes margins, it is that most dealers do not know how to use buying and hedging tools to flatten out the spikes and, more importantly, capitalize on organic margin expansion when the market pulls back. Talk to your hedging consultant and suppliers about how to best understand and apply these proven strategies.
Back to my friend at the Round Table. He is doing much better these days having employed some new cost cutting tactics, is intently focused on marketing, and has solicited the help of some of the many fine consultants in our industry. I bumped into him recently and he seemed very optimistic and much less afraid of being the generation that drove it off the road. “You have to embrace real change, not window dressing change, bottom line” he said.
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