Petroleum Marketing Management, January/February 1996

Study Shows Fleet Market Is a Tremendous Growth Opportunity for Marketers

By Patricia Dilts

Have you noticed the increased interest in the fleet market lately? Since the EPA promulgated the Under-ground Storage Tank (UST) regs in 1989, suppliers have looked forward to a burgeoning opportunity. The first solid evidence of the magnitude of this potential market came from a 1993 multi-client study published by Havill & Company, a Toledo-based consulting firm to the petroleum industry. The Havill Study found that while the retail segment of the gasoline service station market was moving toward EPA compliance, the industrial/ commercial segment lagged far behind.

Prior to the EPA regs, nearly half of all USTs were at non-retail locations. By the end of 1992, less than half of the tanks that had not already been closed were still out of compliance with the pending EPA regs. "Following our 1993 study," reports project manager, Joseph Slagle, "we were approached by petroleum marketers, equipment suppliers, and fleet card providers to conduct a more in-depth analysis of the many segments that make up the commercial fleet market. Of course, they wanted to focus their marketing programs on the most attractive fleet segments."

Entitled The DOE-EPA Regulated Commercial Fleet Market Fuels, Equipment, and Services Forecast 1994-2000, the 600 page research report was published at the end of 1995. It has become a basic reference guide for marketers, equipment suppliers, and fleet card providers serving the commercial fleet market. The report features results from more than 1,300 interviews conducted with commercial fleet operators. The survey results are supplemented with secondary research from industry and government sources. The research focuses on both the on-site and off-site aspects of the fleet refueling market.

For the petroleum equipment supplier, the research provides a detailed inventory and demand forecast for all major petroleum equipment products: USTs and ASTs (aboveground storage tanks), piping, spill containment/overfill prevention equipment, leak detection equipment, and dispensers. For marketers and fleet card providers, the Havill Study provides a detailed assessment of both refueling facility and fleet card program needs. Vehicle population and fuel consumption was also quantified.

Fleets Close USTs in Favor of Off-Site Refueling

The UST population has declined from 769,000 tanks in 1989 to its present population of approximately 406,000. This is largely a function of the approaching 1998 deadlines requiring USTs systems to be cathodically protected and equipped with spill containment, overfill prevention, and leak detection equipment. Most owners do not have plans to upgrade their UST systems and are expected to follow the same pattern that they did in 1993 when leak detection regulation went into effect. At that time , many facilities simply shut down at the last minute. More than 92 percent of all commercial USTs are used for vehicle refueling.

"Traditionally, the fleet administrator’s decision on where to refuel has been a trade off between cost, convenience, and control," says Slagle. "EPA regulations are forcing fleet managers to evaluate the cost effectiveness of upgrading their refueling facilities versus moving off-site to refuel." Historically, businesses with fleets maintained on-site facilities because it offered benefits that were not available through retail refueling. Today the benefits of on-site refueling are challenged by increased facility and payment offerings in the off-site refueling market. "The convenience of an on-site UST refueling facility can easily be replaced with a commercial card and a trip to the local gas station or c-store," adds Slagle.

Fleets Account for 40 Percent of the Fuel Consumption

Fleet vehicles represent a notable opportunity for the petroleum marketer. Although vehicles in fleets of four or more account for only 19.3 million vehicles in the United States, they account for approximately 40 percent , or 63 billion gallons, of total annual gasoline and diesel fuel consumption. Overall there are fewer fleet vehicles, however, fleet vehicles travel more miles, thus consuming greater quantities of fuel.

Nearly 90 percent of the 63 billion gallons of fuel consumed by the 4+ fleet vehicle population is purchased at retail refueling facilities, including both "traditional" retail stations (pumpers, service stations, c-stores, and truck stops/travel centers) and unattended/cardlock facilities. Updated counts conducted as part of this research places the total retail facility count at approximately 196,000 facilities.

Many smaller companies with on-site refueling facilities will choose to avoid the expense associated with upgrading their refueling facilities and will refuel fleet vehicles off-site. Approximately 2.3 billion gallons will make the transition from on-site to off-site refueling facilities by 1998. This translates into 2.3 billion dollars opportunity for petroleum marketers.

Fleet Cards Give Managers More Options

Commercial refueling programs, or fleet cards, enable fleet administrators to track and control operating costs associated with vehicles. A key benefit of a fleet card program for fleet administrators is reporting features that simplify record keeping by tracking operating expenses. Detailed management reports contain information such as mileage calculations, and refueling details for specific drivers or vehicles. Reports such as these minimize administrative time while focusing attention on costs associated with operating a fleet. Similarly, card readers in dispensers, the increasing availability of diesel fuel, and unattended/cardlock facilities have made fleet refueling easier. Additionally, more and more marketers provide higher canopies and greater space to allow large fleet vehicles to maneuver.

Fleet administrators who will convert from on-site to off-site refueling will find a multitude of different services and amenities from which to choose. The Havill Study has grouped these services and amenities into five categories: physical facility attributes, methods of payment accepted, petroleum equipment, merchandise offerings, and vehicle services.

Physical Facility Attributes

• Close to home base/work site
• Air and water
• 24 hour access
• Accessible to oversized vehicles
• Ample temporary parking space
• Dedicated fleet islands

Methods of Payment

• Accepts fleet/credit card
• Will open a paper account
• Accepts checks

Petroleum Equipment

• Card readers in gas dispensers
• High speed refueling nozzles
• Card readers in diesel dispensers
• VITs in nozzles

Merchandise Offerings

• Supplies, oil, and washer fluid
• C-store items
• TBA merchandise
• Vending machines
• Take out food service
• ATM machine
• Restaurant-style meal service

Vehicle Services

• Vehicle maintenance services
• Complete service bays
• Car wash
• Truck wash

"During our research, we identified the percent of the fleet market that found each of these attributes to be important, and whether it is currently offered to them," says Slagle. "Typically, fleets are attracted to retail facilities by the types of equipment, merchandise, and vehicle services that are offered." Facilities that are: located close to home base, offer amenities such as air and water, have ample temporary parking space, are accessible to oversized vehicles, and have dedicated fleet islands are most likely to acquire the largest volumes of fleet business. Fleets that opt to refuel at unattended sites most often do so because refueling is faster. Similar to retail stations, it is important to fleets that unattended sites are conveniently located, that they offer twenty-four hour access, and have adequate space for vehicle accessibility and maneuverability.

Often, fleets select a refueling facility because it offers them the flexibility to purchase fuel and other items using whatever means of payment they have available to them. Items such as tires, batteries and accessories, general merchandise, restaurant food, and lodging are among the top priorities. It is important in an emergency situation that fleet operators can access cash or rent an automobile using a fleet/credit card if necessary.

Features Demanded in Fleet Cards Identified

Today, credit/fleet cards are the most popular method of payment for fuel purchased at off-site facilities. In fact, of the fleets using credit/fleet cards as a means to purchase fuel, the majority of cardholders have used the same brand of credit card for more than 10 years. Other typical methods of payment for purchases include on-account, cash, voucher systems, and checks. The driver’s choice of payment, one in which the driver can use any option he desires to purchase fuel, is the least popular payment method currently in use.

Fleet administrators are seeking more efficient ways to track and control vehicle refueling. Card suppliers are accommodating this need by offering identification features. Vehicles can be monitored by credit card number, driver ID, vehicle ID, vehicle license, and division or department ID numbers. Of these options, credit card numbers, driver ID, and vehicle Id numbers are the preferred choice of fleet administrators.

Many fleets require security features which are available through many credit card programs. In fact, the majority of fleet administrators prefer card security features with their fleet/credit card. PIN access, a feature which restricts the driver from making a purchase unless he is able to supply a personal identification number, is one of the most desired security features of fleet administrators. Other popular features include electronic signature billing, a feature that requires verification of a signature before a transaction can be authorized. This method places the security burden on the fleet card supplier or marketer. Instantaneous card lockouts, a method which allows the fleet administrator to lock out stolen or misplaced cards immediately, is also a popular security feature among fleet administrators.

Product lockouts are another feature that allows the fleet administrator to control certain aspects of a purchase made by the fleet operator at the time of sale. The most preferred lockouts of fleets are fuel grade, purchase site restrictions, fuel allocation limits, and time/day lockouts. Fuel grade lockouts permit the fleet manager to restrict the grades of fuel that a driver can purchase. Purchase site restrictions limit the facilities or locations where a driver can purchase fuel. Fuel allocation limits restrict the amount of fuel that can be purchased by the fleet operator in a given time frame and is determined by the fleet administrator. Finally, time/day allocation lockouts restrict the time and/or day that a driver can purchase fuel.

Another security feature available and used by fleet administrators is unauthorized purchase flags. Unauthorized purchase flags are visual notifications on billing statements that indicate an unauthorized purchase has been made. They provide the fleet administrator with a mechanism to control costs by flagging unauthorized purchases made by drivers. Most programs providing the unauthorized purchase flag option notify the fleet administrator of an unauthorized purchase by printing a message in red ink, in a text box, or otherwise marking it. Improper fuel grade, unauthorized weekend sales, manual transactions, and MPG exceptions can be flagged.

Successful Fleet Marketing Requires Innovation and Focus

The opportunity to sell into a $60 billion growth market doesn’t come often. That’s how much commercial fuel is being sold to fleet operators. For many fleet operators, where they refuel and how they pay will change over the next three years. These changes will open the door of opportunity for savvy marketers. The challenge will be to understand the needs of fleets that will opt to close their on-site facilities and choose to refuel elsewhere. Specifically, facility and amenity needs, payment methods and billing features desired by these fleets will have to be addressed. Marketers who have the highest degree of understanding and provide for the needs of the fleet administrator will ultimately benefit through increased commercial fleet market share. Similarly, fleets that elect to take advantage of the multitude of services and amenities offered by retailers, as well as the card programs available through retailers and third party card providers, will benefit as well.

By understanding fleet demographics and how facility and card needs differ among the commercial market segments, profiles of commercial market opportunity and the fleet manager’s card and facility needs can be developed for major markets or specific sites. Successful marketers will assess their fleet offerings on both the macro and micro level. "The research conducted at the national level has provided the data for target marketing to fleet operators at the site level," says Slagle. "We have built analytical models for our clients so they can identify and distinguish fleet operators most likely to buy their products and services. These models are loaded onto notebook computers. Specifically, the database maps fleet operators in a three mile radius of service stations, profiles each administrator and his fleet information, and identifies whether he has an on-site facility. Sales reps are then able to sort through the myriad of fleet operators in their market and concentrate on the most promising prospects."

Patricia Dilts is a consultant for Havill & Company, based in Toledo, Ohio. For more information on The DOE-EPA Regulated Commercial Fleet Market Fuels, Equipment, and Services Forecast 1994-2000 or Havill commercial opportunity analysis programs, call Joseph Slagle at (419) 841-2244.