Retailer Relationship 02/26/13 1:48:43 PM
Developing a Retailer Relationship | 02/05/2013
By Holly Jessen | January 16, 2013
In some areas of the U.S., drivers filling up with ethanol blends have one more reason to proudly choose the fuel. It's locally sourced, providing consumers with the unique opportunity to purchase ethanol produced by their neighbors—area corn farmers and the employees of a local ethanol plant. “It’s just all around a win,” says Mitch Miller, CEO of Carbon Green BioEnergy LLC, a 50 MMgy plant that sells E85 directly to retailers in Michigan.
Although the details vary from plant to plant, it generally involves installation of on-site blending infrastructure, allowing an ethanol plant to sell E85 directly to area retailers. E15 and other ethanol blends represent another area of opportunity. For example, Zarco 66, the first retailer to offer E15 in the nation, purchases ethanol directly from ethanol plants located within 100 miles of his seven gas stations that sell E15. In this case, the retailer does his own blending. (For more information about E15, see the Choice at the Pump story in this issue.)
The advantage to ethanol plants is a higher netback for its product, Miller says. “It’s a piece of our production that can have a little higher level of pricing control,” he says, adding that the cost of transporting the fuel is reduced and blending markups are eliminated. “The value is kept between the retail station owner and the ethanol plant,” he says.
Carbon Green started supplying retailers with E85 in July 2011. The company spent about $75,000 to install the equipment needed to do onsite blending at any ratio. With marketing assistance from Noble Mansfield Renewable Energy, Carbon Green sells about 1 million gallons of E85 a year, directly to fuel stations in close proximity to the plant. “There are currently 135 (E85) pumps in the state of Michigan and we supply about 50 of them,” he says.
Retailers like it because they can typically purchase the fuel at a discount compared to other sources, although the price depends on the spread between ethanol and gas. “During high spread times we sell more than in low times, so we are looking at strategies to lock that spread when it widens out,” he says.
At Carbon Green, the E85 is blended with natural gasoline, or gas that’s recovered from natural gas, which is also used as a denaturant. The bonus is that the blended E85 isn’t a petroleum fuel, meaning it contains fewer highly hazardous pollutants, or HAPs, and, it’s a 100 percent domestically produced product.
Although there are ethanol producers who sell directly to retailers, Miller believes more should. “Companies are reluctant to put in the capital expenditure for a seemingly small market,” he says, countering that it’s a growing market and the cost is worth it. “We have been able to get a return on investment that’s pretty short, we’re talking about a 2 to 3 year return on investment at our Michigan plant,” he says. In fact, Carbon Green has a goal to double its E85 sales in 2013.
But this isn’t just about revenue—he sees it as simply the right thing to do. “It helps build out higher ethanol blends locally and gets the consumer the lowest price fuel,” he says. “If every plant was doing this at the same time we would make strides as a nation.”
Miller, who has worked in the ethanol industry for 18 years, has been a player in bringing the direct retail marketing system to five separate ethanol plants. It started in the late 1990s, when he was part of launching the program at Chippewa Valley Ethanol Co. in Benson, Minn. His next job took him to Central Indiana Ethanol LLC in Marion, Ind., where he helped replicate CVEC’s successful program. His work at Carbon Green came after that, followed by introducing direct marketing at two more plants through Energetix LLC, an ethanol plant consulting, acquisition and management company, of which Miller is a managing partner. Energetix manages two ethanol plants that also sell E85 to area retailers, DENCO II LLC, a 24 MMgy plant in Morris, Minn., and Iroquois Bio-Energy LLC, a 40 MMgy facility in Rensselaer, Ind.
The number of retail stations that purchase E85 from CVEC varies, says general manager Mike Jerke. At peak times, such as during Hurricane Katrina, CVEC has supplied more than 100 area gas stations with E85 it blended on site. Currently, the number is below 100. Jerke confirmed that selling E85 locally is a benefit to the ethanol plant and retailers. “We like it because it is a value-added proposition to our bottom line and we think it has the same impact to the retailer who doesn’t have to go through a third party or the rack,” he says. Drivers also benefit. “We know that having that direct connection, retailers are able to provide a more competitively priced product to the consumer.”
Educating retailers about the benefits of higher percentage ethanol blends is also part of it, Jerke adds. CEVC is using its relationship with area retailers to promote E15 and the installation of flex-fuel or blender pumps. That means connecting them with the appropriate resources to answer their questions about new products and opportunities.
Although CVEC has had good luck with selling E85 directly to retailers, not every ethanol plant is prepared to take on the challenge. “I think it really depends on the philosophy at the plant,” he says. “There is extra work involved.” Beyond the cost to install the needed equipment, it does require additional paperwork for tax purposes as well as the effort required to build up a network of customers.
In his years working on direct marketing ethanol to retail stations, Miller has learned that there are three keys to selling higher ethanol blends. The first is that the price needs to be predominantly displayed on the marquee sign, next to E10 or regular gas. “The customers driving by the stations, see that price difference, recognize it and that drives sales,” he says. “We’ve found that drives sales up, by up to five times.”
His next two points are the importance of reaching consumers and station owners. The company is continuing efforts to sit down to talk with station owners about higher percentage ethanol blends. Carbon Green has also hosted plant tours, to allow area retailers to see where the fuel is produced. Using a database of FFV owners, Growth Energy assisted in sending out postcards advertising directly to the drivers who can use the fuel. The postcard lets them know they can use E85, an American-made fuel that can save them money, and that the fuel is available in their area. Carbon Green also produced a map it plans to send out to the owners of all E85 and flex-fuel pumps in Michigan. Printed in early December, the map contains a list of all existing FFVs and a map of the locations in Michigan with E85 and flex-fuel pumps. There’s also information about the Renewable Fuels Association’s smart phone app, which helps consumers locate flex-fuel stations. “People need to know about that,” Miller says. The first printing of 5,000 maps will be paid for by the Michigan Corn Growers and will be sent to every flex-fuel pump station in the state, as a way of contacting the station owner and asking them to pass out the maps to FFV owners. “It gets us in the door,” he says.
Author: Holly Jessen
Features Editor, Ethanol Producer Magazine
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