More on Rising Fuel Prices
Let us talk a little more about rising fuel costs. First, it is difficult to see how high energy prices won’t be around for at least the near-term. They could of course be a reality for the long-term but only time will tell. But for us, the here and now is our primary concern.
As I mention in a past post on this subject here, one of the first places to look is your sales, merchandising, and delivery routing. They are each parts of a larger whole and are intimately integrated. And routing is ultimately driven by frequency of service. Most wholesalers have squeezed this as much as is possible but you probably should take at least another look.
I can’t emphasize enough that you don’t want to practice wishful thinking here. You are in the service game and it is penny wise and pound foolish to try to cut this below some market-determined threshold. I don’t think you’re going to force chain grocery stores or c-stores to build bigger back rooms simply because you don’t want to visit them as frequently. If you can do that, you’re in the wrong business… head to the MiddleEast and solve the Israeli and Palestinian problems instead. The world will thank you.
And of course you have to examine your’s and your competitor’s strategic goals. Some might see tough times as the perfect time to put the peddle to the metal and push to expand their market share… especially if their competitor is busy focusing on saving a penny here or a nickel there while opening the door for someone to eat their lunch… or is burdened with significant debt. Just because fuel costs are high doesn’t mean everyone will be cutting back… as always, it depends. Cut operating costs with your eyes wide open.
Another simple place to find savings is just in the smooth operation of your business. Poorly performing account managers (sales reps) can add tremendous costs to your system… wrong orders, out-of-stocks, code problems at retail, calling on retailers out of sequence, missing retailers… all can add a lot of inefficiencies and associated costs to your system. A poorly performing warehouse can do the same by building bad orders… poor ordering can lead to warehouse out-of-stocks or code problems in the warehouse. Office failures lead to problems on invoices and pricing. Driver problems lead to code issues at retail, missed stops, incorrect products being delivered.
You need to track these types of things on a daily basis and rather than simply deal with them… identify the cause and solve them. Your organization shouldn’t be dealing with the same issues day after day after day. As I have mention many times before, you purchase a certain number of minutes each and every day. You can use these minutes to drive your company forward or to deal with things which never should have happened in the first place. Whether you know it or not, it ultimately is your decision.
And some are playing with that most sensitive of issues, fuel surcharges. As I mentioned before, if you are thinking about implementing fuel surcharges, think about the amount. I don’t think you will get beat up any more for a $4 - $5 charge than for a $1 - $2 charge so why not make 3 to 5 times the money for the same pain? And there will be pain. And once you get this in place, plan to NEVER take it away. Once you’ve “trained” them to pay it – and taken the pain of doing so – don’t just give it back for nothing. Looking forward then, perhaps don’t call it a fuel surcharge, call it some other more innocuous name that won’t raise hackles when fuel prices drop… but our extra charge doesn’t. ;-) This strategy alone could put hundreds of thousands of dollars in your pocket every year – do the math and you might be surprised ($1 X 20 routes X 20 invoices per day X 250 days = $100,000… $5 = $500,000 – if you’re going to do it, do it!).
Let me emphasize this point again… I might be wrong about this but from my understanding of human nature I don’t think the amount of a fuel surcharge will be the source of anger as much as the concept of a fuel surcharge. If this is the case, you will have some flexibility on the amount…within reason… as long as you are willing to take the heat on the concept. And there will be heat.
Let’s think about the heat… and where it will come from. Your suppliers will almost certainly be against it, even though you get popped by one on every incoming load. If you’re going to try, you’ll just have to take this and deal with it. On the retail front I think you can make the case to your retailers in a fairly pervasive manner… but then there is that pesky problem of chains. They get deliveries from a lot of folks, to a lot of stores and fuel surcharges from all of them could add up to a lot of additional cost for them. And they have power… lots of it. If I were a chain I’d tell you where you could put your fuel surcharge… that’s your problem not mine… and I wouldn’t pay it and I’d play “chicken” however you want. And in the end I think I’d win. In fact just last week Harry reported that the SuperValu grocery chain – one of the largest beer retailers in the country - in very clear language stated they would not accept any surcharges and would refuse all deliveries which included any type of surcharge. Yeooh! Their attitude towards distributors seems to be either raise your prices or eat the fuel costs, ‘cause we certainly aren’t going to do it for you.
This leads to my one serious concern regarding fuel surcharges, fairness. I have written about the incredibly powerful concept of fairness here. If you haven’t read it or don’t remember it, please go back and check it out. If you implement a surcharge you should take care to ensure it is perceived as fair. People can be very irrational in their anger. ATM fees are a perfect example. People “gladly” pay hundreds if not thousands of dollars each month to the government with nary a peep. Yet a $1.50 ATM fee has them out with their torches and pitchforks. So don’t naively think that just because the amount is small, it shouldn’t be a big of deal with your retailers. The amount is not the issue, it is the concept… and is everyone playing by the same rules.
A sense of fairness is very basic in the human condition. The unfairness doesn’t even need to directly impact the person – we have all witnessed people being deeply anguished by unfair acts committed on a friend or even a complete stranger. The concept of equity – and the fury when it is violated - lies deep in the human psyche. Read that again. The fairness bug can bite you from retailers who were not even involved in the unfair act.
Therefore, you tread on very thin ice if you simply “allow” chains not to pay the surcharge while popping everyone else with it. People don’t like to be a sap and won’t be overjoyed to discover they wouldn’t have had to pay the surcharge if they had simply refused. Put yourself in their shoes… paying it for 6 months or a year and then discovering you’re a sap. This most definitely won’t generate those warm and fuzzy feelings. Nor will these negative feelings disappear in any short-period of time. Remember the old saying… trust is much like virginity, once you lose it, it is dang tough to get it back ;-) And never ever assume this won’t get out on the street… it will.
Be careful as you implement this charge. Perhaps only apply it to accounts who don’t meet some volume hurdle – thereby giving you an out regarding the chains. The other retailers won’t like it but at least they might understand it – much like volume discounts. But much like volume discounts, it is still a burr under the saddle for those who are on the receiving end of the policy. However you decide to address the realities of your specific market, be careful and make certain it is fair… and your employees are completely trained and prepared to address the issue on the street. Just this preparation can help ensure the proper message is delivered to retail. It is a painful experience to have your own people put their feet in your mouth.
And please, please, please… if your direct competitor is willing to be the spear catcher on implementing fuel surcharges, use your head and get right behind him. Whatever minimal gains you might get by beating him up on the street is FAR exceeded by the very real financial gains of standing right behind him. And as noted above, these gains can become a permanent and substantial source of income. That said – and I almost can’t believe I’m saying this – if your competitor spear catcher is implementing an unfair surcharge, I most definitely would not get behind him… I most definitely would beat the hell out of him on the street… I most definitely would pour gas on the flames on unfairness. I would never want to be on the wrong side of a major fairness issue if I could help it. Never. And if your competitor is stupid enough to do so, you have an incredible long-term club to beat him with for years to come. If your competitor’s actions are truly seen as unfair, it will never be forgotten at retail. Perhaps I am just a coward but that is how much the fairness issue concerns me. Ignore it at your own peril.
Of course you can always just raise your prices to address rising fuel costs… we don’t need to discuss this since you all are aware of the issues this dredges up. Perhaps they are worth confronting, perhaps not… but it should be discussed as an option. It seems the chains are going to tell you either raise your prices or eat the energy costs… and other than operational adjustments, this might at the end of the day be the only viable option you have.
Also, as you look for products and technology to cut fuel consumption, ensure you examine total system cost and savings. As an example, purchasing some device that “saves” fuel but has a 435 year payback period isn’t a wise choice… even though it is a factual statement that it will save fuel. If you look to technology to help, focus on ROI not just savings while ignoring costs.
Rising fuels costs are a harsh reality for today’s distributor. Heck, they are a harsh reality for almost every business and consumer out there. They aren’t going to go away any time soon. For the short-term you may find your profitability is simply going to be less than it was in the past. I wouldn’t gladly accept this as a fact, and I’d do everything in my power to have it not be the case. But ultimately, it just might be. Don’t blame me… it might in the end just be the nature of the beast.