Fuel Supply Contracts 101: Understanding Your Contract with Your Fuel Supplier
An essential part of running a gas station is having a contract with a fuel supplier. There are several aspects of gasoline fuel supply contracts that a station owner must consider.
Terms of the Contract
Identify the term of the contract — in other words, its duration. In most cases, Oil Companies will require a brand commitment of ten years and site may qualify for incentives, such as rebates per gallon. You, however will be signing this commitment with a Branded Petroleum Marketer rather than direct with the Oil Companies themselves, so it is important to select one that can help you to grow your business and that you can trust.
Security deposits are normally collected when signing a fuel supply contract. This will normally be the amount for a full tank of fuel. This deposit is refundable, but is held to ensure that all expenses are covered for the fuel that is delivered to the location. Always ask about what kind of security deposit is necessary when negotiating a contract.
See what kind of credit you’ll get when buying fuel before EFT, or electronic funds transfer, is used to pay for it. For instance, you might get five or seven credit days — the number of days from the date of fuel purchase before your account will be tapped to pay the bill. This will be in writing in the fuel supply contracts, so be sure that you know exactly what the terms are, and that they are reasonable for you and your business.
Also, find out what the markup is on the fuel — the margin above the “rack” (the price when the truck picks up the fuel from the supply terminal). The margin is essentially the handling fee. All petroleum marketers should have their respective supply terminal’s pricing available to their customers. Southeast Petro has a portal on their website that customers can log into any time of the day, seven days a week to see the current daily rack prices.
It’s also wise to ask about taxes and freight charges, though those aren’t usually denoted in a contract as they are subject to change over time; however it is important to know what you are currently being charged. It is also important to inquire about commodities schedules and volume commitments as most companies will have a minimum requirement for branding and incentive qualifications.
Choose the Best Brand
Choosing the brand that your station will display is a vitally important part of your business. If you are getting into the business with the mind-set that all brands are the same, please do a little bit of research on your part as to what each brand brings to the table. If you need help with this, please start with our article on how to choose the right brand for your gas station.
You may be restricted as to which brand you can have at your site which is determined by the location of your store and the store’s sales history. If there is a particular brand that you would like, but there is already the same branded station less than 2 miles from your location, chances are you will not be granted permission to get that particular brand for your store.
Ask yourself what sales volume you might gain by choosing a brand that brings additional gallons to your location. If you have a particular brand in mind, stop in at a few of those branded stations and ask the owners what their experience with the brand has been on uplift in sales both inside and outside. A lot of times, the owners are open to talking about their personal experiences and you will gain much more from those conversations than any internet research you can do.
You will also want to know which brand has the best technology, the most industry innovation, and the best customer perception. Gas and convenience stores are no longer just gas an convenience stores – they create an experience for the customer. With new technologies such as smart phone payments, loyalty cards and high profile images, you will want to make sure that the brand you have your eye on is keeping up with the competition before you sign any fuel supply contracts.
What Comes with the Brand
Find out what you get for branding your station with a particular oil company, and who pays the costs of branding. These terms are spelled out in the fuel supply contracts in black and white. Depending on what your current station brand is, the money available, and the state of the image, you may be looking to have major upgrades such as new canopy fascia, lighting, gas price signs and gas pumps done. Some of these upgrades may be required per the brand standards, and some may be a personal preference of the station owner. Whatever the case, under the fuel supply contracts you should always understand what costs are covered, and what your cost will likely come out to be for the branding and upgrades when it is all said and done. Find out what normally goes into branding a station by reading our blog here.
More than 58 percent of stores that sell fuel aren’t branded, but a branded fuel supply contracts give consumers confidence in a name they know and trust. Know the requirements of the oil company brand, such as credit card networks, brand signage, service standards and loyalty programs. Here is another great article by NACS that outlines the branded pros and cons.
Other Terms and Costs Included in a Branded Contract
In addition to branding costs, fuel supply contracts usually outline the amount of fuel a retailer must sell each month. This will vary by oil company, so be sure that you can meet those requirements before signing a contract.
You’ll want to work with your jobber or petroleum marketer, preferably with an experienced company like Southeast Petro, that will be your partner in negotiating a better deal with the oil company. If you are looking for a jobber, but don’t know how to evaluate them, check out this article on what to look for in a jobber.
