The Impact of Consolidation on Fuel Pricing Strategy

12 April, 2019

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Merger and acquisition (M&A) activity continues to make its ascent in the fuel retail industry. In the wake of consolidation, market disruptors like alternative fuels, an increasing pool of consumer data, and advanced predictive technology, many fuel retailers are left scrambling to understand their place in these new markets and follow their consolidation strategy.

It's true that M&A is tough — nobody feels comfortable in times of great change and uncertainty — but a good consolidation strategy can have a vital impact on the success of your fuel network. Not only can it open your network into new geographies, but also enhance your brand offerings as well.

Best of all, a major merger could help you push your way to the top of the competitive market. If you acquire a 300-site network, for example, that's a huge leap in the reach and capacity of your overall network. You can go from being a subordinate to a dominant player in the market, and your pricing power will increase.

But despite all of the opportunity you create for yourself by merging with another network, consolidation engenders a number of major challenges as well.

Discordant Systems, Siloed People, and Brand Divergence

According to a joint study conducted by Deloitte and Corporate Board Member Magazine, the most common and acute pain points experienced by CFOs in the wake of M&As involved consolidating business systems and achieving cultural fit across both organizations. Everything else — including balancing budgets, streamlining the business model, and making real estate decisions — comes second to that.

That's because the technical restraints involved in joining business databases can cause a major headache. You also increase your risk profile, because until your systems can speak to each other and IT isn't quite so overloaded with work, the security of your data is hampered. While IT is working on consolidating these systems, your visibility as a pricing analyst is reduced and delayed.

But post-consolidation is the time when pricing analysts would benefit most from that visibility. M&As change your position in the market, so it's critical to have access to all the historical data from both businesses as a single stream of information. That way, you can make empowered decisions across your combined business and adjust your strategy accordingly.

If that weren't enough, a consolidation creates silos of employees and culture. Different pricing analysts will be working with different methodologies in different locations. In order to price effectively, you need to standardize your operations across the entire business. Recognize the areas operating well and allow them to continue, and cut the things that don't work in your new reality.

Building A Post-Consolidation Pricing Strategy

Once your systems are in a better place and your people are working as one unit, you need to develop a new pricing strategy altogether. The key is to start with your brand.

How do you converge the two brands into one? You need to understand what your new brand promise is and be true to that moving forward. Because some of your old sites might be close by to the company you acquired, you might be cannibalizing too much revenue from yourself, so you need to re-define your micro-markets. In some cases, this might require closing some sites in order to maximize the impact of the others.

Additionally, think about your offering as a whole — how will elements like quick-service restaurants, car washes, or gyms impact your pricing power? The volume magnets for each brand are probably different, so you need to push the things that are working across your network to increase your pricing power.

Ultimately, a consolidation will have major implications for your overall pricing strategy — but those implications aren't impossible to work through if you have a good consolidation strategy. Use the data available to you to inform your next moves and focus on maximizing the 7 Elements for Fuel and Convenience Retail Success to ensure you hit the ground running post-consolidation. 

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Topics: Fuel Pricing

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