Understanding Disparate Demand Cycles Within Fuel Retailing

9 August, 2018

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Within the fuel and convenience retailing market, demand and consumer behavior can often times be erratic and sensitive to factors that are out of your control. Across different sites, different daily, weekly and seasonal cycles of demand can develop. Understanding these cycles is critical to maintaining an appropriate strategy and maximizing your retail network's profitability. 

There are three distinctive types of demand factors — typical, artificial and disruptive — that can affect the cycles at any given site. These factors layered over one another create complicated demand cycles that can be difficult to navigate. To help you understand and manage these disparate cycles, we'll dive into the three categories of impactors and how to react to these impactors when they arise.

Typical Demand Factors

Typical factors that affect demand tend to be steady and more predictable than the artificial and disruptive factors. They tend to be focused around different periods of the day, week, month or year. Despite their predictability, they can still be varied and complex. These factors include:

  • Geography: Sites in shopping centers will have very different cycles than sites on major thruways. For example, if your site location is on a very transient route, you may find peak demand in the mornings and evenings and almost none during the weekend.
  • Demographics: Depending on the demographics of the customers in your area, you may see peaks around paydays, before or during certain holidays or other specific times.
  • Seasons: Demand may fluctuate based on the season. For example, demand may increase in the summer and trickle later into the evening, while deep in the winter months, demand may drop significantly.

All of these elements layered over one another create the base demand for a site. But there isn't a 'one size fits all,' making it difficult for retailers to plan and strategize around. For example, even sites that are all transient, have the same average demographics, and the same holidays are going to have varied cycles from site to site.

Artificial Demand Factors

Demand complexity also increases as artificial factors are introduced, as these artificial impactors need to now be overlaid on the typical demand cycle, and the two will almost never follow the same cycle. Artificial demand impactors are those that are introduced mainly by retailers themselves, such as:

  • Loyalty/Promotions: It has become increasingly common for smart retailers to drive customers to their site when they want them there, by offering promotions or loyalty-based offers. The presence of these 'timed' promotions will undoubtedly impact behavior and hence demand at a site.
  • Complementary offerings: Factors such as car washes, c-store, or food service will change the demand at particular sites. The demand pattern is now not just limited to those who are coming to buy fuel — customers will be drawn to the site as a result of these complementary offerings and may then buy fuel while they are there.
  • Restoration cycles: In a chase for volume in mature markets, retailers may introduce restorative pricing cycles which can draw demand back to their sites. As well as creating price volatility, we have seen that over time, consumers will become savvy to the timing of the upward and downward moves and, where possible, change their purchase behavior as a result.

These artificial impactors have become the norm for today's mature market. Along with the typical demand factors, these artificial factors increase the complexity of a site's demand cycle. Imagine a poorly-branded site on a transient route that offers a car wash and fresh food options — that demand cycle has many factors pulling it in different directions, which can be tough to decipher and respond to. The key is understanding the degree to which the typical demand cycle is impacted by the artificial disruptors and how.

Disruptive Demand Factors

Disruptive factors are the third type that can affect demand cycles. These are the factors that are not necessarily cyclical, but can impact the overall demand both long and short term at an individual site, or your network as a whole. These include:

  • Economic forecast: If the overall economic state of the country is good, then demand may increase. Conversely, if the economic forecast doesn't look promising, people may spend less on fuel and even less on in-store offerings.
  • Weather: Because the weather affects when and how often people drive, it can affect demand cycles. For example, a severe snow storm can cut demand drastically, whereas a sunny day may facilitate increased demand.
  • Oil price changes and outlook: The outlook of fuel pricing can impact demand heavily. This summer, prices have been steadily rising, which may cause difficult and complex demand cycles to crop up for different sites.
  • Other retailers: If a new retailer buys several properties in your market, or if an existing retailer begins a refurbishment effort, demand at your sites may shift completely.

None of these factors are steady or certain, which can make it difficult to understand how they affect demand cycles and how to deal with them when they arise.

How to Balance and Manage Demand Cycles

As the market matures, the key to managing complex demand cycles is understanding how these typical, artificial and disruptive factors work together, how they can all be used to understand your network behavior and how they can help drive your strategy.

You must find a balance between a quick and automatic reflex, and a flexible and incremental change, in response to these many factors. Different sites, markets and products will need to be managed differently to ensure you're maximizing your network's share of the available demand. Be careful that pricing frequency is managed appropriately given the market dynamic — it may be tempting to adjust prices immediately to increase demand, but this is a shortsighted tactic that contributes to long-term volatility.

Also, the frequency with which you may need to assess these many factors will depend on your retail network's stage of maturity. If you're in the latter stages of maturity, it is likely that typical and artificial demand levels have probably been established for a while, so the only time your cycles would shift is if there's a significant disruptor.

However, in the early stages of maturity, such as deregulating markets, it could take decades to reach stability. There's more potential for disruption as everyone is finding their feet and consumers are becoming more and more price aware. Just one new retailer could shake up the entire market. In this case, you may want to assess your demand cycles more frequently.

A smart market intelligence tool will allow you to review your cycles frequently and automatically.

By understanding your demand cycles and managing them appropriately given your network maturity and the market dynamic, you can optimize your strategy, boost demand and maximize total site profitability.

Contact Kalibrate to learn more about how we can help you navigate through these disparate demand cycles.Talk with a Kalibrate Strategy Specialist

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