There is an E15 consumer disconnect

Sheetz, Thortons executives give careful thought to strategically offering the new fuel.
By Susanne Retka Schill | August 16, 2016
Sheetz, Thortons executives give careful thought to strategically offering the new fuel. This article appears in the September 2016 issue of Ethanol Producer Magazine.

Almost weekly, another announcement is made about a retail location offering E15. The rollouts, large and small, are indicators E15 is gaining steam and, in late July, HWRT Oil Co. announced it will offer pre-blended E15 at four of its terminals in mid-September, with plans to add 17 more terminals in seven states. Getting E15 available at the terminal level is a big step. While these are signs E15 momentum is building, the story told by executives at two major convenience chains illustrates the challenge ahead still is significant. For one, E15 has a brand problem, one that’s shared by E10—consumers don’t know what it is.

“The problem is there’s nothing that calls it E10,” says Mike Lorenz, executive vice president of petroleum supply for Sheetz. “So, while the dispenser says—and the wording changes from state to state: ‘contains up to 10 percent ethanol, contains 10 percent ethanol, may contain 10 percent ethanol’—there’s no place it says E10.” That’s the disconnect, he says. “Even if I know it’s 10 percent ethanol, I don’t know that it means E10. So when you say, ‘How about buying E15?’ they say, ‘What are you talking about?’”

Jeff Gallic, vice president of fuels for Thortons, concurs. “Consumers are familiar with unleaded, midgrade and premium. They don’t know what E10 is, so how can they know what E15 is? And they buy E10 every day when they purchase unleaded fuel.” 

A recent poll of 1,500 drivers conducted by Reuters and Ipsos confirms the retailers’ observations. More than half of respondents said they were unfamiliar with ethanol and a similar number said they pay little or no attention to whether the gasoline they bought contains ethanol. Both the survey results and interviews with motorists show cost and convenience trump everything, with 93 percent of those surveyed saying price influenced their decisions and 80 percent said location of a gas station was a priority.

The approach to overcoming the disconnect varies. Thortons, which is rolling out E15 in its Chicago market, has trademarked its chosen name. “We call it Unleaded 15, instead of E15, because it seems easier for the consumer to understand,” Gallic says.

Lorenz points to Minnesota retailers who call it Regular 88 or Regular Plus. Sheetz decided to stick with E15 when it started its rollout in North Carolina. “If you call it Regular 88, it really doesn’t tell you what it is. It really doesn’t tell you it’s got 5 percent more ethanol,” Lorenz says. “There was a concern that we want to be upfront and honest with people, and not be deceptive. That’s why we went with E15.” Having a consistent brand nationwide would be helpful in gaining consumer acceptance in the future, he adds, as the fuel offering spreads.

Sheetz and Thorton executives, who both have offered E85 for years at some locations, say their teams’ familiarity with ethanol made the discussions about offering E15 easier. The availability of grants to help with the infrastructure was a key factor for both in giving the projects a green light—grants from the Prime the Pump industry-supported fund and the USDA Biofuels Infrastructure Program.

Chicago Introduction
Based out of Louisville, Kentucky, Thortons Inc. is an integrated independent fuel retailer with its own terminal, a fleet of fuel tankers and biofuel blending infrastructure. Thortons got into E85 early, first offering it in 2005 and building up to 90 retail stations, along with E30 at nine locations in Indiana. It operates 181 C-stores in six states: Illinois, Kentucky, Indiana, Ohio, Tennessee and Florida.

With a long-time relationship with the ethanol and biodiesel industries, Thortons was receptive when Prime the Pump came to the company suggesting the USDA Biofuels Infrastructure Program could be a good opportunity. The company chose to focus the rollout in Chicago with its concentration of 44 stores and the fact that it is a reformulated gasoline (RFG) market. Due to air quality issues, the U.S. EPA requires low-volatility RFG be sold in the Chicago area, making it possible to offer E15 year-round to all vehicles 2001 and newer.

By late July, Thortons had nine stations selling Unleaded 15, with the expectation that all 44 will be done by early 2017. “We’re really pleased with the results so far,” Gallic says. “The volume we’re selling is higher than we expected. It varies, but we’re satisfied with the amount of unleaded 15 we’re selling. We’re discounting it 3 cents a gallon, compared to unleaded.” 

There are three categories of stores. Newer stores already have E85 tanks in the ground and many have the piping in place, so changing out the dispensers takes about a week, Gallic reports. Some locations have the tanks, but need additional piping along with new dispensers, taking about two weeks. The big disruption comes when a new tank needs to be buried, often requiring the property to be closed. “You lose revenue every day you’re closed, which adds to the cost of project. The grant money is available for the equipment and installation, but the grant does not include reimbursement for revenue lost while your location is shut down,” Gallic says. “Our expense is fairly substantial for this project.” Once all stores are complete, the company will be rolling out a promotional campaign.  

Mid-Atlantic
Pennsylvania-based Sheetz ranks in the top 20 convenience store chains nationwide with 525 stores as of midsummer. That number keeps changing though, as it’s been adding 30 stores a year. The goal, Lorenz says, is 750 stores in the six states served: Pennsylvania, Maryland, Virginia, West Virginia, Ohio and North Carolina. It chose North Carolina for its E15 rollout due to the concentration of 83 stores, with most located in two urban markets.

“The grant we got from Prime the Pump was the No.1 impetus for introducing and putting in E15,” Lorenz says. The company has long anticipated adding a fuel, so tanks already are in the ground in most places. Once they complete the North Carolina rollout, and with the help of the USDA Biofuels Infrastructure Program, the company plans to introduce the fuel in four other states.

With the price sensitivity of consumers, Sheetz sees the 7 to 10 cent discount it offers for E15 a great way to attract customers. Located in a conventional gasoline market, E15 sales dropped off during the summer months when the fuel had to be limited to flex-fuel vehicles. Once the summer is over and any 2001 or newer vehicle can once again use E15 and the last of the stores are converted, the company plans to launch its promotional campaign.

“E15 is a great product. It’s a good value proposition for the customer, we can offer it more cheaply than 87, it’s higher octane,” Lorenz says. “And then you have the story behind ethanol: it’s cleaner burning, so it’s good for the environment; it’s U.S. made, so it’s American jobs; and you’ve got energy independence, reducing our dependency on foreign oil.” With such a great story, Lorenz is pondering the best way to promote it. “There are people buying it. But if you look at the value, there should be more people buying it. That’s our goal, but how do we get there? It’s not as simple as it seems.”

Consumer education is important, but he points out you can’t force someone to get educated. It’s well-known that the consumer is sensitive to gas pricing, he adds. “They should be all over this. It’s one of those deals where it should sell itself, but it doesn’t.” He has given a lot of thought to crafting the right message. “It’s not that people are anticorn or ag or ethanol, necessarily. Our research has shown 90 percent of the people are oblivious, while 5 percent are pro-ethanol and 5 percent are anti-ethanol,” he says. “The majority of the people don’t have a reason to want to know. What’s going to convince them?”

One of the functions of the Prime the Pump program beyond helping with grants is to share what is working as E15 is rolled out in different markets, says Mike O’Brien, vice president, market development for Growth Energy. Sheetz and Thortons are just two of the 30 top retail chains being recruited by Prime the Pump. It can take two or even three years from the first discussion with a company about introducing E15 until it appears at the pump, O’Brien says. “It’s important to understand, if we’re going to make E15 successful, that’s the kind of effort it’s going to take.” 

The long-term potential is significant. The targeted chains operate more than 4,800 stores representing nearly 12 billion gallons in total gasoline sales. If the projected overall 17 percent blend rate is achieved, that could generate 815 million new gallons of ethanol sales.


Author: Susanne Retka Schill
Managing Editor, Ethanol Producer Magazine
701-738-4922
sretkaschill@bbiinternational.com