Smaller deliveries just might be a heating oil distributor’s best friend. That’s the conclusion of Groundswell’s Shona Mullen, after analyzing fuel deliveries in Northern Ireland.
For many heating oil distributors, the accepted wisdom to maximise profits is delivering as much as is possible to as many tanks as is possible, spread across as few deliveries as possible. But having analysed deliveries on behalf of one fuel distributor in Northern Ireland, where average heating oil deliveries are typically smaller than in the rest of the UK – Shona disagrees.
Shona says, “We examined a range of deliveries undertaken within a 28 day period. What we found was not what we would have expected. For many years, a 900 litres delivery was the norm in Northern Ireland. Today, a distributor making a 900 litres drop might expect to make a gross margin of 7%. However, on a 500 litres delivery, gross margin increases to 10% and on a 200 litres delivery, it increases to 21%.
“Even when we removed variable costs from the equation, we still found it was more profitable for distributors to deliver a 900 litres delivery, over time as say a 500 litres delivery and 2 separate 200 litres deliveries, rather than a single drop. In this case, net margin increased from just under 4% to almost 8% . Remember that’s after allowing for the increased costs associated with 3 deliveries, instead of just 1 drop.”
A survey of 45 fuel distributors in Northern Ireland by OilFiredUp Rural Energy News showed that 28 of those surveyed offered 200 litres deliveries. A significant minority also offered 150 litres and even 100 litres deliveries. By contrast in Great Britain, most heating oil distributors have a minimum delivery requirement set rigidly at 500 litres.
“Distributors in Great Britain who wish to differentiate themselves from competitors, could do worse than look across the Irish Sea and see what their colleagues are doing in Northern Ireland. As well as being the largest in the UK, the Northern Ireland heating oil market is also perhaps the most dynamic.
“The advantages of smaller, more frequent heating oil deliveries for consumers are easily identified. At a time when fuel theft remains a significant issue, less heating oil in a tank means less for someone else to potentially steal. Smaller deliveries are more affordable than larger deliveries, allowing heating oil users to better align payment, with household income and potentially impacting favourably upon fuel poverty. And it recognises the reality that with boilers more efficient than ever before and homes better insulated than ever before, most heating oil users are today using less fuel than ever before. However, what hasn’t perhaps been appreciated until now, are the benefits lower volume deliveries can offer to heating oil distributors.”
But surely a move to lower volume, and by inference higher unit price deliveries will undermine the competitiveness of the overall heating oil proposition? Shona disagrees, arguing, “Those who focus on the per litre cost miss the point. Unit cost is less important to low income households than affordability. If heating oil was half the price it is today, 500 litres would cost just £135 – but what good’s that to anyone who only has £120?”