Tuesday, February 24, 2009

How Do You Make Money? Volume!

I recently had the opportunity to visit with a Midwestern propane retailer (our meeting was serendipity - no plotting, planning, or scheming endeavored). That retailer helped me understand in our brief conversation that the competitive landscape of the Midwest remains brutal and margins remain depressed. It is sad, but it seems there is at least a 5 or 6 state territory of the Midwest that is bound and determined to give propane away. Yep, the industry doesn't like making money here in Missouri. 30 cent margins are typical for residential business, and even in the current winter margins haven't expanded much past 45 cents. It is a tragic condition of a market that moves based on the illogical business decisions of the least disciplined businessperson. The business which uses a 12-year old bobtail for front-line equipment is the one that leads the market price lower.

Ages ago, I worked for a co-op. Some of the folks in that organization said "a business goes broke by breaking even." They were right, 'cause the co-op I worked for is now out of business.

Early this last summer, I had a conversation with a propane business owner that was very engaged on a national level in our industry. One of his comments was "The propane industry needs healthier margins in the Midwest. My company won't even deliver large drop ag gas for the standard retail margin in Missouri."

Have we really delivered so little value to the consumer that we resort to giving product away at no real discernible margin?

My conversation with my Midwestern counterpart was invigorating, though - as I began to understand this marketer's mantra: "you can't fix stupid." Even still, the situation made me think of one of my favorite Saturday Night Live short skits. After listening to this one minute clip, wouldn't you agree that breaking even makes no sense?

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