Planning/Saving for a Higher Gas Price Day

Discussion
May 08, 2006
George Anderson

By George Anderson

A gas retailer in Minnesota has borrowed a program from home heating oil companies in the Northeast that allows consumers to buy large quantities of gasoline in advance at locked in-prices.

First Fuel Banks, reports The Associated Press, bills itself as the only retailer in the U.S. where consumers can buy gas in bulk at a set price to protect themselves from increases at the pump.

Today the nationwide average for a gallon of gas is $2.94. Art Altrichter bought 500 gallons of gas from First Fuel Banks at $2.03 per.

Pointing out the obvious, Mr. Altrichter told the AP, “Right now, to be a few pennies over $2, when it’s as high as it is? That’s a real deal.”

Mr. Altrichter said that the deal he made is nothing compared to what one of his neighbors did. Planning back a few years, the neighbor referenced is said to have purchased gas at 99 cents a gallon.

First Fuel Bank’s program is open to anyone who wishes to join. Consumers join the program with a $1 lifetime membership fee and then buy as much gas as they wish at the prevailing market rate. When they roll into one of the retailer’s six locations in and around St. Cloud, Minn. they swipe a card and input a personal identification number. The amount of gas they use is deducted from their reserve.

According to the retailer’s CEO Jim Feneis, 300 of First Fuel Bank’s members have prices locked in below $1. The most ever purchased in advance was $400,000 worth of gas.

Should the price fall below what consumers paid in advance, then they can buy gas elsewhere and leave their reserve at First Fuel alone.

Sheila Hallerman first learned about the gas reserve program when she was given a gift card as a present last year. She later purchased 100 gallons of gas from the program at $2.40.

“It still hurts,” she said. “But not as much as it could.”

Moderator’s Comment: Is the First Fuel Bank program worth emulating by other gas retailers? What advantages/disadvantages do you see for the retailer
with this type of program? Are there other areas in products and/or services where giving the consumers the opportunity to bank purchases might hold some promise?

George Anderson – Moderator

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9 Comments on "Planning/Saving for a Higher Gas Price Day"


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Al McClain
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Al McClain
14 years 9 months ago

This program seems a little extreme and I don’t see many shoppers forking over hundreds of dollars to make advance purchases. However, the price of gas is continuing to squeeze consumers. At the FMI “Speaks” presentation today, they cited statistics that 72% of shoppers are buying less luxury items, 69% are eating out less/at home more, 64% are buying more PL, and 41% are trading down to less expensive restaurants.

Bernice Hurst
Guest
14 years 9 months ago

It makes sense to me if you can afford it. The value of the money invested in the potential discount is probably more than what little interest that amount might earn in a bank. If it isn’t invested in gas or something else, it could easily be spent on more day to day purchases leaving less available next time the tank has to be filled. On the other hand, it is giving the retailer the benefit of having consumer dollars hanging around accumulating interest. In the UK, gas and electricity companies are offering deals where you can fix the price you pay for an agreed period of time but that price is higher than today’s rather than less therefore more of a gamble. With the gas deal we are discussing today, the only way to lose is if, as David suggests, the company goes bust. Otherwise, if prices go down you can simply keep saving what you’ve invested in and buy somewhere else for less. Can’t see much way of losing in this arrangement.

Kai Clarke
Guest
14 years 9 months ago

This is a great idea! The airlines, shipping companies and other large users of fuel have done this for years. Now a company is allowing others to make the same (but on a smaller scale) decision. Although this requires a small amount of planning, anyone who drives, especially small businesses can take full advantage of this. This is something which the warehouse clubs and grocery stores should look at, since it could really help increase customer loyalty, as well as give them a competitive edge. It is easy to implement and offers a great reward in times of rising fuel prices.

David Livingston
Guest
14 years 9 months ago

This will probably not catch on. Otherwise Wal-Mart and Sam’s Club would already be doing it. What happens if First Fuel Bank files for bankruptcy if they get caught in a squeeze? Or what if we are forced to begin producing vehicles using alternative fuels? What if there is a gas shortage and they run out of gas? I think I am better off just going to the gas station and using my credit card that rebates me 5% on fuel.

Ragnar Haugan
Guest
Ragnar Haugan
14 years 9 months ago

My consumption is already concentrated at one supplier of gasoline, heating oil etc. And if the oil companies can give up to 30 % discount for prepaid consumption and nothing extra when we pay at delivery, I will feel (very stupid and) cheated for years!! Those margins should not be available!!!

Why should not others feel the same?? Sorry, and to the oil companies – take care of your long time customers — do not let them down!!

Mark Lilien
Guest
14 years 9 months ago

Jim Feneis of First Fuel Banks should get the “Most Creative Gas Station Retailer of the Year” award! There are eighty skillion gas stations in the USA. When was the last time one of them did anything creative successfully? And it’s a great idea because it’s hard to copy: (1) he uses fuel tanks 7 times the size of the competition and (2) he hedges fuel prices using the commodities market. Who cares if only 5% of the drivers want this? 5% of the gas market is enormous. This is a natural for Costco and Sam’s Club to emulate. A few high-end wine stores allow their customers to buy first growth wines before they’re shipped. Why not gas and fuel oil?

Karin Miller
Guest
Karin Miller
14 years 9 months ago

Yes, consumers (with cash available) certainly would enroll in a program to pre-purchase energy products at the 30%+ discount indicated in the above article.

However, if it is possible for energy suppliers to discount future purchases that drastically and remain profitable, it would surprise me (given their thin profit margins).

W. Frank Dell II
Guest
14 years 9 months ago

While the idea of a fuel bank makes sound economic sense in reality participation will likely be limited by consumers. Over the years, there have been many opportunities for consumers to join together and buy in bulk. Except in select rural areas, consumers have not jumped on the bandwagon. The most we see is pantry loading by shopping at a membership club. The retail industry has done bulk fuel buying for its own use. We can expect to see more organizations that operate a fleet to expand their participation, but not consumers. Primary reason is the dollars that must be committed.

James Tenser
Guest
14 years 9 months ago

Forward buying fuel in this way makes sense if you’re betting that prices are going to continue to rise at a rate that is higher than the return you might receive on other investments. Gas prices are volatile, making this calculus difficult for the average consumer.

In general, only people with discretionary investment assets will be in a position to take advantage of this in a meaningful way. That’s exactly the segment of our society that is least sensitive to fuel prices.

If I were a rich man, I think I’d prefer to hedge by investing the same dollars into a stock market index fund.

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