How do you save at the pump? This answer seems to address what many fleet managers differ upon. Basically, it comes down to two strategies in pricing; cost plus or retail minus.
Cost plus refers to the retailer’s cost to the point of dispensing fuel at the pump. Obviously, the cost involves manufacturing, transport, and taxes but this is not the retailer’s true cost. The retailer must add on the lease, labor, marketing, utilities, and franchise costs. Also, most cost plus pricing schemes additionally add in a small profit margin. For these reasons, cost plus pricing model works in favor of the seller in inflated pricing scenarios, such as markets where there is a lack of competition, government contracts, single buyer contracts, and public utilities. An obvious abuse of the cost plus model is the profit may be artificially inflated, thereby passing the increased cost onto the unwitting consumer.
In fleet fueling, the cost plus model is predicated on the average daily cost of fuel nationwide, information supplied by the Oil Price information Service (OPIS). The information is beneficial to the fleet manager when all cost factors are known and fleet managers who track OPIS daily could benefit from this pricing strategy. However, this strategy also makes the pricing structure complex by forcing an examination of all line item costs and it’s wrought with examples of fraud committed by the retailer. An example of this occurred when Flying J where sales associates were rewarded for taking advantage of lesser trucking companies and fleets who did not understand cost plus pricing. The result was a 2012 FBI investigation into Flying J’s practices and detailed in several news outlets.
Retail minus differs in that the price is discounted from the advertised pump price, without regard to cost factors. Retail minus works in areas where competition is driving prices and the profit margin is compressed. For fleet managers, retail minus pricing works best in areas where there is a choice in fueling brands and shopping for pre-negotiated discounts at those retailers. In consideration of this, refueling shouldn’t be based solely on the lowest pump price. That’s because a one mile difference searching for the best possible price can result in a loss of savings for the average OTR driver. Fleet managers are encouraged to track fuel purchasing histories and compare the average cost savings when using retail minus.
The regional differences in pricing models are based on factors that benefit the fuel supplier. Profit margins can inflate in markets where distribution, transportation, state taxes, and marketing costs increase the pump price significantly. In these areas of the country, cost plus models can be found that benefit the retailer by ensuring their profits are intact.
Profit margins are compressed in regions close to fuel refineries and the branding of the fuel is not a factor. These markets are more likely to adopt retail plus pricing since the competitive nature encourages volume refueling at their locations.
Also, diesel provides a greater profit margin as compared to gasoline. This fact is why many truck stops offer cost plus pricing for fueling in their own proprietary network, despite other regional factors in play.
Overall, many fleet experts agree that retail plus is proven to provide better cost savings over time. This will no doubt be a trend since branded refueling retailers are becoming increasingly competitive in their pump pricing, thereby giving an advantage to consumers who use retail minus programs.