Oil Dealers Adapt To Change | Businesses Diversify Amid Declining Consumption, Push For Energy Efficiency
When David Brunell began working in the 1970s for his family’s Worcester-based heating oil business, Pioneer Oil, a gallon cost 37 cents and the company made its money by simply buying and delivering fuel.
The heating oil business is far different today than it was back then. Besides oil being much more expensive, heating oil consumption has been on the decline for several decades. That trend has been fueled by more energy-efficient boilers, windows and insulation, as well as natural gas taking up a larger market share in homes across the country.
Brunell, now Pioneer’s president, said his company has been forced to adapt to survive.
These days, the company sells and installs central air and heating systems as well as energy-efficient boilers and tanks. Brunell said those services are a way to diversify income streams as demand for heating oil remains ever-present, but on the decline.
“That decrease is not going to go away,” Brunell said. “The thought process is to try to do more business with customers in other fields, maybe do more plumbing or some chimney work.”
Pioneer Oil is not alone in diversifying its services and products, according to Andrew Heaney, president of HeatUSA, the largest heating oil buying cooperative in the Northeast.
“There’s been a massive shift in consumption patterns,” Heaney said. “Companies are sort of repositioning themselves as home comfort companies as opposed to just heating companies.”
The percentage of homes that use heating oil as a primary heating source has been declining for decades, according to data from the U.S. Energy Information Administration.
The number of barrels of the fuel that Americans consume fell 22 percent from 1991 to 2009. And the percentage of households that use heating oil also fell during a similar time frame. In 1991, 11.4 million occupied households had oil heat. By 2007, there were 8.7 million.
Brunell, of Pioneer, said consumer habits, such as using far more hot water and building larger homes on average, have helped balance out lessening demand for oil dealers.
But it doesn’t balance off entirely, and he said dealers need to continue to innovate and attract large customer bases to make up for the difference in revenues.
Efficiency Plays Big Role
Oil dealers promote some of the very energy-efficient products that lead to lower demand for their main product.
Brunell said his technicians regularly recommend efficiency programs to customers. The company also sells energy-efficient products that burn less fuel.
Though it means lower consumption and therefore lower revenues, oil dealers understand that it’s important to reduce dependency on foreign energy sources, said Michael Ferrante, president of the Massachusetts Oil Heat Council.
“We need to use less petroleum,” Ferrante said. “I know that might sound strange coming from the head of a heating oil dealers association.”
For Brunell, it comes down to providing value to customers and building strong relationships with them.
“You have to do stuff that helps your customer base,” he said. “We actively promote high-value conservation.”
That means promoting investments that show returns. For example, a boiler temperature modulator costs about $360. But by lowering the temperature of a boiler at times when maximum heat is unnecessary, it creates average annual savings of between 12 and 15 percent, soon paying for itself, he said.
The heating oil business is structured differently from the natural gas business, and oil dealers see the difference as a disadvantage when competing for customers and heating systems in new structures.
Heating oil delivery is a fragmented industry, with many independent dealers buying from wholesalers and delivering the fuel to homes and businesses. Oil dealers typically offer similar prices per gallon, so they compete on reliability and customer service.
The natural gas business is run by utilities, who own the pipes and infrastructure required to deliver the fuel to customers.
“Utilities are powerful and have strong ad campaigns,” said Ferrante, of the oil council. “Oil dealers have lost market share.”
Utilities are able to offer such perks as rebates to developers who are weighing the sort of heating system they want to put in, as well as home energy audits, because they charge customers an efficiency fee on their bills, Ferrante said.
It’s something envied by many in the heating oil industry, and there is legislation on Beacon Hill right now that would institute such a fee per gallon for heating oil.
Ferrante said oil dealers would like to be able to offer energy audits to customers. It could open up the door to more sales of efficient equipment, he said.
But dealers, sensitive to charging even a few more pennies a gallon, are wary of adding a fee to their prices.
“They’re so afraid of raising the price and we understand that,” he said.
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