Biodiesel business models
This week I drove from Santa Cruz to Slatington, Pennsylvania to attend Alex’s graduation. This was a lot of driving for 4-days. Since I’ve been burning biodiesel in my car almost exclusively for the past 4 years, I decided to try to make it cross-country using only biodiesel. This turned out to be completely practical once I found the stations and their hours. One thing I noticed quickly was that I could predict what types of businesses listed in the National Biodiesel Board retail directory would have a reliable source of biodiesel based on their business model.
Businesses that sell several types of fuel tend to do well. They have several grades and types of fuel including standard highway diesel (now ultra-low sulfur). When the price of biodiesel goes up or down, these companies do a lot of cross-over business. This is important for them in that they can stay in business through fluctuations in the market, like grocery stores which offer both conventional and organic produce. It is also important for the consumer part of the market since it encourages folks who only bought petro-diesel to try biodiesel when the cost is low. All of these businesses reported that sales of biodiesel is strong and growing even though they see fluctuations.
The next major type of business are those that sell one kind or blend of diesel. A whole chain of truck stops (Sapp Brothers) sold a biodiesel blend last summer, but most of their truck stops did not carry biodiesel this summer because of the increased costs. Both the higher cost of vegetable oil and increased demand are tough on single-blend businesses. As soon as the cost of biodiesel exceeds the cost of petro-diesel, these businesses are vulnerable and have to switch back to petro, drop to a lower blend, or lose cost-sensitive customers. Likewise, an auto repair shop that sells biodiesel was about to switch from soy-based biodiesel to one made from rendered animal-fat because of costs.
Finally, there are the folks who are selling biodiesel because they think it is the right thing to do and they try to make a whole business just selling retail biodiesel. Some of these folks are idealistic flakes. Many of them do not have any business acumen. All of them are struggling to take a boutique niche product into mainstream volumes. This category includes Pacific Biofuel in Santa Cruz which recently closed their doors (although certainly less flaky than most). One thing I noticed here is that while many of the commercial fuel companies have card lock systems or credit card authorization systems, *none* of the biodiesel-only firms had them. Pac Biofuel reported to me that they needed to do 55,000 to 60,000 gallons per month to break even, but that they were only doing 50,000 gallons. Price to the consumer did not seem to be a big barrier to sales since they were charging the same for biodiesel as several stations in town were charging for petro-diesel (including the station across the street). I wonder how much additional volume they could have sold with a 24/7 credit card payment system.
