Farm equipment dealers and oil product distributors agree that bulk oil delivery offers dealers an edge in today's competitive environment, but it isn't for everyone.
Before Viscosity Oil Co. will take on an equipment dealer to handle the distribution of its bulk oil products, Jeff Hoch says they need to "convince us" they're up to the task. "Handling bulk oil is not for the faint of heart," says the company's president. "There can be significant barriers to entry, but dealerships that are able to make the commitment necessary to sustain a bulk oil program can also have a decided edge over their competition."
Viscosity Oil has been in business for more than a century and has produced CNH branded oil products since the farm equipment maker was known as International Harvester. The company, which is headquartered in Willowbrook, Ill., also counts Cub Cadet, Link Belt and other machinery manufacturers among its biggest clients. Today, the company provides bulk oil products for about 200 dealerships.
Among these are Birkey's Farm Stores, a 13-store Case IH and New Holland dealership group based in Bloomington, Ill., that has offered the service since 2001, and Service Motor Co., headquartered in Dale, Wis., with 6 Case IH locations, that has been at it since 1999.
Bulk vs. Packaged Products
Bill Wermuth, Viscosity's vice president of sales & marketing, explains that the first thing a dealer needs to do is differentiate between packaged and bulk oil products.
"They need to understand going in what it is they're getting into because bulk oil is a very different type of operation."
Wermuth explains when a dealer handles packaged oil, essentially they're working with another part number like any other repair part or off-the-shelf product. Handling the bulk product entails a different set of issues that range from what can be a significant investment in storage, handling and delivery equipment to operational issues. "We don't push bulk oil programs on dealers," says Wermuth.
He says his initial effort always involves getting dealers to understand handling bulk oil is as much a program as it is a product that needs to be tied in with the dealership's marketing efforts to grow its parts and service business.
The dealers Farm Equipment interviewed for this report are quick to agree with Wermuth's assessment that setting up a bulk oil program as a profit center in and of itself is absolutely the wrong approach.
Birkey's and Service Motor were pioneers in developing bulk oil services. Both initially set up their programs with the help and support of their oil supplier and their OEM.
For Service Motor, the impetus for even considering offering bulk oil was to get their customers to use the Case IH fluids. "We knew they were a higher quality fluid and we wanted our customers using it, but initially we couldn't compete price wise with the local oil distributors," says Charlie Truesdale, corporate parts manager.
To verify customer needs and wants, Service Motor conducted a survey of its customers and asked, if they had a choice and the dealership could offer a more competitive price on its bulk fluid, what would it take to get them to buy oil from Service Motor? "They told us that it would come down to offering oil and other fluids in bulk and delivering it directly to the farm," says Truesdale.
After studying the feasibility of what it would take to initiate such a program, the dealership presented a proposal to Case IH and Viscosity Oil. "They offered us a special loan package to acquire the equipment needed to get into the business," Truesdale says. "Without that, we couldn't have gotten started."
According to Truesdale, the initial investment was huge because the dealership needed to factor in the cost of storage tanks, metering devices, pumps, delivery vehicles as well as any facility costs that were required.
Wermuth also points out that dealerships must be alert to the fact there are additional responsibilities and costs associated with spill containment and possibly other environmental regulations that may apply to oil storage and distribution.
Like Service Motor, Birkey's Farm Stores worked with Case IH and Viscosity Oil to conduct customer focus meetings starting in 1999 to determine their needs and expectations if a delivery service was made available to them. Based on those results and further feasibility studies, Birkey's launched the program in 2001 with what the dealers say was an equally important step. This was to aggressively introduce the new program through a series of face-to-face customer group meetings.
Phil Fayhee, parts and service operations manager for Birkey's Farm Stores, says, to kick-start the new service, the dealership invited prospective customers to meetings at restaurants and meeting halls near its store locations. "We served a meal and had our oil and filter industry suppliers come in to discuss their products. We also explained our commitment, our investment and the action plan we were implementing, and asked for a commitment from those in attendance."
The dealers say the initial meetings to introduce the new bulk oil service included store employees as well. "We needed them to be on board, too," says Truesdale. "This is a huge undertaking."
Truesdale adds Service Motor was careful not to oversell the new service. "We didn't advertise the service initially because we wanted to concentrate on those first customers to make sure we got them set up and our own operations running. We didn't want to take on more than we could handle because everyone was racing pretty hard to get the program running right.
"We had a fair number of sign-ups at the meeting, but then followed up with visits to the customer and closed more deals that way," Truesdale says.
In addition to the presentations during its introductory meetings, the dealership also displayed the available storage products so the customers could see they could get them directly from the dealership.
For Birkey's, top-fill poly totes were offered at cost. "These sit on a stand and include dispensing pumps. They're much cleaner and neater looking units than having steel drums sitting around. A big benefit of offering storage equipment at an affordable price is we feel we're tied closer to our customers because they're permanent. There's more of a commitment on both our parts," says Fayhee.
Likewise, Service Motor also offered storage tanks. "What we did," explains Truesdale, "is if the customer committed to buying his oil products from us for 5 years, we furnished him with the tanks to store the oil at no charge."
Fayhee says customer response has been very positive in most cases. "Some took a wait and see approach but many signed up when they realized they only had to purchase 100 gallons a year to qualify and their cost was less. Our margins are greater using bulk, but the price to the customer is lower."
Expanding the Program
Once the programs were implemented and initial customers settled, both dealers say they launched aggressive promotional programs for their bulk oil services.
"We constantly advertise, link promos to the oil service, sell storage and dispensing equipment at cost, and run a route weekly and monthly to service them on the farm," says Fayhee. He estimates that Birkey's services some 700 customers on a monthly or weekly basis.
Truesdale says that Service Motor promotes the service at the dealership's open houses and farm shows where they participate. "We have a display of the smaller bulk tanks we take around to shows. Attendees will often stop in and ask why we're displaying the tanks." Today, Service Motor has about 400 customers in its bulk oil program.
The dealerships' customers are not all farmers, though.
Truesdale says that Service Motor has had success with construction equipment dealers and contractors, as well.
Birkey's has also expanded its customer base well beyond the farm market.
"I don't want to say we saturated the market for farm customers, but it got to a point where new sales had slowed down. So we looked at other possible markets in the communities we served and started calling on some of these accounts. Today, we service a wide variety of customers from industrial equipment, trucking, schools and other businesses that utilize oil in bulk quantities," says Fayhee.
He adds that Birkey's top customers are its own service shops. "Not only is the margin better there, even after the investment in dispensing equipment that makes their job easier and more efficient, but the ability to monitor and track inventory and usage levels is much better," Fayhee says.
Besides the oil Service Motor initially delivered, Truesdale says the dealership has also gone into bulk antifreeze, and more recently the diesel exhaust fluid (DEF) required for the new engines from Case IH and New Holland. They've also taken the delivery service into the parts and supplies business. "We've developed a program that we call 'Ready Stock,' Truesdale explains. "We place a metal cabinet with our customers for storing products such as filters, lubricants and sprays. The bulk oil driver checks the cabinets on his route and replenishes the products as needed."
The dealers agree that the success of their bulk oil delivery programs really comes down to the service itself. "The service we give the customers in most cases is more important than the price of the products," says Fayhee. At the same time, where Birkey's and Service Motor's bulk oil services have really paid off is the increased exposure it provides to existing and potential customers.
'Touching' the Customer
After successfully maintaining their bulk oil service programs for more than a decade, both Fayhee and Truesdale agree the biggest benefit is the dealership's ability to increase its frequency of customer "touches."
"We know we've increased our overall market share in our territory by adding bulk oil," says Fayhee.
"It gets us into people's yards we normally wouldn't get into," adds Truesdale. "In a lot of cases, we've found if a customer is thinking about a new corn planter or a new skid steer or another piece of equipment, he'll tell our driver about it before he ever says anything to one of our salesmen. So, it's standard practice for our driver to make a note of that and pass the information along to sales."
According to Viscosity Oil's Wermuth, dealers who have successfully launched and maintained a bulk oil service say it's not so much about the oil itself or the price of the products. It's about convenience and communication.
By providing bulk oil services, dealers understand they're providing a convenient service, Wermuth says. But what this really does is allow the dealer another contact point with his customers and often opens the door to his competition's customers.
"What dealers find is they're touching the customer more often and getting the benefits of those touches, not so much in oil sales, but by selling," says Wermuth. From his experience working with equipment dealers, he's found when customers call ahead to order oil, they're tend to request delivery of other products the dealer carries.
"It's not so much about the oil and how much money the dealer makes. The point is they've increased the frequency of customer touches," Wermuth says. "They're able to establish and maintain the relationship as customers become accustomed to doing business with the dealership, which opens other doors."
In the case of Service Motor, Truesdale admits the oil delivery driver is critical in the whole process. "We're on our second driver since we started the service and we're very particular about who we have in that position."
Trial & Error
Both Truesdale and Fayhee say they've had to make adjustments along the way to fine tune their bulk oil services.
Truesdale explains, "At first we didn't require a minimum order for delivery. Some customers wanted us to fill their 5 gallon pails in the yard. We found out fast it wasn't practical. Today, we require a minimum of 50 gallons before we'll make a stop."
Fayhee says Birkey's went through a trial and error phase in the early stages of its bulk oil program. "We didn't necessarily lay it out as clearly as we could have," he says. "Because we stressed it was a 'bulk' oil service, several customers didn't feel they would fit into the category of 'bulk' users.
"This was wrong. What we were promoting as 'bulk' only required a 100 gallon purchase to reach the first level of our program," Fayhee says. "The more they purchased, the lower their price. With the confusion we were missing a segment of the market. A lot of people want on-farm delivery but thought they needed to purchase 100, 200 or 300 gallons of oil. We corrected that by getting new, clearer information to them. After that, the program really took off."