Optimizing Fuel Pricing in a Convenience Retail Environment with AI and Machine Learning Posted on : Aug 17 - 2019

In this special guest feature, Niels Skov, SVP, PDI Fuel Pricing Solutions, outlines how fuel pricing is a complex business for convenience retailers. Using advanced digital capabilities like AI and machine learning to get fuel pricing right can have a significant business impact far beyond an operator’s raw margins on gasoline or diesel. Niels is responsible for the strategic vision for the fuel pricing solution set and working cross-functionally to deliver PDI’s solutions to the market. He has a strong track record of business transformation, technology leadership, and commercial success in data-driven markets and brings vast global experience to the team with a career that has taken him all over the world. Before coming to PDI, Niels was with Genpact, where he was responsible for building new solutions and service offerings for enterprise customers of the Contract Management product line.

In the U.S., convenience retailers sell an estimated 80 percent of all fuel, representing on average 69.9 percent of a c-store’s total revenue. With so much hinging on fuel sales margins, it’s critical for operators to get their fuel pricing right. Fortunately, automation, AI and machine learning can help convenience retailers optimize this core aspect of their business.

Retail fuel prices have traditionally been set based on the best available data. Decades ago, that meant considering the wholesale cost of fuel and the rates a convenience retailer’s immediate competitors were offering. Establishing a desired profit margin and determining what consumers were willing to pay have also been key considerations. These data points are still at the heart of fuel pricing strategies, but three things have changed significantly: there are now many more data points to consider, information is available in real or near-real time, and very little of this process needs to be done manually.

Today’s convenience retailers don’t have to manage their fuel pricing based on static margins or by driving around checking on competitors’ posted per-gallon prices. Instead, automated pricing tools (some more sophisticated than others) are available, allowing c-store operators to modify the price at which they’re offering a gallon of fuel as many as 20 times a day, dynamically and without the need for manual entries.

The Data Advantage

Even convenience retailers who don’t adjust their advertised price regularly can benefit from an automated, data-driven approach to fuel pricing. A pricing strategy and system that accounts for more than just the essential supply and demand data will produce a more optimal price and profit. Comprehensive pricing systems incorporate historical trends, data from in-store (non-fuel) sales, loyalty program data, seasonal trends, special events, time of day, and even the performance of the convenience store network (if the c-store is part of a chain). All this information provides more precise and profitable fuel pricing, but also requires sophisticated technology to make sense of it all. View More