FMN Fall 15 - Patriot Capital · Chris Santy Chris is the president of Patriot Capital Corporation....

Fall Issue 2015

Your Source for News and Information

SUPPLY, MARKETING, DISTRIBUTION, TRANSPORTATION & LOGISTICS

SHOW ISSUEClimate Change:

Regulations Roundup

Final EPA UST RuleEnergy Security vs.Energy Independence

FOCUS: EMV

EMVFOCUS:

The impact of theupcoming deadlines forEMV (EuroPay MasterCardVISA) upgrades—October2015 for in-store POS andOctober 2017 for gaspumps and dispensers—has been debated by somein the industry, ignored byothers and is seen as astrategic opportunity by athird group.

Liability Shiftisn’t the

Real Riskwith EMV

VENDOR VIEWby Chris Santy

Though much of thediscussion arounddelaying site levelimplementation iscentered on what theimpact of the liabilityshift might be, twooverlooked but perhapsmore significant factorsare the risk of marketshare loss as well as priceinflation for those whochoose to wait.

As seen in Fuel Marketer News Magazine Fall Issue 2015

Consider the following equation:

Assume30%of your customers are security conscious

Assume 50%of these consumers shift their buying

behavior if they are aware of an EMV dispenser near your site

This has the potential to lower your site revenue

in both gallons and in-store sales, by15%In support of this argument, consider that Gilbarco recentlyannounced record sales of EMV-enabled dispensers. According topress reports, orders for Gilbarco’s signature Applause TV offeringdoubled in June 2015. Other equipment providers, includingVerifone, also say they are approaching full capacity.

The Risk of Share LossIn Europe, Canada and other countries thathave completed the shift to EMV, retailersthat upgraded their gas pumps early to beEMV-enabled captured share in bothincreased gallons and inside sales growthfrom their slower moving competitors.Estimates across the industry vary: potentiallyhalf to two-thirds of U.S. fueling sites will beupgraded to EMV by 2018, leaving about50,000 c-stores with mag stripe-only payment.

With 66% of Americans afraid theirinformation will be hijacked at the paymentterminal, according to a recent GfK research survey, it’s not astretch, say experts, to expect that Americans, like their overseascounterparts, will vote with their wallets once EMV-enabledterminals are deployed.

“As other markets have adapted EMV, Gilbarco has seenconsumers seek out EMV-enabled forecourts and shift theirbuying behavior to sites that they believe to be secure,” saidParker Burke, director of payment and marketing applications atGilbarco Veeder-Root. “Consumer EMV awareness and adoptionwill accelerate as broad retail converts this year, and they will startseeking out convenience stores that offer EMV security.”

A key difference in the deployment of EMV in the U.S. is that fueldispensers do not have a liability shift until two years after in-storeEMV upgrades. This is significant, in that consumers will havestarted using EMV cards at all other forms of retail—ranging fromWal-Mart and Home Depot to restaurants and QSRs to sportingevents—later this year.

The Cost Penaltyof WaitingIf we can agree that the question on the table is not if,but when you will upgrade your pumps to EMV, thereare three additional factors to consider:

1 Increased equipment costs: As demand accelerates,pump manufacturers hint that it may not be out of line to expect price increases on the order of 4 – 5% per year starting in 2016.

2 Technician capacity: A shortage of factory-trainedtechnicians (ASCs) to handle installation of new pumps and card reader in dispenser (CRIND) EMV retrofit kits will lead to increases in labor costs that may approach double digits, as more overtime has to be employed to complete EMV upgrades.

“All indications,” said John Keller, vice president atPetroleum Solutions, which facilitates such installations,“are that demand for technicians will significantlyincrease through 2016 and 2017.”

3 Rising interest rates: For c-store retailers that finance their gas pump upgrades, either through a bank or using dispenser equipment financing, rising interest rates represent a third area of additional cost. A one-percent increase in borrowing costs from your bank or in an equipment financing agreement can be equivalent to a 2.8% price increase over the term of the loan.

36 MillionThe World 1990’s

Magnetic Stripe Payment Locations:

50,000U.S. Non-EMV Fueling Locations 2015

168,000Fuel Dispensing Locations 2015

4.7 MillionThe U.S. 2010

READ MORE at fuelmarketernews.com

How Can You HelpYour Retailers?The investment to complete EMVupgrades is much greater than thetraditional annual capital spending on gasdispensers and POS for a c-store retailer.Jobbers are well positioned to partnerwith their dealers to help implement an

EMV plan.

Though a variety offinancing solutions exist,a plan which utilizesupgraded equipment ascollateral in a low-interest financingarrangement can be awin-win for bothparties—the jobbercaptures or extends along-term supplycontract, and the dealeris better able to matchexpenses and revenue.

At Patriot Capital Corporation, we seefour considerable benefits for jobbers inutilizing equipment financing to growtheir supply contracts.

1 Difference in tax rates: Many retailersare often in the 10% to 15% tax bracket,while marketers generally are fully taxedat the 39.5% rate. This creates asignificant value difference in the capitalcost depreciation benefit that has valueto a jobber.

2 Difference in borrowing costs: Oftenfuel marketers have a more establishedcredit history than C-store dealers, betterdocumentation and a history of largertransactions, resulting in their ability toborrow or finance equipment at lowerinterest rates than dealers. Thisdifference—over a five-year lease—cangenerate significant interest savings on adispenser or point of sale upgrade.

3 Protection against rising interest rates:Unlike bank financing or lines of credit,equipment financing is at a fixed rate thatis protected in a rising interest rateenvironment.

Combining these benefits creates anopportunity for fuel jobbers and c-storeretailers to work together to provideprograms that benefit both parties.

The potential business loss of securityconscious customers may be greaterthan the risk of the liability shift.Understanding both of these risks,along with the impact of cost increasesand the benefits of a marketingtechnology plan, should be imperatives for all jobbers in 2015. n

OptimizingMarketingTechnology On-SiteThe final consideration in developing anEMV plan relates to the determinationof a site-wide marketing technologystrategy. A few years ago, few in theindustry were fullyconsidering the need tocommunicate andentertain customers onthe forecourt and in-store. There are anumber of technologiesthat have become thenew standard, andothers that arebeginning to gainsteam, including:

• In-dispenser media orTV at the pump, like Gilbarco’s Applause TV™ and Wayne Fueling’s in OvationTV™;

• Near field communications (NFC), which enables pay-with-phone technologies like Apple Pay and Google Wallet;

• In-store upselling products, such as Verifone’s LIFTRETAIL™ and Gilbarco’s Impulse™;

• Enhanced image and security from upgrading to LED lighting—the cost savings from LEDs can help offset EMV expenses; and

• Loyalty programs—consumers are 38% more likely to use a fuel brand if it offers a loyalty program, according to an NPD group study.

“A pump is an asset with a long usefullife, and retailers need to consider theirneeds for today as well as their offeringsfive to 10 years in the future,” saidParker Burke. “Therefore, it’s importantto ensure that their equipment has theability to handle marketing applicationsand other revenue-generating features.”

4 Section 179 benefits: The expected2015 renewal of Section 179 taxbenefits would allow for accelerateddepreciation, creating an almostimmediate cash flow impact. Thisaccelerated deduction covers 100percent of any capital improvementup to $500,000, and 50% of the next$1.5 million. If Section 179 is not usedin a particular year, the benefit cannotbe claimed retroactively in thefollowing year.

The potentialbusiness loss of

security consciouscustomers may be

greater than the riskof the liability shift.

“”

READ MORE at fuelmarketernews.com

Chris SantyChris is the president of Patriot CapitalCorporation. Patriot Capital specializes inenabling entrepreneurs to succeed byproviding hassle free equipment financingto retailers in the convenience store andretail petroleum fueling industries. Patriothas been recognized as Best in the U.S. bythe Petroleum Marketers Association ofAmerica. For additional information,please visit www.patriotcapitalcorp.com.Follow Patriot Capital on Twitter@PatriotCapital

As seen in Fuel Marketer News Magazine Fall Issue 2015