Client: Amerigas Partners, L.P.
Business Partner: Dekko
Business Drivers
The popularity of gas grills and patio heaters in the US drove the market for pre-filled propane cylinder exchange business to more than 32 million units in 2004. Amerigas Partners, L.P. (NYSE: APU) is the nation's largest propane marketer and a leader in propane exchange though its PPX® program. During 2004 Amerigas sold a record 5.8 million PPX® cylinders through 22,000 retail locations. As a business growth initiative, Amerigas sought a standalone, consumer-friendly solution for propane exchange in order to create 24-hour access unconstrained by the availability of trained operators. Amerigas turned to WebRaiser Technologies, Inc and Dekko to create a complete self-service solution for propane exchange that is fast, safe, convenient and more profitable than current systems.
Business Challenges
American consumers have demonstrated a willingness to pay a premium for convenience. For BBQ grills, the convenience trend has evolved with the move away from charcoal to propane and, more recently, to a preference for propane exchange over propane refilling. Convenience is also defined by the availability of propane exchange and the speed of the transaction. Customers want a way to get propane when they need it, without having to wait for a store employee to become available. Research indicates that the average transaction time for propane exchange is twenty minutes. The target transaction time for propane exchange needs to be reduced by 85% to three minutes per transaction. The convenience factor for consumers needed to be perceived as similar to self-service gasoline purchases.
The growth of the gas grill cylinder industry is inhibited by the speed of the transaction and the hours of availability for propane exchange (or refilling). The critical factor is the cost and availability of trained store personnel to complete the transaction. Additional concerns for the propane providers are the logistical requirements of stocking cages in a cost effective system and the safety requirements that regulate all aspects of this highly flammable gas.
AmeriGas’ requirements for self-service propane exchange also presented four major design issues for WebRaiser and Dekko:
- Safety. Compliance with propane safety regulations are extremely complex and made more difficult by the jurisdiction of multiple regulatory agencies ranging from national (NFPA, IFC) to state to the local Fire Marshall.
- Environment. The challenges of an outdoor environment needed to be addressed with specific hardware, software, and design solutions. Extreme temperatures, direct sunlight, seismic codes, dust storms, hurricanes, rust from ocean salt spray and damage from insects and small reptiles had to be considered in the design.
- Remote Device Management. Critical to the success of the system was the ability to manage and troubleshoot a network of unattended propane vending kiosks operating across a variety of corporate systems.
- Inventory Control. The standalone system must have software capable of real-time central monitoring of cylinder inventory and communicating restocking schedules to a dispatch center. A desirable by-product of inventory control software is the reduction of ‘shrinkage’ that is a costly fact of life in current propane exchange systems. The same software must also collect detailed sales data for reporting and analytics.
The overarching requirement was for a self-service propane exchange system that met Amerigas’ complex business challenges in a solution that was practical and cost-effective.
Business Solution
WebRaiser teamed up with Dekko to design a self-service kiosk for propane exchange that simplified the process to create a compelling return on investment for Amerigas. The kiosk system, which the companies call Dekko-matic, delivers these benefits to Amerigas and its customers:
- 24/7 consumer access eliminating the frantic search for open stores when they out of propane.
- Fast transaction time by simplifying the process to the level of a gas pump and reducing the total transaction time is less than filling your car with gas.
- Safe and compliant by designing in all national, state, and local regulations regarding propane handling. The Dekko-matic system is safer than cage systems and actually trains each customer on propane safety during the purchase transaction.
- Controlled inventory and sales data is achieved by networking the PPX® systems giving Amerigas management access to current sales data in order to schedule deliveries on a priority basis.
System Details
The resultant solution co-developed by WebRaiser, Amerigas, and Dekko is an outdoor touch screen kiosk system with attached secure locker mechanism holding up to 72 tanks of propane gas.
At the device, users can elect to purchase full or exchange empty propane tanks using a variety of payment methods including credit, debit, gift card, cash, and even the fulfillment of purchase made in-store at the cashier.
Consumers are assisted through the process of selecting a product, paying for a tank, selecting accessibility options, watching a mandatory safety video, and exchanging or purchasing a new tank. The entire transaction takes an average of three minutes.
The entire system is driven by a patented non-electric, pneumatic system for opening, closing, and sensing propane tanks in lockers. The pneumatic features of the system provide a safe method for consumers to purchase and exchange propane tanks, unattended.
WebRaiser software ties everything together. WebRaiser produces the software that faces the consumer, integrates with vending hardware, processes transactions through banking and POS networks, and manages Amerigas inventory. The unique VendiStore software platform ensures that transactions happen smoothly and are audited, end to end.
The ongoing reliable operation of the machine is aided by the remote management capabilities WebRaiser software provides to Amerigas and Dekko. The powerful VendiStore software provides real-time inventory data for just in time servicing, failure notifications for proactive repairs, transaction management features for operation with POS and bank networks, and systems integration for seamless operation with existing Amerigas systems.
Outcomes
As part of the roll-out strategy, the Amerigas PPX® self-service systems were place at a variety of locations to gather sales volume per store data. The highest volume locations proved to be the “Big Box” home improvement stores. These locations have the most foot traffic, sell gas grills, and have been in the propane exchange business for years. The second level of sales volume comes from grocery stores and shopping malls.
The “Big Box” home improvement stores will generate a quick financial payback. Although the specific ROI data is confidential, the labor cost savings are compelling. By capturing all transactions, the inventory shrinkage problem is virtually eliminated. The Dekko-matic also reduces restocking and logistical costs through its automated inventory control and re-ordering capabilities.
An alternative distribution strategy is “co-location” where Dekko-matic systems are owned by the propane provider (or other investors) and located at a retail store location. Under this strategy, the retail store operator receives a percentage of the propane exchange revenues or a flat monthly rental rate for the space required. The ROI on this type of system is determined by three factors; volume of sales, rental costs, and sale price or margin per vend.
The initial market success and compelling economics of the Amerigas automated PPX® systems makes it clear that self-service propane exchange is about to become a common sight across the US.
