Even by Pearson Fuels’ own standards for a grand opening, the event in California’s state capital earlier this month was a smashing success.
Customers lined up dozens deep to buy E85 ethanol fuel for 85 cents a gallon at five Sacramento-area gas stations on Aug. 12. “We had people waiting in line for 2 hours,” said Mike Lewis, co-founder of the San Diego-based Pearson.
It recalled the gas lines that formed during 1973-74 OPEC oil shortage. Except this time drivers weren’t enraged. They patiently waited to buy a cheaper, cleaner alternative to gasoline.
When the sales figures were tallied, it was a stunner: The five stations combined sold a total of 14,000 gallons of E85, an average of 2,800 gallons per station, during the promotion, which went from 8 a.m. to 5 p.m. By comparison, the week before, at the grand opening of a station in Yorba Linda, in Southern California, only 1,000 gallons were sold.
“It was by far the most successful one we’ve ever done,” Lewis said of the Sacramento event.
Pearson, which owns and operates one station in San Diego and supplies ethanol to 60 more around the state, isn’t slowing down in an age of rock-bottom oil prices. In fact, it’s expanding: It plans on opening 15 more stations over the next 18 months in California (including Fullerton soon), and 15 other deals are in the works.
The company is proving that it’s possible to turn a nice profit selling E85, because there’s a customer base out there ready to buy and use a fuel that emits fewer toxic pollutants and is made in America. Flex-fuel vehicles can run any mixture of gasoline and ethanol up to E85, and since California has 1 million of the nation’s 17 million FFVs, the state is primed for a rapid expansion of ethanol distribution.
Pearson’s San Diego station was the first on the West Coast to sell E85 when it opened in 2003, but the company’s expansion is driven by exclusive agreements with existing stations. Price usually splits the cost of installing an E85 pump with the station owner, and in return, Pearson supplies E85 to the station for 10 years.
Many drivers are motivated by the air-quality and climate-change benefits that ethanol use brings. But most are attracted by the price point. E85 often is 20 percent cheaper than gasoline, at least. When oil was rising a bit in the spring, the “spread” often was 80 cents or a dollar or more. “The station owners can set their own price, but it was I think 50-70 cents a gallon less,” Lewis said of the Sacramento promotion. “And I’m looking out right now at our station, and we’re at $2.64 and gas is at $3.35, so that’s 71 cents [less] right now.”
Of course, Pearson took a big hit by selling E85 for dirt-cheap on Aug. 12. But retailers can expect profit margins that often are greater than those for regular E10 (up to 10 percent ethanol) gasoline.
“There are times you make low margin, times you make 10 cents a gallon,” he said. “But there are times you make 30 cents a gallon too. So split that difference and say we’re making 20 cents a gallon … well, that’s 10 grand extra that the average gas station doesn’t have. And you’re not spending one more dollar on payroll; you have very few variable expenses.”
Ethanol runs more expensive than gasoline only about 5 percent of the time, Lewis says, such as last winter, when trainloads of it — produced mainly from corn in the Midwest — couldn’t get West because of snowy weather in the Rockies.
Consumers, even those who don’t drive a flex-fuel vehicle, are realizing that E85 is the vastly superior fuel compared with gasoline. Retailers are coming around too, with help from people like Lewis and entities like the American Coalition for Ethanol. Installing E85 pumps can be done in a cost-effective way, and offering fuel choice is a way for retailers to bring in customers they wouldn’t have had before. It turns out, flex-fuel drivers buy giant sodas, beef jerky and lottery tickets too.
“When I talk to station owners, there’s quite a few that are getting it,” Lewis said. “A perfect example is G&M: They’re the largest Chevron franchise in the United States. They’re doing 13 with us, and they get it. But it is surprising still, after all these years, people are so surprised by our numbers.”
The July figures for the Pearson station in San Diego are remarkable: 150,000 gallons of all fuel sold, including 53,000 gallons of E85. Regular 87-octane gas came in just ahead, at 64,000 gallons.
Like those customers, the ones who in and around Sacramento have remained loyal, Lewis said, although he doesn’t have numbers to quantify that. “That’s what happens with E85; it’s sticky business. They’ll come, and they’ll keep coming.”