LPG Refilling and Distribution Business

[whipcheck]

Anyone here knows about the LPG business? Does it have a good return on investment? What brand is the best to market (Shellane, Gasul, M-gas, etc) ?

[mac_bolan00]

the top-3 brands are basically the same. you will be dealing with the refillers, not the refiners, anyway. some refillers sell imported lpg which us "usually cheaper". however, the big three often give refillers and distributors rebates so as to match imported prices (and also to allow distributors to survive thereby putting the squeeze on importers).

the top refiller for shellane is island air products. that for petron is catgas. liquigas sources both domestically and imports. fortune gas corp. is primarilly petron but also sells caltex and shell.

if you want to be a neighborhood supplier, you're sure to go up against the established supplier in the area. and it's doubtful that you'll be able to "steal" his current client list. so the two most important things you must do are:

1. develop your own market. this will take researching. is there unserved demand in a given area? are new demand areas going up (like subdivisions)? now, assuming your target market has more than enough demand for both you and your competitors, your profits will all depend on...

2. the number of empty tanks you can buy. i'm not kidding. it's a capacity game. an 11-kg - capacity tank costs around 220 pesos empty. if you have a tank filled for 220 pesos and sell the contents for 270, you have a 50-peso revenue per filled tank (a 22.7% asset turnover). assuming you net something like 20 pesos per filled tank (laki na yun...) you will get a return on investment for that tank after 11 re-fills or around 1 year (when you supply families of at least 5). i know that households with only two occupants take as long as 3 months to use up an 11-kg tank. so, to make it worth your while, and to repay things like a motorcycle or tricycle or pedicab and a hired hand, you need to buy at least 900 tanks (198K pesos ---gulp!)

good luck.

[hello_kitty]

Macbolan00, you sound like an insider.

my dad owns 2 refilling plants both in central luzon.

whipcheck

If you plan on becoming a retailer, it would help if you have an existing outlet such as a sari-sari store.

Competition wise you are looking at competing against official dealers for shellane, gasul and etc, independent retailers who get their gas from independent dealers and the independent retailers themselves.

Small retailers enjoy a pretty good sales margin 10 to 20 pesos per tank, as refillers lower the price in order to compete.

Although the lpg industry is very dirty. Under filling is a common practice. Or adding water to make the tank heavier is yet another industry practice.

You need not buy your tanks, there are refillers that are willing to lend you the tanks for free, but this will reduce your bargaining powers.

So far our company has lent out around 30,000,000.00 pesos worth of tanks.

I have seen terms shorten from 30 days to 5 days.



Ask me particular questions and I will address them.

[KuyaDanny]

What would make more sense - to sell one brand exclusively (eg Gasul), or to sell three brands simultaneously?

[mac_bolan00]

all three brands since end-users no doubt have gotten used to different types (you know, the valve assembly, perceived reliability and honest filling, ect.)

which is why, i prefer to own the DIFFERENT tanks in my stock so i can put some sort of control on my brand/product mix. also, having your own tanks allows you to use it as a marketing medium (stencil-in your name, address and phone number on the side for easy correspondence with users).

this may be a surprise to some. i'm sure others have known this all the while:

BOTH RETAIL DISTRIBUTORS AND END-USERS PAY FOR 11 KILOS OF LPG PER TANK BUT USE UP ONLY 10 KILOS.

the remaining 1 kg goes back to the refiller and that refiller books it as RESIDUAL INCOME. now, now. don't you go calling up consumer guardians like joecon or even the KMU. the residual content is a necessary feature for safety's sake. the common advise given by "runung-runungans" is for one to turn his tank over when the flame dies out or give it a good shake. this isn't advisable. many consumer groups have complained about this in the past. both the gov't and the refiners say that, while it's possible to design a tank that will allow 100% depletion, it is not considered safe.

hello_kitty, what can you say to this?

[hello_kitty]

KD,

I would suggest getting only one brand. The key is that you develop a relationship with your supplier. The more you sell the larger the volume discount you can negotiate from your supplier. Your job as a retailer is to make sure that the lpg tanks delivered to you does contain 11 kilos. It does not mean that your supplier is gasul or shellane that the contents are correct. Location is very important too.


Macbolan_00

Based on your strategy it is obvious to me that your operations are confined in Metro Manila.

Your discussion of residual was rather complete. However, I must stress that underfilling is still a rampant industry practice and that includes the big three. Residual income is an added bonus to refillers. However, the biggest expense of refillers is theft! Petron is notorious for underfilling customers are well! In a one year period we were underfilled by 8 tons; some were decanted by employees and some were underfilled by crooked employees of Petron, Caltex, Liquigazz, and Shell!

I attended an LPG refiller's association meeting some years ago, and it was kinda sad that independent refillers are hell bent on its crooked ways, and the reason for that is that its the only way for us to survive as the big oil companies are influencing govt to make it more difficult for independent refillers to do business.

I was curious, how big are your operations? Who are your customers, only end users?

[KuyaDanny]

Do the oil companies (Petron for example) run some sort of promotion to reward you for "convincing" customers to switch from other brands?

[roadrage23]

Originally posted by KuyaDanny
Do the oil companies (Petron for example) run some sort of promotion to reward you for "convincing" customers to switch from other brands?

KD, I'm not quite sure about the majors running any promotion but I do recall a new market entrant operating down south that grabbed market share by convincing consumers to switch by giving away free regulators.

[mac_bolan00]

hello_kitty,

like i said, i'm with a bank. most of our customers are SMEs. most of our LPG distributor clients get lpg from refillers and sell to end-users. yes, 700 tanks is about right for a place as sparse as northern QC.

KD,

what i know is the big-3 try to squeeze each other out by encouraging refillers to saturate an entire region --even if refillers incurr an operating loss given the resulting hike in operating expenses and the rather oligopolistic pricing: at least 16 pesos per kg (that's refiner's price, mind you).

but guess what, the big-3 are willing to cover the refiller's operating loss by giving rebates as high as P 4.0/kg. you'll ask "so why the heck don't they just cut selling prices?"

answer: an oligopoly. they want to keep the official ex-plant price high. however, they can easily match the selling prices of LPG importers (as low as P 14/kg).

in short, they kinda control the affairs of both refillers and distributors. our president is a lot more blunt: "WHY THE HELL ARE THEY LETTING ____ SCR_W THEM?"

life in these islands...

[KuyaDanny]

Is there funding available from oil companies/refillers to finance an inventory of tanks?

[whipcheck]

Originally posted by hello_kitty
Macbolan00, you sound like an insider.

my dad owns 2 refilling plants both in central luzon.

whipcheck

You need not buy your tanks, there are refillers that are willing to lend you the tanks for free, but this will reduce your bargaining powers.

So far our company has lent out around 30,000,000.00 pesos worth of tanks.

I have seen terms shorten from 30 days to 5 days.



Ask me particular questions and I will address them.

Hello_Kitty

Your Dad's company lend tanks? I guess that will be quite helpful for start-ups. May I know your Dad's company and contact numbers.

I have contacted one refiller and each refill cost around P180. Around the figures that mc_bolan00 mentioned. It was also mentioned that if I'm a small reseller, I can make a deposit of P600 per tank.

mc_bolan00, Hello_Kitty:

I read in one of the consumer reports in the newspaper that an 11 kg cylinder (not sure if 3 mm or 2.3 mm) cost P600 from the manufacturer? Any info on the tank cost and manufacturers of 'good' tanks?

What about the regulators? Different brands have different type of regulators ...ganoon ba? Is there any brand compatible with another? How much does the regulator cost ..actual cost to refillers ...any idea?

Seems to me that there are no real promotions on the LPG companies. The end-users are left on their own to decide which brand they will use. It goes like 'whatever brand ang nasa pinakamalapit na canto!'

Tanong lang? With the present LPG brand that you are using right now, what will make you change to another one?

[hello_kitty]

KD, if you are operating a small retail store for lpgs the big oil companies does not offer any sales promotion if you have convinced other people to buy their brand. Once you buy their gas, its your responsibility to market it yourself, as mac indicated in one of his posts, the big firms do not care if you sell your product at a loss.
If say you were a larger customer such as a dealer or refiller, the big oil companies would offer discounts based on geographical competition and sales volume.

As for your second question, as a rule, big oil companies will not fund you, except for extreme cases. Such as financially bailing out a refiller closely associated with them.

roadrage23

Revalving is a common industry practice, my dad's company does it for free. The valves of major brands by the major oil companies are unique, this is by design to make it difficult for end users to switch brands, but independent refillers started refilling these tanks anyway thus cirvcumventing the strategy of the big oil companies.

[hello_kitty]

Question:
Your Dad's company lend tanks? I guess that will be quite helpful for start-ups. May I know your Dad's company and contact numbers.

Answer:
I will email you the info…..

Question:
I have contacted one refiller and each refill cost around P180. Around the figures that mc_bolan00 mentioned. It was also mentioned that if I'm a small reseller, I can make a deposit of P600 per tank.

Answer:
If you are a small retailer you have very little bargaining power and as much as possible refillers will follow the prevailing price, unless they want to start a price war, which can be costly for them.

Different refillers have different strategies for tank loaning. Some sell their tanks, and some lend tanks or both.

My dad’s policy was, he would lend you the tanks, but that means you have very little bargaining power in terms of the price. Also, you will be obliged to keep on buying from us of course. But, I am not sure what is the exact policy on tanks as of now.

mc_bolan00, Hello_Kitty:

Question:
I read in one of the consumer reports in the newspaper that an 11 kg cylinder (not sure if 3 mm or 2.3 mm) cost P600 from the manufacturer? Any info on the tank cost and manufacturers of 'good' tanks?

Answer:
Manufacturer’s will never sell to you unless you buy wholesale, they actually make tanks per order. The only one that will sell you a brand new tank is the refillers as they buy wholesale from the manufacturer.

Question:
What about the regulators? Different brands have different type of regulators ...ganoon ba? Is there any brand compatible with another? How much does the regulator cost ..actual cost to refillers ...any idea?

Answer:
The big brands like gasul or liquigaz have different regulators. The tanks used by independent refillers are compatible with each other. I am not sure what the current price levels on regulators are, but the best place to buy it is the refiller….

Question:
Seems to me that there are no real promotions on the LPG companies. The end-users are left on their own to decide which brand they will use. It goes like 'whatever brand ang nasa pinakamalapit na canto!'

Answer:
LPG is a commodity, the big companies tried to de-commoditize LPG, but they failed.

Question:
Tanong lang? With the present LPG brand that you are using right now, what will make you change to another one?

Answer:
Most end users will switch brands when the tank they bought is noticeably under filled, most of them say, “dati dati tumatagal ng 1 buwan ang tangke ko ngayon 3 lingo na lang! Most end users do not care which tank they buy as long as it lasts!

[mac_bolan00]

Originally posted by whipcheck
I have contacted one refiller and each refill cost around P180. Around the figures that mc_bolan00 mentioned. It was also mentioned that if I'm a small reseller, I can make a deposit of P600 per tank.

i know my 220 per refill is kinda outdated because of the recent rollbacks but 600 per 11-kg tank?!?!? empty?!?!?!?

our clieNts get their tanks for less than 250. second-hand nga lang. if the current price for a brand-new tank is 600, that means payback at 20/refill is THREE YEARS!!!

[whipcheck]

As end-user, we pay for our lpg tanks. Incase of accident caused by lpg (tank), is the retailer, dealer have any sort of liability? can they be sued?

[mac_bolan00]

so that means the 600 includes the contents (11 kg of lpg). abogado and makakasagot ng tanong mo.

[hello_kitty]

Originally posted by whipcheck
As end-user, we pay for our lpg tanks. Incase of accident caused by lpg (tank), is the retailer, dealer have any sort of liability? can they be sued?

nope.....

there was a fire in the tarlac public market caused by a faulty lpg tank, and no one was ever held liable for it.

of course, time to time ERB will inspect your facilities and check if your tanks are in good condition...

legally, i just don't know...

as a retailer its your responsibility not to accept tanks that is not safe.

[whipcheck]

1] Who are the refillers of imported LPG? Locations?

2] mac_bolan00 mentioned 11-kg capacity tanks costing around 220 pesos – second hand. Just wondering on the conditions of the tanks. Are the tanks still up to Philippine Standard?

3] News in Mla Times 01 Sept 2001, mentioned battered tanks still flooding the market and are accidents waiting to happen. Another news mentioned : 44,000 tanks recalled made by Phil-Daechang Steel Inc. Dealers or retailers who markets defective lpg tanks would be fined P250,000. What defects are they talking in here? Something recognizable by common users?

4] hello_kitty mentioned that the LPG industry is very dirty? Any other reason besides under-filling and the addition of water?

[hello_kitty]

Originally posted by whipcheck
1] Who are the refillers of imported LPG? Locations?

I think all major companies refine their lpg locally....

2] mac_bolan00 mentioned 11-kg capacity tanks costing around 220 pesos – second hand. Just wondering on the conditions of the tanks. Are the tanks still up to Philippine Standard?

It varies, there are some that are still in decent condition...it can be in really really bad condition, especially the ones from korea, the japan tanks are better. but, the lpg industry as a whole is trying to avoid the use of second hand tanks, especially in metro areas. I advise you to use new tanks, for safety reasons....

also, once your tank is in the market, it does not mean you will get the exact one. you may have a new tank when you sold it, but you might get an old tank in return....

3] News in Mla Times 01 Sept 2001, mentioned battered tanks still flooding the market and are accidents waiting to happen. Another news mentioned : 44,000 tanks recalled made by Phil-Daechang Steel Inc. Dealers or retailers who markets defective lpg tanks would be fined P250,000. What defects are they talking in here? Something recognizable by common users?

the bottom ring is disfigured, not there or rusted... the top ring of the tank is disfigured, not there or rusted. the tank itself is rusted... the bottom and top rings are very important, if its not there you can easily puncture the tank!

4] hello_kitty mentioned that the LPG industry is very dirty? Any other reason besides under-filling and the addition of water?

well, running an lpg business can be dirty.

internal fraud is rampant..

but, the smaller the business, the easier it can be detected...

[mell]

Hey all,

I am no longer using the username hello_kitty, its acutally my ate's username and she does not want me using it anymore.


So, I created my own account.