Sasha-Lee de Bod spoke at the Africa Fuel Wholesale and Retail Expansion Summit hosted on 31 May 2019. The industry has evolved throughout the years, here is a brief summary.
What is happening in the market?
With approximately 4600 fuel service stations currently in operation, employing 100 000 people directly and indirectly, the fuel industry is a driver for economic growth as it contributes 6% to GDP.
This is seen as a highly competitive industry that is recession proof, however this industry is not immune to economic headwinds.
Profits are affected by various micro and macro factors including:
- Oil prices,
- Dollar-Rand exchange rate,
- Rise in operational costs and
- Infrastructure development.
These everchanging factors have forced fuel retailers to investigate in sustainable energy solutions to lower operations cost.
Fuelling Profit Opportunities
Consumers needs have evolved past the top-up or impulse purchases i.e. bread, milk and snacks. Consumers are always on the go, therefore their needs include:
- Convenient and accessible locations
- Long operating hours
- Easy parking
- Safety and security i.e. effective lighting can make a huge difference
- Choice and variety in products and services
- Excellent customer service and experience
- Efficient systems i.e. fast check out and shorter queues
As a result, fuel retailers/franchises are enhancing the consumer experience and are developing a shopping experience destination incorporating alternative profit opportunities that includes a combination of a forecourt, ATMs, convenience store and a bakery or food offering. In bigger stations, quick service restaurants, carwashes and courier (Takealot.com pickup point/DSV) options also make for other profit opportunities.
More than just one business unit (multi-brand ownership)
Being a fuel retailer/franchisee means operating and being involved in more than just one franchised business unit to service consumer demands and needs i.e. this is not just the fuel service station, this includes alternative profit opportunity solutions as mentioned above. The oil company/franchisor generally decides which units are acceptable and grants a fuel retailer/franchisee the license for all the units.
Each unit adheres to individual standards, operations, training and controls as the majority of these units are franchised.
It is very important to note that each of these units should be run as individual profit centres and cannot be operated to subsidise or offset losses against another unit. Business unit selection and partnerships are crucial to ensure that business units are profitable and acceptable for the specific site as well complementing to other units to draw customers and increase profits.
Fuel Retailers/Dealer Formats
This industry can be divided into 3 main categories:
- Independent Fuel Retailers/Dealers: operate independently and all operational and business decisions are made by the dealer. They are entitled to develop their own brand, e.g. Ener-Gi Fuel
- Semi-independent Fuel Retailers/Dealers: This is a very flexible product-tradename franchise agreement between the company and the fuel dealer which enables the dealer to enjoy the benefits of being part of a brand i.e. branding, signage, product supply but they have the freedom to operate the business on their own terms. These partnerships/agreements are formed in rural areas and/or with brands that cannot legally have a retail license in South Africa e.g. Puma Energy.
- Franchised Fuel Retailers/Dealers: The fuel service station operates on a proven business model with an established brand e.g. Shell, BP, Total, Engen and Caltex by an owner-operator under strict operational standards and procedures as prescribed by the franchisor for a full business format franchise. Fuel retailers receive start up assistance, training, business guidance and mentorship from an experienced franchisor.
Systems and Controls: How to maintain brand standard
Strict adherence to operational standards and procedures can be achieved by implementing standardised systems, controls and procedures within the dealer network.
Maintaining brand standards above the standardised systems and controls include:
- Conducting mystery shopping surveys
- Conducting dealer satisfaction surveys
- Implementing a grading point-scale for dealers which will result in penalties and incentives for the dealer depending on the outcome of an evaluation
Partnerships: It is all about the relationships
In this industry it is so important to choose the right partners and having a supply chain that is always ready and available for distribution
Partnerships with established brands
When partnering with an established brand maintaining control and upkeeping standards for both parties is crucial. A good example of this can be seen with the Joint venture partnership between the Caltex Dealer and FreshStop-Seattle Coffee Co:
- Implementing a shareholding structure of 49/51 where the Caltex Dealer owns 49%, this means that the Caltex Dealer contributes 49% to setup capital as well as profit share
- Staff report to Seattle Coffee Co to ensure quality standards and upkeep of brand reputation.
- Seattle Coffee Co trains the staff members on an ongoing basis
- The Caltex Dealer is responsible for administrative, sales and finance activities.
Current partnerships within the industry mainly includes convenient stores (e.g. FreshStop, Pick n Pay Express, Spar and Woolworths) and quick service restaurants e.g. Famous Brands Group such as Mugg & Bean, Steers, Wimpy, etc
Partnership with dealers/franchisees
Transformative/empowerment criteria is prevalent in this industry to offer dealer/franchise opportunities to previously historically disadvantaged citizens.
Dealer/Franchisee selection is a critical element for the success of your dealer network. The Franchisor needs to attract the most suitable candidates.
Due to this long-term commitment, it is important to build strong and effective relationships with the Dealers/Franchisees that are based on trust and a win-win working environment for both partners involved.
Loyalty programmes are a necessity, not an option
It is all about incentivising your customers to come back for more, even though it is completely voluntary for your customers it would be beneficial for them and for dealers/franchisees to implement as this has incentives involved for both parties i.e.:
- Customers generally get points, cash back rewards for fuel transactions. Tiered loyalty programmes entice customers to enhance their status to benefit from a bigger reward.
- Dealers/Franchisees benefit from marketing campaigns being implemented by loyalty programme partners. Strong partnerships are being formed with existing brands i.e. BP with Discovery Health and Pick n Pay, Total with Dischem, Sasol with Absa, Engen with eBucks and Shell with Clicks, etc.
The fuel service industry has some interesting up and coming trends worldwide. It would be interesting to see the uptake of any of these trends due to our current economic environment
- Rise of the unmanned fuel stations where this a complete self-service station where customers pay in advance and the fuel pump equipment and system dispenses fuel accordingly
- Plug, Charge and Go: Electric Cars and other biodiesel or solar power alternatives are being investigated. This will result in an infrastructure change for fuel service stations in its current format
- Mobile Payment options via smartphone applications and car dashboard technology
Even if a brand has been built up throughout many years and decades, it should never remain static. Brands should always innovate and evolve, and we believe the Fuel Service Industry has been adapting and evolving, the question we must ask ourselves is are we looking ahead to the future and what can we do to stay ahead?