There was a time, not so long ago, when if you wanted to get your hands on a tub of sun-blush tomatoes at 4am you would have perhaps had to settle for a packet of crisps instead. Nowadays though, thanks to the bold new breed of service station taking root across the UK, things have changed.
With hindsight, the transformation of petrol stations from grubby roadside huts to slick convenience stores seemed inevitable. Combine petrol with the convenience of the supermarket, and you have the potential to make a lot of money. The supermarkets were not slow in catching onto this.
The figures behind this speak for themselves. According to market research group Catalist, in 1998 the supermarkets had an 8.1% share of forecourt shop sales. By 2005, this had risen to 25.5%.
However, according to Anthony Keohane, director of Colliers CRE’s automotive and roadside team, it is the independent operators such as Snax24, Petrol Express and Pace that have the desire and, more importantly, the money to expand.
“There is now greater profitability. I think we’ve had quite a number of years where the margins on fuel cells have been quite depressed. There just hasn’t been the money for them [the independents] to go out and expand, and I think the fact that the property market has remained reasonably buoyant means they’ve probably seen increased value in their existing properties, which means they can borrow against them to raise capital to go out and expand.”
But expansion not just down to uplifts in property values. Amanda Barber, head of automotive and roadside at GVA Grimley in Birmingham, says the oil companies see the independents as a safer option than supermarkets when offloading sites (see box).
“BP wants to maintain a strong presence with its Connect brand, and selling to a superstore operator wouldn’t allow that. Primarily, they will sell to independent operators and those with whom they have a strong relationship and will maximise the potential of the sites.”
Opting for independents
Barber adds: “It may well be that BP would see the independents as a better prospect than someone who might put their own interests first.”
Allen Shepherd, director of corporate retail at Christie & Co, says the competition between the independents and the supermarkets is like that of Samson and Goliath. “Corporates can buy these sites because they have the money, but for them buying is an elongated process — small buyers can visit a site and have an offer in by the end of the week.”
So, the independents have a lot working in their favour. That’s not to say the supermarkets have gone quiet. According to Keohane, they just have a lot on their plate.
“Tesco seems to be concentrating pretty heavily on its high street convenience store operations. Sainsbury’s are really concentrating on maximising their existing stores. They’ve obviously had quite a rough time themselves and I think they’re thinking ‘we need to be maximising our profits from our stores and concentrating on doing what we do well before we get back to the expanding the chain’,” he says.
Marks & Spencer has just announced plans to extend its Simply Food format into up to 300 BP petrol forecourts. The retailer had been trialling the stores at eight locations since October 2005 and says it is “very pleased” with the results. Analysts hope the opening of new stores and refurbishment of others will to mean further sales momentum. Financial Times’ Lex column said that a move to exploit its freehold property more aggressively could offer M&S hopes for future growth. However, it pointed out that this is not on the agenda and it seemed unlikely to provide a big, immediate boost.
Somerfield is also actively expanding in the sector, probably more so than any other current major retailer — last year it brought a tranche of 140 Texaco sites.
As the petrol companies moved to consolidate their UK operations developers have been quick to snap up a bargain.
Keohane says: “As long as there are higher-value alternative uses and as long as the residential market stays strong, there is always going to be the temptation to take the money and run.”
As such, the number of petrol stations across the UK has fallen dramatically in recent years. Figures released by the Energy Institute in March show petrol stations at their lowest level since 1914, with 9,764 operating across the UK at the end of last December. In 1974, the number was about 74,000.
Heart of the community
Not surprisingly, concerns have been raised. Consumers, while welcoming the cheaper petrol supplied by the supermarkets, have begun to notice fewer petrol stations in their local areas. One community in south London even set up a “save our petrol station” campaign, arguing that the local garage was the heart of the community and as such had to be maintained. The site owner had wanted to build flats on the site, in a deal that was expected to raise £1m.
So, is the sector in terminal decline? Barber thinks not. “We’re coming towards the end of the oil company disposals. Once BP has made its last disposals, those wanting to expand in the market are going to find it difficult because there has been a huge reduction in the number of filling stations operating in the UK.”
Obviously, a shortage of supply will affect site prices. Christie & Co’s Shepherd says prices are going up. Barber agrees: “We’ve seen more competition for sites, which means fewer sites are available, but the number of potential purchasers is the same as it always was, so there is a bottleneck. That has put pressure on prices.”
So, what of the future? Mike Pearce, a partner with Rapleys, sees the potential for new sites coming onto the market: “In the last 10 to 15 years there has been an awful lot of development, particularly in the South East, with new towns and new roads, that I think will throw up opportunities for people to invest. Perhaps we’ll see the return to a market with people investing in new roadside locations with a new generation of forecourt.”
It has only been 10 years since the supermarket groups entered the roadside market. Due in part to their activities, many smaller operators have had to close. Price wars have come and gone, and the range of produce on offer has increased dramatically.
The most visible change in recent years has been the ever-dwindling number of petrol station sites across the UK. The irony is that whereas nowadays you might be able to pick up your sunblush tomatoes at 4am, you have the challenge of finding a service station first.
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Companies’ presence continues to lessen |
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Oil companies have been rationalising their presence in the UK for several years now. According to Catalist, more than 400 sites have disappeared from petrol company ownership in the past year alone. Out of the large oil companies, only BP, Esso, Shell and Total own and operate sites. Texaco concentrates solely on petrol distribution rather than retail. The company has a network of 1,100 Texaco branded sites but doesn’t own them. Why have the oil companies been offloading their sites? Anthony Keohane, director of Colliers CRE’s automotive and roadside team, says: “They are looking to get more efficiencies out of their network and they’ve looked around and wondered ‘do we really want to be retailing in Cornwall, Wales or the north of Scotland? Is it cost-effective for us to do so? Are we the strongest retailers in that area and is it private individuals who have strong links with that area who are better to do it?’” “They’ve decided: ‘the costs of distribution outweigh the benefits of us being there, so we’ll sell those sites on’.” Mike Pearce, partner at Rapleys, agrees: “The oil companies have been the major disinvestors of smaller sites that they’re not able to develop their concepts on or don’t have the potential going forward. They have made higher value for alternative use.” “Those who remain are concentrating on developing their core network and certain of those companies are doing it in core regions. For instance, BP’s core retail network is essentially south-east Midlands and central Scotland and they’re looking to develop their real estate in these key markets.” A BP spokesperson says the company is always looking at its portfolio and reviewing sites in light of competition and viability. |
