Cut-throat competition between the oil companies and the supermarket chains has created a new breed of petrol-filling station, where petrol sales are only part of the action. Alison Henry reports.
Cut-throat competition between the oil companies and the supermarket chains has created a new breed of petrol-filling station, where petrol sales are only part of the action. Alison Henry reports.
After two years of open warfare on the forecourts as oil companies and the major supermarket chains compete on petrol prices, the New Year heralds a new era of peace and co-operation that is alarming independent petrol retailers and convenience store operators.
In a spate of marriages of convenience, supermarket chains Somerfield, Safeway and Budgen are unrolling multi-million-pound joint ventures with Elf, BP and Q8. Somerfield and Elf are opening Le Shop stores at 50 Elf service stations and six stand-alone stores in High Street locations; Safeway and BP plan to spend £100m on up to 100 convenience stores over the next three to five years; and Q8 has teamed up with Budgen. Shell is planning to open 150 of its own Select stores in the coming year.
The plans are part of the continuing revolution in petrol retailing which has seen mergers between many of the medium-sized players. Last year BP and Mobil’s European retail business created a network of more than 2,000 sites, while, in a move designed to cut £50m from refining costs, Elf, Gulf and Murco unveiled a three-way merger in November which will make the new group, GEM Petroleum, the fourth largest petrol retailer, aside from supermarkets.
The new alliances are fighting to compete with established market leaders, Esso, which has 905 basic Snack and Shop outlets and is currently testing larger Fresh Ideas stores at five sites, and Texaco’s 1,200 forecourt shops. Meanwhile, French-owned Total is to turn its sites into mini High Streets, adding franchises for Blockbuster Video, Sketchley drycleaners, Supa Snaps and Thorntons Chocolates to existing alliances with Dominos Pizza and Dunkin’ Donuts.
Caught in the crossfire
As the Esso-instigated petrol price war moves into its second year, selling petrol is taking second place to higher margin non-petrol sales such as food and car accessories. Indeed, from April to August last year it is estimated that half the sales of four star petrol were at cost price or below.
The casualties in this ferocious price war are the smaller independent retailers – 2,000 petrol-filling stations closed down in 1996. According to Bruce Petter, director of the Petrol Retailers Association, by 2000 there will be between 8,000 and 10,000 petrol-filling stations in the UK – compared with some 16,000 in 1995. “They are dropping like flies,” says Petter.
By the time the industry shake-out is complete, up to 40,000 petrol station workers will have lost their jobs and the whole pattern of petrol retailing will have undergone a transformation that began a decade ago when supermarket chains began to sell petrol in earnest. In 1985 there were 170 hypermarket fuel outlets; now there are nearer 900. The major grocery chains were able to sell non-branded petrol at low prices by buying direct from oil refineries, in some cases selling at below cost. In doing so, supermarkets have increased their market share from 6% in 1991 to 22% at the height of the price war in 1996.
Those independent retailers which do survive, believes Petter, will be entrepreneurs who must take risks if they are to run profitable businesses, but he also believes that their best ideas will be taken up by the major oil companies.
So, what factors will ensure the success of the new- style filling station-cum-convenience store?
High traffic flow required
According to Robert Clark, director of research company Corporate Intelligence on Retailing, the new sites will be on main arterial roads leading into town centres. High traffic flow ensures strong thoughput on petrol sales which will be enhanced by the additional merchandise available. Because of this new focus, Shell is expected to pull out of about 500 sites which sell less than 200m litres a year.
A spokeswoman for Shell said it is too early to say what will happen to the redundant sites. In a speech at the European Retail Conference last June, Shell UK’s Downstream division managing director, Colin Harvey, told members of the Institute of Petroleum that British refiners now produce nearly 25% more petrol than the UK needs.
“[We must] look very carefully at every part of our network to ensure that we only invest in sites with the long-term ability to compete profitably in such competitive market conditions. Where sites – owned by ourselves or by dealers – are clearly uncompetitive then we must shed them.”
Those owned by Shell will be put on the market, possibly for continued use as filling stations, or they may be closed down and redeveloped. However, Shell’s withdrawal from owner-operated sites means that businesses will have to look elsewhere for new suppliers.
Peter Squire, director in charge of petrol stations and garages at Lambert Smith Hampton, points out that every time a site closes the lost volume will go to another site; usually the beneficiaries of a closure are no more than two other sites: “You will find that if a petrol-filling station closes, customers will pick up another one nearby.”
He adds that most oil companies have a responsible approach to sites they have to close and will decommission and decontaminate before a site is put up for sale or redevelopment. Sites are often converted to drive-in wine bars, dry cleaners and restaurants. “It’s amazing how resourceful people can be,” says Squire.
“There’s a good demand for former filling station sites in the right place. I think the ones that don’t go so easily are the ones where you have got an old filling station site in the middle of nowhere. Happy Eater and Little Chef have filled many of these spaces.”
Neighbourhood stores in secondary and tertiary locations, rather than in primary retail spots, will be the most affected. “It will inevitably have an effect on symbol groups such as Spar, Happy Shopper and so on,” says Clark.
But he points out that most of the damage to corner shops has already been done. In 1980 there were an estimated 50,000 small grocery outlets in the UK. By 1992 this had fallen to 20,000 and to 19,000 in 1995. “Independents are always under pressure from supermarkets. It’s an ongoing process against the corner shop, but the petrol retailer has now been added to the equation.”
Local shops will find little protection from the planning system. RICS spokesman Patrick Downes of town planning consultant Chapman Warren says that government planning policy encourages the provision of shops with petrol stations, particularly in rural areas: “I think petrol-filling stations are now well established as the local shop; to some extent they have replaced the local store.”
For the supermarket chains, the relaxed planning attitude makes forecourt stores a fast and effective way of complementing their superstores and town centre supermarkets. “Forecourts have sprung up remarkably fast,” agrees Clark. “Take, for example, Tesco in Balham [south London]: that went through the planning process and up very, very rapidly indeed. I don’t think that the planning policy tentacles have necessarily reached that sort of development. It is far too small.”
| Retailer | Comments |
|---|---|
| BP | Shops owned by BP are operated by a company called BP Express. BP is currently converting Mobil shops to its livery. By the end of 1997 there will be 2,000 BP stores |
| Conoco | aka known as Jet. Stores trade as Jiffy, generally 40m2 to 60m2, but can be up to 100m2. |
| Esso | Four module sizes: 45m2, 60m2, 90m2 and 120m2 |
| Frost Group | Trades mainly as Save brand, store size varies widely. |
| Murco | Optimum 55m2 to 95m2. |
| Q8 | All new reconstructed shops are between 50m2 and 80m2. |
| Safeway | Up to 58m2. |
| Sainsbury’s | Much smaller end of the market, max of 23m2. Where Sainsbury’s petrol is sold, up to 47m2. |
| Shell | Select stores, average of 70m2, larger outlets up to 140m2, called Food Stores. |
| Tesco | 185m2 to 280m2, called Tesco Express. |
| Texaco | New stations 70m2 minimum, 2,555m2 with convenience store included, average 93m2. |
