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Competitive Petroleum Retailing:How To Make The Edge

Posted: Saturday, Sep 04, 2004 at 0000 hrs ISTTags:

Though the petroleum retailing market has not been completely de-regulated, theincreased competition between the existing players is already evident. The same isbeing manifested in the form of new products, improvement in ambience and servicelevels, investments in systems and emphasis on non-fuel sales. Roll out of significantnetworks by new players like Essar, Reliance and Shell would provide an additionaldimension to the competition.

What does the customer want? Un-adulterated fuel of the exact quantity procured atleast cost in reasonable period of time is the typical current customer requirement fromthe retail outlet across the Indian market. The current players are investing significantlyin training and equipment and un-adulterated fuel. Exact quantity, costcompetitiveness and services would be the key areas of competition.

Cost Competitiveness

Cost has been a significant factor in the purchasing decision and would continue to beso. Retail outlets on the normal transit route or least distance qualify in the

consideration set for the purchase decision. Residents of Gaziabad, Noida and Gurgaontraveling to Delhi fill up their tanks in Delhi due to the price differentials. The purchasedecision has more dependence upon the reputation of dealers rather than on the oilcompany. Even in countries having a reasonable history of deregulated markets viz..the US, Singapore etc. The sector does not witnesses a significant degree of brandloyalty and the purchase decision is based on cost and transaction time.

Essar has already initiated the competition based on retail prices. Free markets doattract the independents (who do not have refining interests or oil company brands) andare an additional source of competition. These use price discounts (due to their leanstructure) to compensate for the lack of brands. In many markets, oil companies are

also facing stiff competition from hypermarts and supermarts, which sell petrol alongwith other retail products. But cost competitiveness is expected be the most significantsuccess factor.

Product Quality

Though significant time has elapsed since the launch of premium fuels in the market;expectation of improved mileage has been the most significant reason for most

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customers to venture into buying the premium product. This reflects the fact that fuelefficiency is key decision factor for purchase of cars. However, certain customersegments are increasingly looking at engine performance and hence it is likely thatperformance would be an expectation from the fuel as well. Over time an increasingproportion of customers would shift from the requirement of un-adulteration to fuel

efficiency and then to engine performance.

Non-Fuel Sales

Non-fuel sales are another key aspect, which is expected to significantly impact therelative competitive position. Firstly, it could be used for differentiation. Secondly, itwould act as a driver for revenue growth. The non-fuel sales contribute nearly 30% ofthe gasoline station sales in the US and Singapore and nearly 15% in Canada and theUK. In Singapore and the UK, the non-fuel sales are a source of growth in a stagnantfuel market. Thirdly, it is expected to contribute to the cost competitiveness. In the highlycompetitive market in Thailand (over 18000 outlets, translating to a national average of

around 80 KL/month/outlet), Jet (a ConocoPhillips co.) sells in excess of 500KL/month/outlet. One of its success factors is its ability to price its fuel competitivelybacked by the significantly high margins on its half a million USD of non-fuel sales peroutlet per year.

Competitive Positioning

Investments in brand development do not necessarily translate in higher sales ofpremium fuels if the price differential is not aligned to the higher perceived value. Anappropriate emphasis on each of these key factors in designing and execution of thebusiness strategy would determine the competitive position of each market player in the

emerging business landscape. The market participants may take different positions inthe market by creating different brands of retail outlets in terms of service levels, similarto different position through different brands of fuel in terms of quality. IOC has alreadyopened Jubilee Outlets with a positioning different that the usual one. The futurelandscape might witness emergence of Tatkal Outlets (quick service), AmbienceOutlets (good experience) and No frills (low cost) outlets resulting in betterperformance, thus translating to higher levels of customer satisfaction.

The writer is senior consultant, PricewaterhouseCoopers Pvt Ltd