BPCLS Petrol Pump Retail Revolution

We have always been a proactive company and envisaged that in the future, with decontrol, it is going to be important how the retail outlet looks and the kind of facilities it offers. - A BPCL spokesperson, in 2000. THE PIONEER Petrol pumps in India have come a long way from being dusty, poorly lit places manned by shabbily clothed and indifferent personnel, to the shopping malls of the early 21st century. Bharat Petroleum Corporation Ltd. (BPCL), a leading player in the Indian petroleum industry, received wide acclaim for having brought about this change in the Indian fuel retailing business. In the mid 1990s, the oil industry felt the need to establish strong brand identities; until then, the industry seemed to have adopted an indifferent approach towards customer service. With the deregulation of the oil industry due in April, 2002, Indian players realized that they needed to become more customer focussed [1]. BPCLs pioneering efforts in creating brand awareness for its products were thus a welcome change. Till the mid 1990s, a typical petrol pump owner seldom interacted with the oil company whose franchise he held. However, with the new found retail focus of the late 1990s, companies started taking immense interest in the retail outlets. BPCLs first foray into petrol pump retailing was through Bharat Shell Ltd. (Shell), its joint venture with Shell Overseas Investments of Netherlands.

Shell launched the first 1,000 different items. stationery, newspapers, cassettes and CDs, came

convenience store (C-Store) [2] stocking over The store, offering eatables, soft drinks, magazines, frozen foods, light bulbs audio as a pleasant surprise for Indian consumers.

By mid 2001, petrol pumps at almost all major locations in the metros had set up retail outlets. However, BPCL was reported to be much better positioned than its competitors, Indian Oil Corporation (IOC) and Hindustan Petroleum (HP) to meet the MNC onslaught after deregulation. BPCL was also reported to be fine-tuning its marketing and retailing strategy. THE BACKGROUND BPCLs history dates back to 1951, when the Government of India entered into an agreement with the UK based Burmah Oil Company and Shell Petroleum Co. (Burmah-Shell) for establishing an oil refinery in Bombay. In 1952, this agreement led to the incorporation of Burmah Shell Oil Refineries Ltd. In January 1955, the refinery at Bombay went on stream, and in 1962, the refinery started processing crude oil from Ankleshwar in Gujarat. In December 1975, following the passing of The Burmah-Shell (Acquisition of

Undertaking in India) Bill, the Government of India signed an agreement with Burmah-Shell. Subsequently, the government took over the operations of the company and changed its name to Bharat Refineries. Initially, the company sold only kerosene, but later it set up service stations to sell petrol as well. Bharat Refineries became the first Indian company to introduce LPG for domestic cooking purposes. In January 1976, the Government acquired 100% shares in the company, and in August, 1977, the companys name was changed to Bharat Petroleum Corporation Ltd. (BPCL). The economic reforms of 1991 paved the way for major changes in BPCL. The company entered into marketing contracts with Indo-Burmah Petroleum (IBP), Madras Refineries Ltd. (MRL) and Cochin Refineries Ltd. (CRL). In 1992, the government disinvested 30% of its stake in BPCL in favor of financial institutions and mutual funds. The Rs 10 share created a record on the bourses when it opened at Rs 1,275, the highest ever opening among public sector companies. Before deregulation, only PSUs could carry on the oil business in India. However, after April, 2002, the oil industry would be fully decontrolled and the market would be open for anybody to set up a network of retail outlets. Instead of adhering to a basic, predetermined price, companies would be free to sell at their own prices. The restrictions on the number of outlets would also be removed and the PSUs would have to deal with global majors such as Exxon and BP. Convenience or C-stores, a term which originated in the US, refers to retail outlets established at petrol pumps.
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In 1993, BPCL tied up with its erstwhile partner Shell, to form Bharat Shell Ltd. (BSL), with the latter having a 51% stake. In 1994, BSL launched lubricants under the Shell brand. These were marketed by BPCL as well as BSL. By the late 1990s, BPCL had emerged as Indias second largest oil company in terms of market share. In April 1994, 3.8% of BPCLs equity was disinvested in favor of its employees. In 1998-99, the Government decided to further divest 26% of its stake in BPCL. The Government identified BPCL as one of the nine Navratnas [3]. This move gave BPCL greater freedom to develop employee policies. It also enabled the company to take decisions regarding capital project expenditures without government interference. In 1999, BPCL acquired a 32% stake in Indo British Petroleum (IBP). BPCLs Mumbai refinery consistently operated at over 120% of its 6.9 million metric tonnes per annum (mtpa) installed capacity. It had the ability to process a wide variety of crude, and its proximity to the Bombay High oil field enabled it to meet most of its crude demand domestically (only 15% was imported).

To make up for its limited refining capacity, BCPL formed a strategic

alliance with Chennai Petroleum Corp (which was later taken over by IOC) to sell the products produced in the latters 6.5 m mtpa Manali refinery. Also, the government transferred its entire shareholding in Kochi Refineries (KRL) (capacity 7.5 mtpa) to BPCL. BPCL also acquired IBPs 19% stake in Numaligarh Refineries (NRL) (capacity 3 mtpa) in West Bengal. These acquisitions, and the 9 mtpa refinery being set up at Bina in Madhya Pradesh, were expected to address the limited refining capacity problem in the future. By mid-2001, BPCLs nation-wide retail network comprised 4,500 outlets, 60% of which were company-owned or leased the highest percentage among the oil PSUs. Retail sales accounted for around 60% of the companys sales volume, with the average sales per outlet being 223 kl per month.. In 1999-00 its market share was 32% in petrol and 27% in diesel. The company was particularly strong in the western and southern regions. However, its share in lubricants, the most profitable product, was relatively low, partly because of its dependence on other oil companies for the base oil needed to make lubricants. THE RETAIL INITIATIVES - PHASE I The petroleum business can broadly be divided into three parts: the production of crude, the refining the crude into saleable products like petrol, diesel, kerosene etc., and retailing. Though margins were usually high in crude production, it was a highrisk, long-gestation business. As far as refining was concerned, there was excess capacity worldwide and margins were rather low. It was only in marketing was that companies could get the maximum margins, and hence the rush to renovate the retail outlets. Also, add-on services were expected to help the oil companies increase the extent of non-fuel businesses around their outlets. (Globally, non-fuel business accounted for a substantial portion of petrol pump margins.) As part of the nationalization drive in the late 1970s, BPCL took over Shells marketing network. This acquisition gave BPCL a strong marketing network and choice locations in cities. In 1992, BPCL began its customer service improvement efforts with a market survey for identifying the needs of its customers at retail outlets. The survey revealed the need for a good and accurate air gauge and the facility to pay by credit cards. The survey also indicated that customers would like to be able to purchase soft drinks at these outlets. In response to the above findings, BPCL tied up with Apollo Tyres and installed accurate tyre gauges (provided by the tyre company) at most of its outlets. BPCL also signed an agreement with the soft drinks major Pepsi Co. and made the entire range of Pepsi soft drinks available at its outlets. BPCL was the first oil company in India to issue a co-branded credit card in a tie up with Bob Card Limited in August, 1995. The card was launched in select cities to enable customers to purchase fuel on credit from any of its outlets in those cities. The vehicle owners could even authorize their drivers to purchase fuel using this card. This facility was particularly useful for fleet operators and truckers who would otherwise have to carry huge amounts of cash on their long-haul routes. BPCL took special attention to avoid the problems an average petrol pump owner

associated with the usage of such petrocards, e.g. the long time taken by oil companies to collect the card slips and reimburse petrol pump owners. Also, the transaction fee (below 1%) offered to them was considered to be very low.

BPCL gave the cardholders pre-embossed slips so that the pump attendant did not have to run the card and slips through the embossing machine. The company made arrangements to collect the charge slips of the day the same evening, and depositing them at the BoB cards office - where the cheque for each dealer was prepared immediately for delivery the next morning. During 1998-2000, BPCL took the help of consultants Arthur D. Little to make itself more market savvy. BPCL CEO, U Sundararajan, said, If our staff had to be geared to satisfy the customers, we needed to change our organizational structure. The company was split into six strategic business units (SBUs) and efforts were taken to reduce bureaucracy and increase interaction between senior managers and the customers. The six SBUs thus identified were retail outlets, commercial users, lubricants, LPG, aviation, and refinery. This classification helped the managers focus on specific customers and cut bureaucratic layers, speeding up decision-making. For instance, while earlier a sales officer typically serviced customers from 30 retail outlets, 12 LPG distributors, six kerosene dealers, and 10 bulk customers, now he talked to customers from a specific SBU. Earlier, only General Managers had the right to decide on discounts offered to BPCL customers. Under the new regime, even sales officers were authorized to take such decisions. BPCL also set up cross-business councils that functioned across the six SBUs in areas like strategy, human resources, and brand building. This restructuring gave special emphasis to marketing: BPCL initiated a series of steps for taking the company closer to its customers. The 22 divisional offices were replaced by 61 branches in smaller territories, based on smaller geographical areas, resulting in closer interaction with the customers. For instance, earlier a division office at Jaipur looked after the entire state of Rajasthan. Now, four territory managers in the state managed the smaller geographical areas. The most important change on the marketing front was the renewed focus on retail outlets. In the early 1990s, BPCL identified 1,234 new outlets that would be strategically critical after deregulation of the industry. The company then appointed a site procurement team to acquire these outlets. The team had the authority to talk to the owners of the sites and take decisions on their own. Within a short period, the sites were acquired. BPCL then started modernizing individual petrol pumps throughout the country and launched the Bazaar range of stores on the lines of Shells C stores. To complement the launch of the first few Bazaar outlets, BPCL released an advertising campaign as well. The five advertisement press campaign carried the baseline: Each pump has a story to tell - a story of care & commitment. THE RETAIL INITIATIVES - PHASE II

By July, 1999, 35 of BPCLs retail outlets across the country had the Bazaar stores running successfully. In October, 2000, BPCL pioneered another revolutionary concept by launching a McDonalds fast food outlet at a petrol pump near Mathura (UP) on the Delhi-Agra highway. The 4,000 sq.ft., 180 seat outlet was set up at a cost of Rs 40 million. McDonalds paid a fixed rent, besides a percentage of its sales to BPCL, for using the facility. The outlet was expected to pull in foreign and domestic tourists headed to and from Agra, besides the residents of surrounding areas.

The company closely monitored the performance of these retail outfits and through customer feedback. Based on its findings and the recommendations of consultants Dhar & Hoon, BPCL realized that it needed to further modify and improve the Bazaar stores. BPCLs research on these outlets across the country revealed that most of the customers arrived between 8 pm to 11 pm, usually on their way back from work. So, the company decided to keep the stores open till at least 11 pm. BPCL realized that a lot of the products being stocked, like soft toys were not really selling. As a result, the company reduced the range of products being carried and focussed on impulse products like chocolates and essentials like milk. In January, 2001, BPCL further upgraded the Bazaar stores and, a month later, launched the In & Out stores at around 40 outlets in Bangalore, Mumbai, Delhi, Kolkata and Chennai. A BPCL spokesperson said that the stores intended to offer all the top of the impulse items to customers. The company planned to convert the complete Bazaar network into this new and larger concept in a phased manner. Around 600 outlets were targeted in the first phase of expansion. After the metros, BPCL planned to launch these stores in north Indian cities like Chandigarh, Amritsar, Ludhiana, Jammu, Jaipur, Udaipur, Lucknow, Agra and Meerut. To offer enhanced services to its customers, BPCL tied up with various companies from a number of different industries: fast food, photography, music, financial services, ISPs, e-commerce portals, document centers, ticketing, greeting cards, ATMs, and courier services. The companies involved were McDonalds, Tata Internet Service Ltd., Pepsi, Kwality Walls, DHL, Skypak, Essar, Kodak, HMV, Sony, Qwikys, Canon, ITC, UTI Bank, Standard Chartered Bank and Kotak Securities. These companies were all given counters within the stores for selling their services. The In & Out stores remained open till around midnight and reopened around 4 am. The company was closely watching the traffic at each outlet and was planning to extend the working hours if needed. The In & Out outlets offered Internet browsing facility, along with assistants to guide the customers with their online shopping. BPCL also proposed to use the Internet facility to deliver products to consumers in a timely and cost-effective way. While products could be sent to the customers geographical area easily, it was not always easy getting them to their houses when the customers were home to receive the goods. BPCL proposed to use the solution developed by a US based company Peapod, which used the local petrol pump as a delivery point. The products were delivered to a BPCL outlet so that people could come and collect them. The

customers could even call the outlet when they were home for the goods to be delivered. Thus, the petrol pump acted as a convenient channel between the companies and the customers. One of BPCLs innovative plans concerned the distribution of LPG cylinders. A company source said, For couples who are both out of the house on work, getting the gas cylinder delivered is a big problem. This prompted the company to implement a Fixed Time delivery system, where arrangements were made with the local dealer, or even over the Internet, to have the cylinder delivered at a particular time, rather than in the course of the delivery mans rounds. With an investment of around Rs 6,00,000-9,00,000 per In & Out store, BPCL expected the convenience stores to break even by February 2002. The company was expecting daily revenues of Rs 25,000-30,000 from the bigger stores and Rs 8,000-10,000 from the smaller ones. BPCLs rivals, IOC and HPCL, had also begun refurbishing their petrol pumps IOCs stores called Convenio were running very successfully across the country. The one who gained the most from this new found retail focus of the oil companies, was the customer. QUESTIONS FOR DISCUSSION: 1. Examine why the Indian oil PSUs decided to renovate their petrol pumps and increase the focus on customer service. Do you think that such heavy expenditure in setting up retail stores at the petrol pumps would be a wise move? Support your answer with reasons. 2. Study the changes brought about at BPCL as a result of the 1992 market survey findings and creation of SBUs. Critically comment on the companys marketing initiatives. 3. Do you agree that of the three oil PSUs, BPCL was likely to be the most successful after the deregulation of the industry? Give reasons to justify your answer. ADDITIONAL READINGS & REFERENCES: 1. Seshan Sekhar, Starting trouble, Business India, August, 28, 1995.

2. Bhade Abhijit & Subramaniam Ganga, Pumping it up, Business India, October, 21, 1996. 3. Apollo Tyres to pump brand at BPCL outlets, www.indiainfoline.com, July, 22, 1999. 4. 5. BPCL The bazaar race set to enter town, Indian World, Express, July, 30, 6, 1999. 1999. begins, Business December,

6. Goyal Malini, Slippery Terrain, The Economic Times, January, 14, 2000. 7. Sarkar Ranju, BPCL Drives down a New Road, Business Today, July, 22, 2000. 8. 9. 10. January, Sarkar The January Ranju, Oil on The Boil, Economic 30, 15, Business Times, 2001, Today, January, 2001. November, 17, 21, A&M. 2000. 2001.

11. Kumarkaushalam, In & Out - BPCL to brand retail outlets, Financial Express,

12. In & Out stores promise a happy petrol pump visit, Business Standard, February, 5, 2001. 13. Bharat Petroleum - the one to watch, www.biz.yahoo.com, August 3, 2001. 14. Basu Jaya, Coming Soon: McMathura, Business Today, August 7, 2000.