Competitive Petroleum Retailing: How To Make The Edge

Posted: Saturday, Sep 04, 2004 at 0000 hrs IST Tags:

Though the petroleum retailing market has not been completely de-regulated, the increased competition between the existing players is already evident. The same is being manifested in the form of new products, improvement in ambience and service levels, investments in systems and emphasis on non-fuel sales. Roll out of significant networks by new players like Essar, Reliance and Shell would provide an additional dimension to the competition. What does the customer want? Un-adulterated fuel of the exact quantity procured at least cost in reasonable period of time is the typical current customer requirement from the retail outlet across the Indian market. The current players are investing significantly in training and equipment and un-adulterated fuel. Exact quantity, cost competitiveness 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 be so. Retail outlets on the normal transit route or least distance qualify in the consideration set for the purchase decision. Residents of Gaziabad, Noida and Gurgaon traveling to Delhi fill up their tanks in Delhi due to the price differentials. The purchase decision has more dependence upon the reputation of dealers rather than on the oil company. Even in countries having a reasonable history of deregulated markets viz.. the US, Singapore etc. The sector does not witnesses a significant degree of brand loyalty and the purchase decision is based on cost and transaction time. Essar has already initiated the competition based on retail prices. Free markets do attract the independents (who do not have refining interests or oil company brands) and are an additional source of competition. These use price discounts (due to their lean structure) to compensate for the lack of brands. In many markets, oil companies are also facing stiff competition from hypermarts and supermarts, which sell petrol along with other retail products. But cost competitiveness is expected be the most significant success 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

customers to venture into buying the premium product. This reflects the fact that fuel efficiency is key decision factor for purchase of cars. However, certain customer segments are increasingly looking at engine performance and hence it is likely that performance would be an expectation from the fuel as well. Over time an increasing proportion 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 the relative competitive position. Firstly, it could be used for differentiation. Secondly, it would act as a driver for revenue growth. The non-fuel sales contribute nearly 30% of the gasoline station sales in the US and Singapore and nearly 15% in Canada and the UK. In Singapore and the UK, the non-fuel sales are a source of growth in a stagnant fuel market. Thirdly, it is expected to contribute to the cost competitiveness. In the highly competitive 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 500 KL/month/outlet. One of its success factors is its ability to price its fuel competitively backed by the significantly high margins on its half a million USD of non-fuel sales per outlet per year. Competitive Positioning Investments in brand development do not necessarily translate in higher sales of premium fuels if the price differential is not aligned to the higher perceived value. An appropriate emphasis on each of these key factors in designing and execution of the business strategy would determine the competitive position of each market player in the emerging business landscape. The market participants may take different positions in the market by creating different brands of retail outlets in terms of service levels, similar to different position through different brands of fuel in terms of quality. IOC has already opened Jubilee Outlets with a positioning different that the usual one. The future landscape might witness emergence of Tatkal Outlets (quick service), Ambience Outlets (good experience) and No frills (low cost) outlets resulting in better performance, thus translating to higher levels of customer satisfaction. The writer is senior consultant, PricewaterhouseCoopers Pvt Ltd