With conventional revenue streams under threat, there are two clear paths of growth and profitability for fuel retailers – diversifying into alternate fuels and venturing into non-fuel retail products and services. While competency in fuel retailing provides oil marketing companies a significant advantage in selling alternate fuels, space shortage restricts this option. Additionally, the market for alternate fuels is still in the nascent stage.
Globally, non-fuel retail (NFR) includes many services such as convenience, vehicle care, food and beverages, financial solutions, pharmacy, last-mile delivery, and more. However, public sector undertaking fuel retailers that forayed into Indian non-fuel retail initiatives in the early 2000s met with limited success.
Getting more skin in the game
The NFR contribution to the overall margin for fuel retailers in India is less than 1 per cent compared with 50–60 per cent in the US, ~10 per cent in China and ~20 per cent in Indonesia, as per Accenture estimates. The NFR opportunity is huge.
So, what’s the challenge for fuel retailers? Lack of core competency in consumer goods retailing and other non-fuel propositions are holding back fuel retailers from providing a consistent customer experience. Add to that the high dependency on channel partners, as only 2–3 per cent of the overall fueling network in India is company owned and company operated (COCO)*.
Availability of alternate fuels, improvement in public transport infrastructure, improved engine efficiency, shared mobility, increase in the share of railways for freight movement, and various smart-city initiatives, will impact the fuel retail outlets’ profitability and dealer margins.
In 2019, the Government of India allowed companies with a net worth of Rs 250 crore or more to set up their chain of fuel stations to drive more competitiveness and innovation in the fuel retail market.
To improve profitability, increasing the basket size and margins from incoming customer footfall is crucial. With the popularity of electric vehicles (EV), daily customer visits at fuel stations may decrease. But it also provides an opportunity for fuel retailers as longer waiting periods to charge vehicles means more potential shopping time in stores.
Rewriting the playbook
In phase one of the NFR journey, fuel retailers saw non-fuel initiatives simply as a means to generate additional income. In the next phase, fuel retailers need to take a renewed focus by forming strategic alliances with major brand owners and retailers, connecting with local communities, and even developing their own brand labels. To understand changing customer preferences, fuel retailers also need to engage with communities using detailed local market data and social media platforms.
Scaling the network across the country and different market segments will require a robust supply chain. Some level of competency in warehousing is also essential to ensure quick inventory replenishment and more negotiating power for operating the business on a large scale.
To plan a successful second innings in the post-pandemic economy, fuel retailers need to ensure that they -
1. Create a digital ecosystem: With an array of resources at their disposal, fuel retailers can leverage digital to ensure a strong head start. Digital initiatives can be used to improve location planning, inventory and store performance tracking, e-commerce sales and loyalty programs.
2. Build partnerships: Fuel retailers can explore revenue sharing or rental or hybrid models with third parties and brands. The tie-ups will help improve the customer experience, increase footfall and build competency.
3. Design optimal store infrastructure and customise offerings: Fuel retailers need to plan stores while keeping the overall customer journey in mind and considering the interaction of various offerings with each other. Using 3D models of the outlet can help design the site layout and customer touchpoints. By integrating the head office server, back-office server and point of sale assets, companies can facilitate hassle-free customer payments. Customer behaviour data and analytics can help decide product mixes and which languages frontline employees should speak.
4. Capitalise on the EV trend: With the rise of EVs, setting up charging facilities as well as other non-fuel initiatives will increase footfall. A charging station next to a convenience store is likely to get more customers if the store can incentivise them while their vehicles charge.
Fueling the path to a brighter future
Preparing well for the crowded and highly competitive space of consumer goods retailing will hold fuel retailers in good stead. However, that would require a complete reinvention of the business model to become more customer centric. To get back in the game, fuel retailers must play to their strengths, such as presence in rural markets and highways. The next step will be growing their customer base and brand loyalty through digital experiences and hyper-personalising communication and offerings. Technology will play a pivotal role in building essential competencies such as category management, inventory management, pricing, and promotions.
Fuel retailers that take a strategic, data-based approach to transform themselves and explore alternate businesses will not only generate additional revenues but also ensure sustainable growth in the future.