non fuel services

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c

August 25, 2005

Infraline Energy Research & Information Services

Conference on

STRATEGIC SHIFT IN INDIAN DOWNSTREAM SECTOR

Making India Export Hub for Petroleum Products and Innovations in Petroleum Retailing

Non-Fuel Retailing : From Fringes to Focus

2

Agenda for Today

• Importance of Non-Fuel Retailing to create sustainable

competitive advantage

• Key Global Trends in Non Fuel Retail

• Future of Non-fuel retailing in India and options for

Petroleum Retail companies

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Increased Activity in Fuel Retailing in India

Key Changes in Auto-Fuel Retailing

� Growth in retail outlets and new oil retailing formats to target growing diversity in consumer tastes and preferences

� Diversification into non-fuel sales

� Supplement margins in oil-retailing with non-fuel margins

� Better utilization of physical assets – additional

income source

� Alliances with other parties to get into non-fuel retailing

� Increased customer focus and differentiation to capture/protect market share in oil retailing

� Better quality and improved fuel product mix

� Improved service orientation

� Branding and loyalty programs

Phase-wise increased decontrol of fuels

PSUs increasingly becoming customer-centric in their

outlook to protect market share

Players with > 2000 crores investment in the sector now

participating in retailing

Increased decontrol

New players > 2000 crores

Shift from selling to marketing

Growth in the demand sectorin all segments – highway, urban,

rural

Growth in demand

The Indian oil retailing sector is witnessing significant market activity that is altering the nature of competition

Major drivers for increased activity

Major drivers for increased activity

1

2

3

4

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� Historically a mere dispensing point for product

� No marketing or service focus

� Customers less evolved

� Maturi 800, Scooters more prevalent

� No experience of modern trade for non-fuel

Externally Neutral

� Deregulation and competition hotting up

� Customers becoming more discerning

� Increased focus on branding, creating better ambience and service at retail outlet

� Organised retail evolving, so are opportunities for non-fuel emerging

Externally Supportive

� New competitive forces in the horizon

� Global standards emerging

� Beyond petro branding…non-fuel and services become differentiating factors and growth and profit enhancers

� Retail Outlet becomes core focus, supply chain re-formed to service them better

Externally Agressive

Phases in Evolution

Evolution of Role of Petroleum Retail Outlets

• The petroluem retail outlet is moving from a mere “point of sales“ to the “core of competitve differentiation“, thanks to maturing customer, greater degree of

competiton and higher degree of sofistication of the end-use segment

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Evolution of Role of Petroleum Retail Outlets

• Before: Mom & Pop

From:

To:

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What is Non-Fuel : From Customer Need Perspective

Petroleum Retail Outlets

– Location

– Quality Assurance

– Price

– Performance

– Ambience

– Time/service

– Friendly attendants

– Rewards

– Other needs?

Non Fuel

Convenience

– Food and grocery

– Fast Food

– Dashboard dining options

– Gifts

– Florist

– Cafe

Planned Shopping needs

– Car accessories

– Pharmacy

– Specialty restaurants

– Books

– Music

Services

Related

– Carwash

– 2nd hand car sales

– Auto finance

– Parking

– Repair

workshop

Unrelated

– Launderettes

– Photo shop

– Courier

– Travel Agent

– Crèches

– Rest/refreshments

Need Analysis would vary from segment to segment

Illustra

tive

Fuel

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Why Develop Non – Fuel Retail

Need for Non Fuel

Retail

Value

Migration

Value

Migration

Building /

Leveraging

Competencies

Building /

Leveraging

Competencies

Create

Differentiation

Create

Differentiation

• In US, non-fuel sales contribute to almost 40% to the overall sales

• In US & Europe, typically non-fuel contributes 30-50% to the overall profitability

• In India, the margins are extremely thin (< 1%) on fuel retailing

• Using real estate for non-fuel sales can significantly improve the margins

• Non-fuel retailing is a different ball game altogether as the wining propositions are significantly different compared to fuel retailing

• Theoretically need to develop alliances with parties that understand non-fuel retailing better

• But where are strong National/ Regional players for developing alliances?

• Raise entry-barriers for new entrants

• Especially from the point of view of possible FDI in retailing

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Agenda for Today



• Key Global Trends in Non-Fuel Retail



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Who has Better Bargaining Power?

• 60% increase in US supermarkets with pumps

• In UK: BP/Safeway, Esso/Tesco Combos

o Supermarkets combined petrol share larger then Esso

• In France, grocery controls 60%+ of petrol market

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Key Trends in Convenience Retail

• Biggest Opportunities:

o Fresh Expansion

o Strategic supply chain management

o Meeting Shopper’s need

• Biggest Challenges:

o Big Box entry

o Staff Quality

o Oil company culture

o Differentiation

Boots: UK market leader

in pre-made sandwiches

50% of all C-stores in Japan

are franchisedby superstore chains

Woolworth’s in Australia

adds petrol,Coles Myer

launches small stores

Tesco and Sainsbury’s

“small stores” in UK

Amoco “Split Second” in US: 20% of store devoted

to fast and fresh foods

Esso in Singapore has in-store bakery

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Key Trends in Convenience Retail

Convenient Products

Co

nve

nie

nt L

ocatio

ns

Independents

Big Box

Retailers

Fuel C- Stores

SpecialistC- Stores

Big Prize for cracking the“convenient products in convenient location”

conundrum

Big Box adding necessary scale

C-stores upgrading consumer proposition

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Agenda for Today



• Key Global Trends in Non-Fuel Retail



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Key Questions for Non – Fuel Retail Business

• What purpose does it serve:

o Stand-alone profit center (which it should be) or

o Just “frill factor” to create differentiation for fuel retailing

• What is the overriding consumer value propositions:

o Convenience and / or

o Planned purchase

• In Indian context “cash rich, time poor” is not the only target for C-stores

o Do consumers visit C- stores only when they come to the station to fill gas or

other occasions too based on need?

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Non-Fuel Retail Options

Conventional Thinking

Convenience Format

Un-Conventional Thinking

Specialty Format

Convenience Store

• Food and grocery• Household utilities

• Fresh food • Gifts

• Florist

Impulse Purchase Planned Purchase

Specialty Concept

• Car Accessories• Health and beauty

• Music• Dashboard Dining

Retail

Format Options

Potentially huge opportunityas big-box competition is relatively nascent and there exist a need gap for better organized and structured chain of C-stores putting a

better value proposition than the neighborhood mom and pop stores

Create a destination concept, not restricted to only car owners who come to gas station to fill fuel, but an extended target in the defined catchments

Possible mix of both formats present, depending on location and space availability

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Key Considerations for Non – Fuel Retail

• Own operation or third party: either way sourcing must be centralized

• Scaling up, otherwise poor customer acceptance and low profitability

• Efficient Value Chain Management and strategic relationship with vendors

• Organization capability building, fuel and non-fuel retailing are entirely

different ball-games

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Product •Product innovation and mix•Auto accessories, fresh food, ready to cook/eat products, “dashboard dining”, loss leaders

•Exclusive private labels / Contract farming

Price•Price Differentiation•Customer Segment-wise pricing

•Exclusive premium range? •Multiple formats depending on location

•Happy hour/day

Service•Service Differentiation

•Quick check-out•Friendly attendants•Rewards Program•Tele ordering (and pick up when in gas station)/ home delivery•Long opening hours•Free car treatment while shopping

StandardizedWinning Customer Value Proposition

3 Dimensions of Building Winning Value Proposition

• The three dimensions of Value Proposition

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Key Issues for Services Retail

• Key is to find out what are the related as well as unrelated services where

there is a need gap, where an organized provider fits in:

o Launderettes

o Photo shop

o Courier / travel agent / crèches

o Auto finance/ second-hand car sales

• Rather than taking these as “frill factors” (which currently they are), one has

to evaluate each from a business viability perspective

• One more profitable opportunity is alliance marketing with other related

service providers

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Summary

• Non-Fuel Retail can be an independent and attractive business opportunity

on its own

• Key options to consider: Build from scratch or Make alliances

o Given the current demand –supply mismatch, “Build” is still a viable option

• Like all other forms of organized retailing, scaling up and creating strong

distinctive value proposition is of primary importance at this stage

• Multiple formats can be considered in a nascent market such as India

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© 2004 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” refers to the network of member

firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers.

PwC

Thank You

Asitava Sen

PricewaterhouseCoopers Pvt LtdPwC Centre, SaidulajabOpposite D Block, SaketMehrauli Badarpur Road

New Delhi 110030

Phone: 91 11 51250875E-mail: [email protected]

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