South African consumers are cheering a small decrease in petrol and diesel prices for September, but for fuel retailers, the industry remains a tough industry characterised by low margins and rising costs. Diversifying revenue streams is a favoured lever most fuel retailers have for increasing their profitability in this difficult operating environment, says Steven Heilbron, CEO of Capital Connect.
He says that with rising operational expenses including electricity, security, labour and insurance, fuel retailers need to be nimble to improve profitability. They have shown, over the years, that they are resilient and innovative, with most fuel retail businesses diversifying and finding ways to make money alongside the core business of retailing fuel.
“It’s common knowledge that low fuel margins mean that petrol and diesel sales at the appropriate volumes can produce a good living, but more often need to be complemented with other higher margin products and services,” says Heilbron. “Convenience stores and other value-added offerings are often real money-spinners. But with many areas saturated with service stations, fuel retailers need to create a differentiated offering to entice customers to choose their outlet as their default choice.”
As it is for other retailers, diversification of products and services is a top tip for fuel retailers, adds Carel van Aardt, Professor and Research Director at Unisa’s Bureau of Market Research. “With around 4,600 service stations in South Africa, drivers are spoilt for choice in the major metros and on important routes,” he adds.
“Given that fuel retail margins are low and set by the government, retailers cannot compete on price in selling their core product. To increase margins and sales, fuel retailers need to really understand what the customer wants from their forecourt experience. Diversification of their offering holds the key to maximising revenues.”
Heilbron suggests some ways that fuel retailers can diversify their businesses:
- Upgrade the convenience store: Many fuel retailers are generating good business in their convenience stores through partnerships with major retail chains. Some are thinking beyond offering a convenience store the customer will pop into on their way somewhere or when they’re getting petrol. They are looking at attracting customers to do their regular day-to-day shopping. But to get this right, the store must offer the right product selection and pricing for the target market.
- Hot food and beverages: Fuel stations on heavily trafficked routes are perfectly placed to attract customers who want to get their regular cappuccino fix on their way to work or need to make a pitstop for a quick bite. Depending on the location and target market, a fuel retailer can benefit from partnering with a well-known fast-food, baked goods or coffee shop brand to offer hot meals and drinks.
- Car wash: Putting in place an automated car wash or offering car washes by hand can help a fuel retailer generate more income. A spin-off from running a busy car wash service over the weekend is that it can entice customers to pick up some coffee and a croissant from the store while they wait for their car.
- Advertising: Given their location on high-traffic routes, many retailers can earn relatively easy money by selling advertising space on their forecourt signage and electronic displays.
- Vending machines: Cigarette dispensers and medicine dispensers are an efficient way to attract footfall.
- Value-added offerings: Some fuel retailers have come up with creative offerings like trailer rentals or short-term car rentals.
“Fintech capital comes into the picture when retailers spot opportunities to diversify and need quick, frictionless access to short-term funds,” says Heilbron. “Capital Connect offers growth capital with flexible and attractive terms. Retailers can benefit from unsecured capital of up to R5 million in 24 hours by simply logging into an app and applying.”