by Craig Page-Lee (@cpl_ignite) I’m excited that Afric Oil has signaled a real interest in returning to retail Fuel distribution and opening a chain of fuel stations again. This is part of the emergence of a new era of black-owned fuel distribution companies operating in Africa, with capability to take on the big international brands such as BP and Total.

Afric Oil was one of the first genuine black economic empowerment companies in SA; founded as Worldwide African Investment Holdings and later renamed Pembani, the company has experienced various iterations of group structure, partnerships, shareholding and product offering during its 20 years of existence.¹ in 1998, Afric Oil was exposed to the world of fuel service stations (retail) when it acquired Zenex (which owned 200 fuel stations at that stage) in a leveraged buyout.¹ This phase of its offering was unfortunately short-lived as it returned to being purely a fuel wholesaler and distributor only a year later, when it sold 45% of Afric Oil to Engen.¹

Very complex industry

The oil industry in SA is a very complex, highly competitive, extremely volatile and heavily regulated industry, where the drivers of differentiation are minimal, and profitability and success are impacted by extreme fluctuations in the price of oil — as we have all witnessed the past few years.

“It is interesting to see that although there is no significant price differentiation between the various brands in terms of the fuel price, customers perceive the value that they receive from the various service stations differently,” Business Tech reported Prof Adré Schreuder, founder of SAcsi and CEO of Consulta as saying in October 2015. “This means that perceived value at fuel service stations is influenced by elements other than the price of fuel.”²

This is where the world of Forecourt Convenience retailing really comes into its own. But, before expanding upon the drivers and trends in forecourt convenience retailing, it’s worth setting the context and sharing some of the findings on the oil industry in SA.

This is a complex industry and one would expect it to be littered with many associations and bodies, which it is. Alongside governmental oversight and controlling bodies such as the Department of Energy (DoE), the Central Energy Fund (CEF) and National Energy Regulator South Africa (NERSA), three key associations exist to support all stakeholders across the industry value-chain: the Fuel Retailer Association Of Southern Africa (FRA), the South African Petroleum Retailers Association (SAPRA) and the South African Petroleum Industry Association (SAPIA). FRA exists to “ensure the survival and success for all its members who are Fuel Service Station Owners in the retailing of fuel in South Africa.”³ SAPRA exists to “act as a mediator and advisor to all service station owners within the country” and “assists with the day-to-day events that affect fuel retailers in South Africa.”⁴ SAPIA “plays a strategic role in addressing a range of common issues relating to the refining, distribution and marketing of petroleum and LPG products, as well as promoting the industry’s environmental and socio-economic progress.”⁵

Two sides of the supply chain

The liquid fuel industry in SA is divided into two sides of the supply chain, namely the fuel wholesalers and the fuel retailers. The former manage the storage terminals and distribution facilities throughout the country and are made up of companies such as BP Southern Africa, Chevron South Africa, Engen Petroleum, PetroSA, Sasol Oil, and, until recently, Shell South Africa and Total South Africa.⁵ The latter represent the over 5 000 forecourt service stations (enabling over 70 000 jobs) that exist across SA and are either company-owned (under a franchise model) or dealer-owned.

It is important to note that, while manufacturers and wholesalers are not allowed to own retail licences, SAPIA members are given access to a limited number of retail licences which they may franchise as service stations to independent dealers and directly supply them with their petroleum products, which is why we see many retail fuel forecourts carrying the branding of the major wholesalers.

There are, however, a number of companies, such as Puma, TopUp and Viva, which are beginning to pose a major threat to the larger players.

Puma, with extensive representation in Africa, is predominantly a wholesaler but has acquired independent fuel retailers to operate about 123 retail sites in SA, 58 of them already rebranded to the new Puma identity and visual style).⁷ Top-up operate predominantly in the Eastern and Western Cape at this stage⁸ and Viva, a proudly SA fuel retail brand (owned 100% by Royale Energy Limited) aims to have 118 filling stations in operation during 2016.⁹

The key challenge

The precedent is set and this where Africa Oil stands a chance when delivering against its promise to operate in the fuel retail space becomes a reality. What it is going to do and how it is going to do it to ensure differentiation is the key challenge. One thing is for sure, Afric Oil will definitely need to incorporate the convenience store (C-store) concept into its offering to achieve parity in this highly contested market, while looking to bring other forms of relevance and innovation to the proposition to gain an upper-hand.

Jason Naicker, associate director of retail services, Nielsen SA, presented a paper entitled “Evolution of Forecourt Convenience Stores in South Africa” at the Global Convenience Symposium — growing demand, changing structures — a few years ago.¹⁰ The findings are encouraging for convenience stores, but more so for forecourt convenience stores, as the growth opportunities have been clearly evident. Proof of this is that convenience retail was reported to be growing annually at 13% compared, with the retail market which growing at only 8% annually.⁹

When looking at the “Nielsen Defined Market” as referenced in the presentation, convenience stores were reported to have 15% share, while forecourt convenience stores had 4% share of the defined market. Surely this denotes huge growth potential? Convenience stores were also reported to have 29% share in the Top 20 categories purchased, while forecourt convenience stores had 10% share in the Top 20 categories.⁹

Taking the above into account, and considering that there are over 3 000 forecourt convenience stores within the 5 000 forecourt service stations in SA, it’s no wonder that more than R14.8bn in retail sales was driven through forecourt convenience during the year in question. The most important point to consider, though, is that, on average, consumers spend almost double at forecourt convenience stores than they do on fuel.⁹

New format of C-stores

The presentation also noted the fact that consumers were making seven trips a month for regular top-up shopping trips, compared to the 1.5 trips per month for regular bulk shopping.⁹ Again, this surely denotes huge growth potential for forecourt convenience stores. The challenge remains that the forecourt convenience store proposition is somewhat generic and that retailers have had to innovate to ensure differentiation. This has led to the development of an entirely new format of C-stores evolving over the past few years, moving away from the traditional brand-“owned” grocery or FMCG convenience-focused stores such as Engen Quickshop and Shell Select Stores to an entirely new proposition.

We’ve seen the following partnerships and C-store formats emerge:

• Caltex Freshstop (partner: Fruit & Veg City and Food Lovers Market)
• Caltex and Seattle Coffee Shop
• BP and Pick n Pay Express
• BP and Wild Bean Cafe
• Sasol and Burger King
• Sasol and My Delight
• Shell and Spar Express (was tested in Germiston in 2013)
• Engen and Woolworths Foodstop
• Engen and Corner Bakery
• Engen and equatorial Coffee Co.
• Total and Mugg & Bean

With this broad range of offering and partnerships already in place, where does the future differentiation lie for Africa Oil, or any of the emerging independents and challenger brands? Does Afric Oil have the appetite to try Nando’s as a potential partner? Whatever road Afric Oil takes, I look forward to celebrating in its forecourt retail convenience success in years to come and I wish Phuthuma Nhleko, Tseke Nkadimeng and all stakeholders at Afric Oil the very best on their journey.

Sources

¹Overview — BEE force in oil and gas. Financial Mail Corporate Report: Afric Oil. April 14 — April 20, 2016. Compiled by David van Biljon
²Best and worst petrol stations in South Africa, Business Tech, October 25, 2015. Staff writer
³FRA — the Fuel Retailer Association Of Southern Africa website
⁴SAPRA — the South African Petroleum Retailers Association website
⁵SAPIA — the South African Petroleum Industry Association website
⁶South Africa Yearbook 2012/2013
⁷Puma Energy website
⁸TopUp Service Stations website
⁹Viva Oil website
¹⁰Nielsen presentation content — Evolution of Forecourt Convenience Stores in South Africa, Global Convenience Symposium (post 2011)

Craig Page-Lee (@cpl_ignite) is the former group managing director of Posterscope South Africa. He has over 21 years of working experience across the disciplines of architecture and retail design/brand communications and marketing management/advertising and media, across 11 pan-European and six pan-African regions. Craig’s monthly column on MarkLives, “Beyond Borders”, focuses on doing business in various African markets. Don’t forget to tune into his #eBizRetail slot on www.ebizradio.com.

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