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Challenges and solutions for fuel retailers
How should fuel retail owners approach challenges like load-shedding and price increases?
These are testing times for the South African fuel industry. Retail fuel prices are on a well-documented steep upward curve, and load-shedding presents South African fuel retailers, especially those with forecourt convenience stores, with its own set of challenges.
In addition, there has been a general shift in working patterns since the 2020 lockdowns, mostly the move towards working from home and an associated switch to using online shopping channels rather than conventional bricks-and-mortar retailers. Since the end of lockdowns, fortunately, fuel demand has recovered, and people are making more use of convenience stores in the aftermath of the pandemic, to avoid crowded malls.
Market experts predict that the global fuel retail sector will be affected in the longer term by the widespread energy transition away from fossil fuels and towards forms of renewable energy, including electric vehicles.
They forecast that this will entail a 9.2% decline in global retail fuel value from $87 billion in 2019 to $79 billion in 2030. Regulations to curb emissions, and the rise of electric vehicles (EV) and shared or public transport options, will combine to drive this downturn. The decline in revenues may be more pronounced in economies like ours, which have fewer options to diversify.
There are upsides for you as a fuel retail business owner, however. It’s likely that the global decline in income from fuel retail will be offset by gains in nonfuel retail, with global forecourt convenience store value increasing by 36% from $22 billion in 2019 to $30 billion in 2030. How do you position yourself to address these challenges and take advantage of the opportunities?
Challenge: Declining fuel demand
The decline in demand for traditional fossil fuels seems to be gaining some momentum in response to the climate crisis – enough to predict a steady decrease in use in the near future. Much of this trend is down to increased legislation and regulations to curb carbon emissions.
Solution: EV charging
EV charging may be a big factor in offsetting the predicted decline in traditional fuel demand – analysts expected global EV sales to rise from approximately $35 billion in 2021 to $420 billion by 2030. The customer and industry networks that you have as a fuel retailer, as well as your access to capital, put you in a strong position to switch to EV charging, but capturing this market will require significant investment in building EV charging infrastructure.
In South Africa, the fuel subsector contributes about 8% to our gross domestic product [and] about 5% of the total formal employment
Challenge: Load-shedding
Sadly, you must also factor this phenomenon into the sustainability of your business as a fuel retailer. Generator-related costs, including diesel and generator services, come straight out of your bottom line, while oil companies benefit from stable or higher fuel sales. The estimated costs to run a generator at a retail outlet over the past year have increased 77% – from about R145,000 to R257,000. In addition, oil companies are allegedly reluctant to allow retailers to use renewable energy such as solar to offset generator costs. Since the properties belong to the oil companies and not the retailers, this could cause further difficulty.
Solution: Solar investment
Businesses in all sectors are crying out for an end to load-shedding (reported to be costing the South African economy R1 billion per day), and the fuel sector is no different. Installing renewable energy systems such as solar go a long way to mitigating the problem, but they cost money, which ultimately affects bottom lines. With this in mind, Nedbank offers easily accessible solar energy solutions that use the value of your infrastructure itself to tailor affordable repayments in line with the cyclical nature of your business.
Challenge: Working from home and online shopping
These trends have seen the slowing of fuel sales and associated retail sales across the board for most bricks-and-mortar stores.
Solution: Retail diversification
After the pandemic, forecourt retail presents an attractive alternative to crowded shopping malls. As fuel sales move from fossil fuels to EV charging, customers will need to spend more time at a charging station. This affords you many more retail opportunities to provide better dining and grocery options, a safe environment, expanded seating and decent toilets.
Challenge: Global economic slowdown and soaring fuel prices
These macroeconomic factors are difficult to mitigate. As a fuel retailer, you may have no choice but to pass on rising costs to your customers, because factors beyond your control may drive the decline in demand. If we add in the additional costs caused by load-shedding in the South African market, the sector may begin to look unsustainable.
Solution: Entrepreneurial innovation
The global decline in income from fuel retail might be offset by gains in nonfuel retail, with global forecourt value predicted to increase by 36% from $22 billion in 2019 to $30 billion in 2030. In South Africa, the fuel subsector contributes about 8% to our gross domestic product. There are about 5,000 fuel stations in our country, creating more than 700,000 direct and indirect job opportunities, which is about 5% of the total formal employment percentage in South Africa. It is certainly a sector with great potential. EV charging certainly offers the greatest innovation potential for you as a retailer in the longer term. It is a natural progression from established fuel retail operations, makes use of their experience and offers the highest potential margin. It also offers considerable scope for growth, with oil companies already investing in the EV-charging sector. If we add in the potential for retail expansion and investment in the forecourt convenience operations, the fuel retail sector outlook becomes more positive.
Nedbank’s dedicated Retail Services team have extensive experience in fuel retail, and we will continue to conduct retail fuel seminars to assist you. Our seminars in 2022 were well received, and we will launch a new seminar series in 2024. Contact the Retail Services team for advice.
