Forecourt Trader - 30 years at the heart of the fuel retailing community

Money Talk: Don't ignore individual site-operator finances

Hardly a day goes by without the sell-off of yet another tranche of forecourts by a major oil company to one of the numerous independently-owned groups in the UK retail market. Almost inevitably there are the associated recruitment ads by some of these same groups, looking for people to join them as site managers or more often commission operators, to run the sites that they're acquiring. This pattern has been going on for a while now, and seems destined to continue until the last of the traditional oil companies sells off its last retail property in the UK.

This petrol retail revolution is mostly unnoticed by the non-specialist media, or consumers, presumably because they still see the same familiar oil company logos at the roadside. Those few who have realised what is happening are generally shocked by the speed and scale of the change. Here at EKW we'd like to claim that with our decades-long involvement in this industry we saw this coming years ago, but that would be a slight exaggeration. Some 25 years ago we held an internal strategic planning session trying to predict what the petrol retail industry would look like in the early 2000s. One of the projected scenarios was indeed the current one. Ultimately however it seemed too unlikely it was almost impossible to imagine all of the oil companies giving up the retail sites they'd spent years acquiring just to concentrate on wholesale. Today some of the independent network operator groups are long established in their own right, and have years of experience running sites, whether direct managed or under the commission operated model. Others are relatively new, and have grown extremely rapidly through each successive batch of acquisitions. Growing pains are almost inevitable. Integrating hundreds of sites into a single network is never easy, especially when the sites come from different corporate cultures, and are likely to have different technology and reporting systems. Then there's the issue of management supervision.

Long established

Historically the oil companies had dozens of field managers and many more office-based support staff to ensure compliance with network standards whether that was financial performance, security of company-owned funds and other assets, or just day-to-day operating standards. It's easy to dismiss that infrastructure as bureaucracy, but it had a purpose: information and control, in the days when even mobile phones were an expensive rarity. From the point of view of the individual site operator, the ability to obtain advice and help from the owners and independent professionals was also invaluable although many wouldn't admit it.

One absolutely fundamental aspect of running any retail network is financial reporting. Obviously the network owner must have internal systems in place to tell them how much they're making (or not) from each site. However, those systems can come under strain when they have to be expanded to include another hundred or more sites, especially when legacy IT systems are completely different. If the operating model is direct managed, the same considerations and problems arise from the need to provide payroll (and HR support) for an increased number of employees. The answer may be either outsourcing the handling of financial data, or adopting a system which is platform-independent or some combination of both even as a temporary measure until a completely new internal system is constructed. Knowing the profitability of each site for the network owner is however only one side of the equation. Under the commission operator model, both the operator and network owner need to know and understand the operator's current financial performance and have some faith in the figures they're using. This is something which the major oil companies came to recognise through years of experience, but which can often be overlooked.

Why should the network operator be interested in each site operator's financial performance? Start with churn. If the operator can't make a reasonable profit then you have the cost of constant recruitment and/or site closures. A site that's closed won't be making a profit for the network. Then there's the subject of risk if operators are struggling to make any money out of their site, there's an increased risk that they'll disappear, and often that involves taking a few days' worth of sales cash with them, and probably leaving large unpaid bills from suppliers. Invariably the network owner picks up the tab if they want the supplier to continue supplying the next operator. If that's too bleak to think about, then imagine a very common scenario operators claiming that they're losing money and need more support, or rent alleviation, etc. Both parties need to review the detailed costs and revenues to identify the reason. In our experience the most common one being staff costs that don't correspond to the original forecast.

Accepting the figures

Now to agree a course of action, both parties need to accept that the figures they're discussing are real whether that involves recognised accounting procedures, or the validity of the payroll calculations. Much easier if the accountant or payroll provider is known to both parties and is seen as genuinely independent and unbiased.

It's sometimes easy to forget that until the supermarkets came into petrol retailing and disrupted it in the same way as they did to the rest of the traditional High Street the oil majors were successful retailers. The likes of Shell, Esso, BP, Total, Texaco, Mobil, Jet and others now forgotten, each owned networks of hundreds of retail sites which made profits for both the network and the individual licensee/agent running sites. One thing which the most successful networks had in common was that they took the subject of operator finance and accounting very seriously.

To be as successful today, the new network owner might be wise to do the same.

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Weekly Fuel Prices 17 July 2017
RegionDieselLPGSuper ULUL
East115.6457.40123.16114.76
East Midlands115.23124.22114.53
London115.7059.90124.68114.90
North East114.4759.90124.57113.84
North West115.48124.36114.65
Northern Ireland114.33124.57113.85
Scotland115.4949.70123.06114.43
South East116.0053.90124.79115.13
South West115.7457.40123.82114.84
Wales114.95121.22114.15
West Midlands115.37125.48114.77
Yorkshire & Humber115.0861.90125.96114.38

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