Changing tide

Site closures have gathered momentum, but last year saw the most come from the oil company network, indicating a much brighter future for the independent retailer.

According to the Energy Institute’s UK Retail Marketing Survey 2004, the annual overview of the UK forecourt market, 890 sites stopped trading in 2003 – showing a closure rate increase of more than 16 sites a week, up from 15 a week the previous year.

And with 541 of these coming from the company-owned network, the independent sector has had a good year. But the results have been met with surprise in some quarters.

“The figures were surprising – they were higher than expected,” said Ray Holloway, director of the PRA. “It hadn’t properly registered the sheer no of sites transferring from the oil company network to independent dealers – the dealer network appears to have had quite a good year.

“But it was inevitable that we would get to this stage,” he added. “Oil companies are waking up to the fact that they are just suppliers. Supplying is what they are good at and that is what they should stick to.”

Another area of surprise came from the Institute’s fuel volume statistics. The survey claimed that average throughput was below last year’s record level at 2.183 million litres a year. “I am suspicious of the average volume figure, which took a nosedive,” said Holloway.

And Catalist agreed. Arthur Renshaw of Catalist said: “I don’t agree with the fuel volume drop – we see a much higher throughput of over three million litres a year.”

But the survey claims that this fall in fuel sales is a direct result of improving vehicle fuel efficiency. “Even on a 10-year view overall fuel sales were less than one per cent higher in 2003 than in 1994 despite an additional 5.5 million registered vehicles,” claims the report. “Concealed within the total is a marked shift to diesel with petrol sales 17.7 per cent lower over the 10-year period and diesel 33.6 per cent higher over the same period.

While the high numbers of company-owned site closures have been surprising to some, they are of little surprise to the oil companies. The trends are clearly in line with Total’s activities, for example. The oil company closed 162 sites in 2003.

“The fact that the rate of industry closures has increased is no surprise,” said Robert Taylor, Total general manager for commission-operated service stations. “Major oil brands have invested heavily in large sites with big shops and better than average fuel sales. This, and the continued growth of hypermarket share, despite a plateau in the growth of new stores, serves to pull demand from smaller sites with poorer facilities to the larger ones. This process is incomplete and will result in continued closures.”

Sites that close have been smaller locations, with limited facilities, low fuel and non-fuel incomes and with little potential for change, added Taylor.

Texaco, meanwhile, closed 174 sites last year, bringing its network to 1,163. “Texaco has refocused its retail network over the last couple of years,” said a company spokesman. “This has seen a reduction in the number of company-owned sites and in the total number of Texaco-branded outlets in the UK as a whole.

“The re-alignment process is nearing completion and we remain committed to our core network of company-owned company-operated sites. We are also actively looking to develop our independent retail network by attracting retail partners that add value to the brand.”

The slow down of independent forecourt closures, however, is expected to continue, possibly reflecting the networks efforts to find alternative sources of revenue. “The trend in closure of small sites will continue to slow down as small retailers focus on other revenue sources and establish themselves as the village shop,” said Arthur Renshaw of Catalist. “They have a much brighter future than they had a few years ago.”

Mark Bradshaw, chief executive of GarageWatch, is also optimistic about the new figures and said they are representative of the general mood of its membership. “We have spoken to a lot of retailers who are quite buoyant,” he said. “Large sites from BP, Shell and Esso have closed in their towns or villages and as a result trade has rocketed. Some people are even talking about putting in extra tanks to cope with demand.”

Bradshaw said that this is due to a number of reasons. “The weaker sites have already gone and those still there have something else contributing to the business such car sales or a workshop,” he said.

“The general public has also settled down to the fact that small sites are going to be slightly dearer – emotion over price is not there so much anymore. I think people have seen so many sites close that they’ve realised they must value those remaining.”

Bradshaw also said that support from GarageWatch and other government agencies such as the Countryside Agency have helped to keep many smaller sites afloat.

But while Bradshaw was generally upbeat about the figures, he expressed concern about the rising supermarket site numbers. “Supermarkets are the threat,” he said. “They subsidise fuel sales with shop sales, which small retailers can’t do, making it an unfair marketplace.”

Evidently, the falling site numbers mask the fact that supermarket site numbers continue to rise – by 59 to 1,126 last year, compared to 49 in 2002.

But Arthur Renshaw said it may not affect smaller, rural retailers. “Rising supermarket numbers is a competition pressure but only in the areas where supermarkets are building sites, which is not rural areas,” he said. “This competition is more likely to hit oil companies. And dealers will have to find other ways to compete with them – the days of forecourt retailers relying on fuel sales have long gone.”

One indication of this in the survey’s results is the growth in fast food. The figures show that there are now 708 quick-serve restaurants such as McDonald’s and Little Chef attached to forecourts, which is an increase of 36 on last year.

While site closures have been higher than expected, they do not change projections for the future. “Analysts claim that we’ll end up with 8,000 sites in the UK, and that’s looking quite possible, said the PRA’s Ray Holloway. “As we’ve got 20-25 years left of traditional fuels as we know them, independents should be optimistic as long as they think about what they can be and not what they were. They were fuel suppliers, now they can be anything they like as long as they are providing a service to the public.

“Generally speaking company-owned sites are moving to the dealer network – a continuing process that is a great opportunity for independents. Dealers should be looking at the network with an appetite. They shouldn’t not wait for the majors to approach them, they should look for sites near houses and approach oil companies.

“If independents are less aspirational to sell millions of litres of fuel but more concerned about a convenience offering they can be successful,” added Holloway. “It’s a volatile market so we’ll never have complete stability, but it’s taken a long time for the industry to wake up to the fact that they can be very good retailers – it’s refreshing to see it happening now. Retailers should never be afraid of change because change isn’t always a threat. Those doing well should continue to think that way and not take the figures to be as depressing as the numbers indicate.”