Last year saw a steep rise in the number of oil company and grocery retailer partnerships, a trend that is undoubtedly going to continue into 2007, according to Greg Hodge, retail forecourt analyst at Planet Retail, in his latest report on the global forecourt market.
"Oil companies across the globe are selling off their company owned sites and are beginning to focus solely on the sale of fuel, with many having thrown in the towel at grocery retailing," he says. "Specialist grocers are taking advantage of this trend, snapping up key locations in an attempt to broaden their store networks.
"In the past, partnerships have tended to be a bit hit and miss -logistical complications such as supply chain and IT systems have often got in the way of what was, at least on paper, a sound partnership. However, after a decade of trying to get things right, oil companies and retailers seem to have overcome their past difficulties to hit upon concepts that are successful for both sides."
Hodge says that to date the majority of these partnerships have developed in western Europe and south east Asia, with grocers such as Tesco and Carrefour having been quick to embrace the opportunity to expand their retail footprint.
"Looking ahead we are likely to see a sustained rise of partnerships in these regions, with multi-format grocers continuing to tie in with oil companies in Europe, while c-store specialists will use forecourts as an avenue for growth in Asia. Beyond these regions, franchise operators of Circle-K and 7-Eleven will continue to dominate the US c-store market, looking to increase their influence on the forecourt wherever possible; while in Latin America Esso’s recent relationship with Carrefour in Brazil seems to suggest that retailer and oil company partnerships are developing there."
Oil company and grocery retailer partnerships have usually been fairly clear cut, according to Hodge, with the grocer taking on responsibility for the store, while the oil company supplies the fuel.
However, it is the planned development of two new slightly different partnerships that will be a key part of 2007.
"BP’s tie-up with M&S has generated a high volume of attention from the press in the UK, while Engen’s similar joint venture with Woolworths in South Africa has also been critically well received," says Hodge.
"Both concepts differ from the traditional oil company and grocery retailer partnership. In these new ’hybrid’ partnerships, the grocer takes responsibility for a specific area of the store, while the oil company is still present through branded goods and other items within the store.
"The success of these concepts has been unprecedented and both will be rolled out aggressively in the forthcoming year."
Hodge believes both concepts are highly dependent on the strength of the grocers’ (M&S or Woolworths) own-label range: "It is in fact the quality and desirability associated with the own label that actually provides the attraction for the store," he says. "Ready meals and fresh products are central to this offering, although ambient items in the case of M&S are also available."
Own-label penetration will be one of the key issues for the forecourt industry in 2007, according to Hodge, due to the limited number of SKUs that can be held in a forecourt store.
"The rise in demand for own-label products puts an increasing amount of pressure on the secondary brand in each product category," he says. "It is extremely unusual for a forecourt store to stock more than two different brands in each product category. It is feasible that the average two spaces available for each product line will be given to the brand leader and the own-label equivalent."
Healthy eating alongside organic ranges and fair trade have also become increasingly important to the average grocery shopper over the past few years, says Hodge, and although organic and fair trade items are unlikely to be cropping up en masse at forecourts in the near future, healthy eating is becoming progressively more important to the traditional c-store customer.
"Consumers’ demands are changing, the notion of being ’cash-rich and time-poor’ is perhaps over-used, but with people staying single for longer, and working later, there is a rise in the demand for food-on-the-go or food-for-later," says Hodge.
"While in the past this may have involved an unhealthy take-away or ready-meal, consumers now want healthier foods."
Hodge believes that grocery retailers with stronger supply-chain networks, better buying power and well-established own-label ranges are able to meet consumer needs more easily than the oil companies.
"The grocers provide the consumer with guaranteed quality, usually at a competitive price - something that customers do not believe they can obtain from an oil company-operated store.
"However, that is not to say the oil companies are not responding. Esso in the UK has launched its own healthy-eating campaign by introducing the ’Healthier Options’ tick scheme that appears on pricing strips in front of products at the company’s stores. Other oil companies are likely to follow suit in 2007, with organic ranges and fair trade items a possibility."
Away from healthy eating and the traditional grocery sector, Hodge says joint ventures with oil companies are an interesting proposition for foodservice operators: "While it is extremely common to see a Burger King, McDonald’s or Subway attached to petrol stations in the US, it is a less regular occurrence in Europe.
"However Subway is looking to take advantage of this niche. Having established around 20% of its business in the forecourt and convenience store sector in the US, the company aims to have 400 outlets operating at forecourt stores in the UK and Ireland by 2010, up from around 15 currently.
"The distinct advantage Subway has over other foodservice operators is that its stores require less space, than, say, a McDonald’s or Burger King, as they do not need large kitchen areas to prepare and cook food.
"The company has also tried to position itself as a ’healthy’ foodservice alternative, using the example of US student Jared Fogle who lost 245 pounds in a year, on a diet solely involving Subway sandwiches."
With grocers and foodservice operators looking to expand their retail footprint, and the majority of oil companies looking to focus on the sale of fuel rather than grocery retailing, Hodge confirms that an increase in partnerships is inevitable.
"This in turn should lead to an increase in healthy foods and own-label penetration," he says.
"An increase of the latter will be a major worry for secondary brand manufacturers as the grocers exert their force on the forecourt industry."