The idea of taking on a franchise is instinctively taboo for most independent retailers. But that is what’s on offer from BP as it deems the trial of its Connect and Wild Bean Café franchise - on two sites belonging to Motor Fuels Ltd - a success, and has put in motion plans to roll it out to the wider retailing network.
PRA director Ray Holloway is fairly sceptical about the prospect for independent retailers, because of the restrictions, and because of the history of franchises on forecourts, citing the lack of success Shell had in trying to franchise out its Select format some years ago. There is also the whimsical nature of some oil companies to consider.
"It could be a lose, lose situation for retailers," he said. "What if BP decided to change its policy on any aspect of the operation? What if it decided to stop selling cigarettes on its company-owned sites, for example? Would other retailers have to stop too? If BP wanted to change the appearance of the brand, will retailers be expected to incur those costs too?
"Retailers will also forego suppliers’ benefits - those will all go to the oil company. And what happens if the retailer wants to change fuel brands?
"I don’t think the offer is that flexible. What does Connect mean? If M&S and Wild Bean were combined, that might be a different matter - they are the two bits that work. Take those out of Connect and you’ve got an empty hall. But generally I think BP should stick to what it knows - it is a great supplier but rubbish retailer. And retailers should keep their fuel deal and shop deals separate, so that they can maximise both offers."
However Howard Nunn, BP’s European franchise development manager, stressed that the franchise was very much a two-way relationship.
"It may have originally appeared to be BP coming in and telling a dealer how to set up his shop. Now it’s more about us advising on how to utilise the space to make the most profit, but at the same time using the dealer’s local knowledge. The franchise is structured so that the dealer agrees the shop layout and planograms with our merchandising team. Dealers have freedom on the range and space and flexibility in terms of pricing.
"We’ve extended the grocery and convenience offer because the typical transient Connect offer wasn’t really suitable for some of the dealers we’ve been working with. We’ve now got the flexibility to offer anything between four and 24 bays of grocery.
"On sites where there is a larger grocery offer, there is flexibility to make the Wild Bean Café offer smaller.
"The only income BP gets is through franchise royalties. There’s no mark up on shop stock. From an operating perspective there is flexibility, and from a layout perspective it does have to look and feel like a BP Connect, but there is scope for compromise on a localised basis. The best way to describe the relationship is as a partnership."
Nunn confirmed that the franchise and fuel supply contracts were two separate agreements: "The franchise is a standard 20-year agreement on BP’s side, but dealers do have the opportunity to break that every five years, when they re-sign their fuel supply agreements.
"If they terminate their fuel supply agreement then they terminate the franchise without any penalty. By Petroleum Law, you can’t tie anything into a fuel supply agreement. The dealer has to have the right to exit it. Effectively it’s four five-year agreements."
Nunn said the trial sites were selected through a rigorous process: "The two sites, which BP sold to the Motorfuels Group, were very good sites. Motorfuels was very receptive and supportive of what we were trying to do. The company also had a good understanding of franchising already, which helped. The business already had a very good support structure in place and good national coverage."
Sailesh ’Sej’ Sejpal, director of Motor Fuels Ltd - number eight in Forecourt Trader’s Top 50 Indies listing, with 27 sites - said the franchise trial had worked well for the company: "We are now looking to convert two of our own sites over to Connect, so that shows how we feel about the way things have gone.
"We’ve made good progress, we’re making money and it’s going well for us. I’ll be honest and say we’re not 100% there yet, but let us not forget that BP is also learning. Both parties have been learning from one another. Once more dealers come on board I think we’ll truly begin to see how this will work.
"There have been some issues, but that’s part and parcel of any new venture, and BP has made changes to accommodate us. We have a review meeting every four to five weeks. We’re brutally honest with the people from BP and they take what we say on board. BP has listened to us.
"We’ve not found the franchise arrangement restrictive as such, however, we did buy the two sites with the existing Connect format already in place, so really we just moved in. We know what the guidelines are and I think they will be more closely scrutinized once there are more franchisees.
"We’ve just spent £75,000 improving the store at the Ashton site. We wouldn’t have done that if we didn’t think the concept was going to work. We’ve also bid for more Connect sites recently. It’s onwards and upwards for us.
"We’re looking to take on four sites - that’s our first target - then possibly six. I think four would really allow us to make the most of it, because there is a lot of work involved in running the sites."
Sej said the franchise had been worthwhile financially: "I think that without the Connect format in the two sites we bought the business would have been adversely affected.
"When we purchased another former Connect site in Loughborough two years ago and that was de-branded and the Wild Bean Café taken out it really had a negative impact - for the first nine months we were struggling to hold our own.
"The things that work best in the whole mix are the Wild Bean Café and the Connect promotional calendar.
"Wild Bean Café is very important. Between 25-28% of our turnover comes from Wild Bean Café, which is substantial by any standard. It really is a great food-to-go concept."
KEY ASPECTS OF THE BP FRANCHISE OFFER
- The right to operate a BP Connect site including Wild Bean Café, including the trade marks, the operating system and all the associated system properties.
KEY FINANCIAL TERMS:
- Initial Fee: An Initial fee of £20,000 plus VAT. This is a one-off payment for site launch, initial training, operating manuals, systems and processes.
- Royalty: 3% ongoing royalties on total net non fuel sales (excluding lottery and E-Pay services). This is a monthly charge related to the ongoing use of BP Connect and the supporting systems.
- Advertising Contribution: 3% advertising contribution on total net non fuel sales (excluding lottery and E-Pay services). This is a monthly charge related to marketing support to promote BP Connect and Wild Bean Café. It includes local brand and awareness promotions as well as radio and TV advertising.
- Franchise candidates will be evaluated on their business abilities and experience, personal drive for success and financial strength.
- Successfully complete all training requirements.
- English language proficiency.
- Good credit record/credit history evidenced by prompt payment of all financial obligations.
- Total estimated investment: £150,000 - £2,000,000 (including estimated real estate costs).Estimated liquid capital required £300,000 - £600,000.
- Possess an entrepreneurial attitude, creativity and the ability to make sound business decisions.
- Ability to create and implement a comprehensive business plan.
- Ability to successfully execute BP Connect franchise operational procedures.
- Excellent project management skills and attention to detail.
- Ability to obtain/qualify for a beer and wine sales licence for off-site consumption.
- UK citizenship, and a minimum age of 21-years-old.
EXAMPLE OF KEY ELEMENTS:
- Minimum of three multi-product pumps, six fuelling positions, offering all BP fuel grades including Ultimate unleaded and diesel.
- Forecourt to accommodate a at least six customer parking bays.
- Minimum shop size of 100m2.
- Wild Bean Café - using BP specified equipment.
- Use only recommended/approved dry stock suppliers.
- BP approved shop layout and shelving/chiller specification.
- Nectar points offered on all fuel and shop transactions.