No sooner had the news gone out that the Competition and Markets Authority (CMA) had cleared the Euro Garages tie-up with Asda, than reports of a similar prospective linkage began to surface: this time in the form of a bid from the owners of Motor Fuel Group (MFG) to buy the Morrisons supermarket chain. At the time of writing, Morrison’s board have rejected this initial bid as being too low, however that still gives the bidders a few weeks to come back with a higher offer – or could just bring another potential bidder out of the woodwork.
So, while we don’t yet know whether this one has got any legs, it’s worth reminding ourselves that if it were to happen, then in terms of fuel retailing it’s even bigger than the EG/Asda affair. MFG are currently Number 1 in Forecourt Trader’s ’Top 50 Indies’ listing with some 911 company owned sites. That means they own more forecourts than Shell (540) and BP (326) combined. Morrisons are the UK’s foruth-largest supermarket chain - with a lower estimated market share of just over 10% compared to ASDA’s near-15% as far as the overall grocery market is concerned. However, in terms of fuel retailing, Morrisons had around 9.7% of the UK fuel market from 335 sites in 2020, compared to ASDA’s 7.7% of the fuel market from 323 sites last year.
In very simple terms therefore, what we have at the moment is a failed initial bid from the owners of group with 911 forecourts to acquire a group with 335 forecourts. Add those up and we see 1,246 forecourts potentially affected by the deal. No doubt if it was to go ahead the CMA would again step-in and require some of those sites to be divested, but 1,246 sites is more than the combined company-owned numbers of not just Shell and BP. Add Esso, Harvest Energy and Certas Energy (197, 90 and 84 sites each respectively) and you only get to 1,237 forecourts. Those are the top five oil company-owned forecourt numbers in the UK combined. While distant history might suggest that the CMA would take more than a passing look at such a prospect, more recent history suggests otherwise. But as we commented when the Asda deal was first mooted last year: imagine the outcry if the deal were reversed and it was a supermarket (Morrisons) trying to take-over the largest ’Indie’ (MFG)…
Stepping away from simple site numbers, the deal as currently described would seem to pose some potentially severe headaches at a more practical level. Currently MFG have a large number of shops supplied by wholesaler Booker – which of course is owned by none other than Tesco. Conversely, Morrisons have various arrangements in place with Rontec and MPK Garages. Where there’s a will there’s a way, no doubt, but at face value it does look like there’d need to be some painful divorces before this prospective marriage could go ahead.
Still on the subject of acquisitions, albeit of a slightly different kind: a long-time property investor with many years’ experience of independent ‘High Street’ retail property recently made an enquiry about a forecourt site that was for sale in his area. His logic was that since forecourts were among the only retail premises to have stayed open pretty consistently over the last 18 months, and looked likely to continue that way whatever future lockdowns may still come our way, they would at least have more chance of paying their rent than many other ‘High Street’ retail properties. Indeed, that logic may be part of the reason why the forecourt property market has been quite buoyant recently across the country generally – as has indeed been reported here in Forecourt Trader.
However, some caution was advised:iIn the first place, it’s all very well looking at a site in terms of ‘property’ values and ‘rents’ – but for anyone not wanting to be involved in the practical work of running a forecourt ‘at the coal face’ that immediately raises the question of who exactly they would find with the right knowledge and experience of actually operating a site day-to-day in order to keep it generating those rents? And of course, there are some additional peculiarities relating to forecourts, not least which is the issue of contamination: many sites which come onto the market have been operating for 50 or 60 years (if not longer) in different guises – and during that time may have had (just for example) extensive workshops that have long-gone, but quite possibly left a considerable legacy of unpleasant residues underground that are likely to require expensive remediation at some point.
If that wasn’t enough to think about, look at the potential costs of having to replace infrastructure such as tanks and underground pipework. While forecourts owned by large operating groups (whether oil companies or ‘indies’) have generally been modernised at fairly regular intervals, unfortunately that hasn’t always been the case with smaller, family-owned sites. Many smaller independent operators simply haven’t had the money over the years to do much more than comply with Petroleum Licensing and/or Health & Safety requirements as those have changed; they’ve been ‘sweating the assets’ as far as any non-essential spending was concerned. At some point those assets will need replacing.
In the medium term there’s the need to ‘do something’ in response to the overwhelming push to bring electric vehicles into widespread use. Even assuming that a forecourt has the physical space for electric vehicle charging points while retaining existing fuel pumps, buying and installing those new facilities won’t come cheap.
Fuel forecourts may look like attractive property investments in current circumstances – but the reality is that they’re really not for those who don’t have much experience in what is quite a unique business. Of course, if all that still doesn’t put you off, then certainly make sure you talk to independent experts in the fuel property field before getting too carried away by what appears to be a bargain.