Money Talk: Decision time - should you stay with your oil co or should you switch?

Every five years or so, every independent dealer faces what is perhaps their biggest business decision: whether to renew a supply deal with their existing oil company or take a big gamble and change suppliers. But today there’s often now a third option that comes up: put the site up for sale and just take the proceeds and enjoy retirement. For most, particularly genuine independents with just one or two sites, this really can be a difficult decision. They look at their business and have to decide how it’s going to run for the next five years. And in our experience many of them make one fundamental mistake: they leave the decision-making process too late. Frequently this huge decision is actually made at the last moment, more often based on intuition or emotion than cold hard facts. Perhaps this is just down to their personal history of owning sites. There was a time when they might have had half-a-dozen potential suppliers vying with each other and the incumbent supplier to (almost literally) throw money at them to sign a supply deal.

Times have changed. There are fewer oil companies out there, and those still actively trying to attract dealers tend to be a bit more selective. Some only supply on a regional basis, others look at volumes and really have no great interest in sites that can’t pump more than say four or five million litres a year. And, of course, the financials have changed too: nobody talks about guaranteed margins for dealers these days, and upfront payments have almost disappeared. Almost, but not entirely. If you can put forward a sound business case some suppliers will still at least consider funding site development as part of a new supply deal. This might be no more than the cost of re-imaging the site for a new brand, but in some cases they are still willing to look at contributing to more substantial costs: tanks, pumps, canopies, pole signs, POS or EFT systems etc, none of which are cheap. But before anyone gets too excited by that idea, just remember that today any such payments will almost certainly be completely documented and probably dependent on the dealer making a substantial, visible contribution themselves.

funding a ferrari

The days of supply deals funding a new Ferrari or power boat (we kid you not) have gone.

So albeit that there are likely fewer offers on the table, there will still be choices to be made: financial ones such as credit terms (payment terms and security required), supply prices, EFT handling charges, promotion or marketing costs, and indeed any capital expenditure contributions. There’ll be different operating conditions such as order and delivery timetables or tanker delivery notice periods. And then there’s the legal stuff supply deals typically involve contracts with dozens of pages containing hundreds of clauses.

And there’ll be some intangibles to consider the major one being the impact of any change of fuel brand on your existing or potential customer base. Bear in mind that changing fuel supplier can mean changing which fuel cards you can accept, so you might lose some long-standing customers unless you can persuade them to switch their fuel card; but then you may gain some new ones who haven’t used you before because you didn’t take their preferred card. And finally there’s the question of how easy any new supplier might be to deal with on a day-to-day basis or even more difficult to gauge, how will they be if you run into a problem later and need any sort of support?

careful consideration

It boils down to this: renewing or changing a supply deal should only be done after careful consideration of the options, and that takes time.

Time for you to obtain independent specialist advice from surveyors who know the petrol market; accountants who know this industry; and commercial lawyers with experience of supply deals to read and explain to you the small print in the contracts on offer. These things can take months, so if your existing supply tie is up at the end of this year you haven’t started soon enough although don’t use that as an excuse to avoid any external advice at all.

Of course most of the expert advice isn’t going to be free either not if you use experienced, independent professionals to deliver it. But when you’re looking at committing yourself and your business to a five-year deal, just think how much more expensive a mistake could be if you’ve left the decision to the last moment and jumped in without properly considering every option.