For anyone involved in forecourt retailing over the years, the news of Palmer & Harvey’s collapse late last November is likely to have been more than a shock more like the end of an era. Unless you’re old enough to have worked in this industry for longer than say 20 years, you probably can’t remember a time when P&H wasn’t the default supplier of just about everything in the forecourt shop, bar newspapers.
But indeed there was such a time long ago. Certainly P&H had longstanding arrangements with some oil majors to supply company-owned sites; but back in the 1980s and ’90s these were largely for tobacco, confectionery and snacks; other shop lines were still sourced from alternative suppliers, locally or nationally some suppliers were even chosen by the site operator.
Many retailers believed that their real business role was to source supply from whomever and wherever they could obtain the best deal at any given time getting the best possible margins on specific lines from one supplier, then going down the road and doing the same for other lines elsewhere. It also meant that many site operators spent a couple of half-days each week at a cash and carry warehouse picking up whatever was on ’special offer’ anything from cigarettes to screen wash or air fresheners.
With P&H gone, what now? Already there are reports of some forecourt retail networks switching their wholesale supply arrangements to Booker, who themselves are no strangers to the forecourt they too have had comprehensive supply agreements with some oil company networks over the years.
However, the looming Booker/Tesco merger could make some potential users feel a little uncomfortable at the prospect of having their own wholesale supply in the hands of what is effectively a major retail competitor. Other groups have negotiated supply agreements with the likes of the Co-Op, who again have traditionally acted both as wholesalers and retailers, but who aren’t currently particularly active in the forecourt sector and the same could be said of Morrisons.
The problem facing forecourt retailers is that the number of alternative single-source suppliers can be counted on the fingers of one hand. Even for those not concerned about country-wide coverage, there’s far less choice than there used to be.
Many once-familiar names of suppliers to the forecourt sector have disappeared quietly over the past 10-15 years; their demise hardly generating more than a couple of lines, even in the pages of Forecourt Trader.
While the major networks make their own arrangements, where does that leave independents with one or just a couple of sites? Sure, some are likely to try for similar arrangements at least in the short term if they can get them. Their businesses are so structured as to need frequent delivery from one source; they don’t have the spare staff to send out to the nearest Bestway (or Costco, etc) on any kind of regular basis; and they probably don’t have the transport required to carry bulky cargo anyway.
However, there’ll be a few independent forecourt operators who’ll acknowledge that losing P&H at short notice was certainly an inconvenience, but who’ll also glimpse an opportunity. They’ll look for the best possible short-term supply prices from alternative suppliers. They’ll balance potential margins against the cash flow implications of paying for supplies before they’ve put them on the shelf. They’ll factor in the potential staffing and transport costs too but they’ll see it as a chance to possibly make some extra profit.
We used to provide clients with a simple software tool which made it easy to calculate gross margin from mark up and vice versa. Perhaps it’s time to dig that one out again? Retailers choosing cash and carry will soon realise that prices can vary much more on a day-to-day and week-by-week basis, and between individual suppliers, than they might be used to and the retailer needs a strategy for dealing with this in terms of their own shop pricing. But the biggest consideration should be of cash-flow however attractive wholesale prices look in terms of margin, if you don’t obtain at least seven, 10, or 14 days credit it can make a severe dent in the bank balance. Historically retailers have been known to use credit cards to obtain the maximum interest-free period on cash and carry purchases, but apart from some wholesalers accepting only a limited range of credit cards (if any) that really is a move which demands the utmost care.