How’s trading been so far this year for you? While it’s too early for any figures, conversations with retailers in both the petrol and hospitality sectors (regular readers will know that at EKW we’ve had a foot in both camps for many years), suggest that the recent post-Christmas ’quiet period’ has been quieter than any they can remember.
And these people aren’t in any sense new to their respective trades. Of course, January has usually shown a bit of a slump in sales after the frenetic trading leading up to the end of the year. The regular combination of poor weather and consumers facing up to paying some of their credit card bills has always impacted on trade in the first five or six weeks of the new year but, according to our veteran retailers, this year seems to have been worse. One described sales volumes at his site in the first few weeks of January as "having fallen off a cliff". And for once he wasn’t blaming competition from the usual suspects: his pricing has been within a penny or two of the nearest supermarket forecourt since the start of the year. He even has a cashier whose ’other half’ works at the supermarket site, and apparently things have not been very different there either.
By coincidence, the lead story on the news pages of Forecourt Trader’s January issue concerned one of the Top 50 Indies suddenly finding itself in the financial equivalent of intensive care under corporate restructuring specialists, having reportedly ’run out of cash’ at the end of December. It’s a sad story, not least for the dozens of staff working there who face a very uncertain future, but also because it seems to go against the grain of an unspoken belief that’s developed quietly across the petrol retail industry in recent years. Put very simply the ’new generation’ of petrol retailers as represented by the Top 50 Indies has often given the impression that they had found all the answers to the business problems that previous network owners had experienced. It was never stated explicitly of course, but there was an underlying suggestion that since they were free of ’interference’ from, or ’reliance’ on, the traditional oil majors, it would be success all the way.
As we’ve pointed out before, there are considerable parallels between petrol retailing and the hospitality ’pub’ trade. This is one of them: after the old brewery/tied house arrangements were (largely) broken up by government in the late 1980s in the name of ’competitiveness’ there appeared dozens of new ’independent’ pub operating companies (’PubCos’). Never mind that they were frequently run by people who’d been around the industry for years working for the old breweries, and who often carried on doing things pretty much the same way that they had under their previous employers; being ’independent’ somehow meant that they were free of any traditional constraints and were bound to be successful entrepreneurs.
Scroll forward 20-odd years in the history of that industry. Several trends have been very noticeable since those optimistic early days. First we saw hundreds (occasionally thousands) of pubs being regularly traded en bloc between the new PubCos. After that came a long series of mergers and acquisitions as the largest and most successful PubCos took over the smaller (read ’failing’) ones; and throughout the whole period, up to the present day, the most obvious trend continues individual pubs up and down the land are still closing for business, many permanently.
What the early ’independents’ of the pub industry found was that simply being ’independent’ didn’t actually change many fundamentals of the business in which they operated. Yes, they were now nominally free to find the best supply deal. And that was just about it. Some of the site-swapping that went on was an attempt to cut management overheads: there were limits on how much territory a single ’area manager’ could supervise, so many of the smaller PubCos decided that it would be cheaper to stay relatively local rather than employ area managers or auditors nationally. The merger and acquisition trend was largely driven by financial necessity. The old brewery companies had income from both pub rents and from making/selling beer; the new PubCos had rents from the pubs (at least while they could find tenants for them) but only the retail margin from beer sales. When times got tougher the smaller newcomers found themselves running out of cash and were swallowed up by the larger ones, or by those which had successfully made the transition to being property companies rather than PubCos or retailers. Today, the vast majority of pubs are owned by a handful of very large companies, and with perhaps only one or two exceptions, those companies would quietly admit to being in the property business, not the hospitality business.
Whether the properties are petrol stations or pubs, one fundamental aspect is the same: those properties have to be open, and the individual operators have to be able to afford to pay the rent. That requires the property owner to know and understand the financial position of the operator almost constantly. Unfortunately we’ve noticed a tendency (across both industries) for some network owners to dismiss any desire to know how their tenants’ finances look until, of course, they have an empty site.
Starting to sound familiar? Without pushing the comparison too far, a couple of years ago we saw batches of sites newly-acquired from oil majors being swapped between the new independent dealer chains, either because they were geographically challenging, or simply to avoid competition issues. Over the past year or so we’ve seen a regular series of news stories here in Forecourt Trader relating to the acquisition of one Top 50 Indie by a larger one. If you want to know how petrol retailing will look in a couple of years, just look at the pub industry today.