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Stormy seas ahead?

After one of the most volatile quarters on record for fuel prices, International Petroleum Week in the middle of last month was perfectly timed to bring some clarity to the turmoil, and give dealers some guidance on what may happen to prices in the months ahead.

Absolutely fuming

The LPG industry was out in force last month trying to wake up the powers that be in the UK to the economic and environmental benefits of LPG.

A sensible approach

New guidance has been published by the Association of Convenience Stores (ACS) to support retailers in preventing fuel theft and advising them on how to respond when it does occur.

Challenging growth

The future is bright, the future is convenience, and there is significant growth out there, delegates were told at last month's IGD Convenience Retailing conference in London.

An age-old problem

As winter approaches with its worst extremes of weather putting all parts of the forecourt structure to the test, canopy maintenance specialists are warning that some overhead structures on forecourts could be in a lethal condition.

Driving crime down

The concept of pre-payment for fuel as a way to prevent drive-offs has been around for a long time, and in some countries it is mandatory, but it has always been resisted by the majority of the trade in the UK. Indeed, as forecourt shops have become ever more important to many businesses, and therefore the need to drive footfall into them, the prospect of many customers simply paying at the pump and then driving off without visiting the shop, has only strengthened opposition.

Present and future

Total retail fuel volumes show a continuing trend of decline, PRA chairman Brian Madderson told an audience of forecourt and convenience retailers and suppliers at last month's Forecourt Forum at the Ricoh Arena in Coventry.

A charge for change

Fuel cards everybody moans about the margins, but continues to accept them as they are used in the transactions of around 20% of an average site's fuel volume. They are key generators of fuel and non-fuel sales. But at what cost?

Behind the scenes, dealers nationwide are taking a closer look at the dwindling margins from fuel cards, and are beginning to question their contribution, particularly in the light of ever-rising site operating costs and changing dynamics within the marketplace.

"When did you last hear a dealer say they love credit card charges, bunkering margins, fleet cards, or paying RPI increases on Platts supply deals?," said one exasperated independent dealer. "In some cases they are netting less than 1ppl for the trouble of supplying expensive and extensive facilities, staffing, cash flow and tax-burdened operations."

In many cases, the card customer will pay the same price or more than the published forecourt price and it's arguable that the card issuers are taking a higher margin than the dealer without any of the substantial costs and risks of providing fuel.

Mainly for hauliers

Fuel cards have been around for around 40 years, having started as a means of emergency re-fuelling on the road mainly for hauliers as they worked further and further away from their home base. They have now evolved from a paper-based means of obtaining fuel offered only to a select number of business users, to being a fully computerised, multi-billion pound essential business tool.

On the plus side they deliver loyal repeat customers who may also shop for higher-margin non-fuel items although some dealers are yet to be convinced. Try analysing the shop sales derived from fuel card customers and you may be surprised. On the negative side, these customers come at a price.

Fuel cards come in various formats: fleet cards eg AllStar; oil company cards such as BP PLUS or EuroShell; pay as you go (PAYG) bunker cards such as Diesel Direct or Texaco Fastfuel; or bunker cards such as Keyfuels or UK Fuels.

Merchant service fee

In terms of costs to the dealer, there are a number of different methods of charging for them. A merchant service fee (MSF) can be charged against the transaction value as a pence-per-litre rate or as a percentage, as is the case with the Allstar card. These charges are either built into the wholesale price of the fuel by the fuel supplier, or paid direct to Allstar by the dealer. The method used depends on whether the fuel supplier has a direct relationship with Allstar and passes on a centrally negotiated deal to the branded dealer; or if the dealer deals directly with Allstar.

In the case of branded oil company cards, the transaction is typically purchased from the dealer at the wholesale price they paid for the fuel, plus a pence-per-litre card commission such as with BP PLUS or EuroShell. For PAYG cards and bunker cards, the site gets a small ppl commission as the fuel is not owned by the dealer. In the 'good old days' fuel cards served as useful 'incremental volume' on top of the volume from traditional private consumers. However, with the growth of supermarkets with their price position and customer promotions dramatically altering the customer mix (mums are more likely to fill up at the supermarket) volume associated with fuel cards ie the business/commercial customer has gone from being a 'nice to have', to being a vital component of a site's overall volume in many cases.

However, as the volume has grown over the years, unfortunately the resultant net margin to the dealer has not. Card commissions those associated with oil company issued cards and bunker cards have stayed frozen at the levels offered when these schemes were launched 25-30 years ago, and in addition AllStar has started to impose an RPI-related increase on its charges. In most cases, industry experts estimate that in order to keep up with the rate of inflation, rates should be at least double what they are today. This all comes at a time when oil companies are imposing targets on retail volume and RPI escalators onto the Platts add-on for wholesale fuel.

A further problem which dealers complain about is the time it takes to get paid by the card issuer and the process by which they are paid, which can be very confusing and cause difficulties in reconciliation.

Other pressures include Allstar's recent introduction of its 'Premier Programme', in which Allstar markets a PAYG bunker card to its Allstar fleet customers traditionally bunker cards have been serviced by CH Jones (Keyfuels). However, both CH Jones and Allstar are now owned by Fleetcor. Experts believe dealers will lose out as traditional Allstar customers are now being encouraged to favour a Keyfuels-supplied PAYG bunker card, (acceptable at around 1,800, mostly dealer sites) to pay for their fuel at sites which accept both cards. The net result is that the dealer will get a reduced margin from the transaction as the commission on PAYG bunker is substantially lower than if the transaction was made using the Allstar card.

As if all this wasn't enough, the popularity of paying for fuel using cards has grown dramatically among private consumers. It is estimated that at an average site around 80% of fuel is now paid for using some form of plastic card. Many people are now paying with premium-rate credit cards which offer enhanced loyalty schemes such as Air Miles or cash back. While this is good news for the consumer, unfortunately this is financed via inflated (compared with standard credit cards) merchant service fees from the dealer. To try and combat this, the PRA is working with the government to push for an early implementation of the EC's proposals on interchange rates and one of these proposals will be to outlaw these premium-rate cards.

However, addressing the issues surrounding fuel cards is proving to be more difficult. In many cases acceptance of the cards is mandatory as it is an integral part of the fuel supply agreement, and rates vary between oil company brands. Besides that, the fuel volume is so significant that it would be commercial suicide to walk away from accepting these cards. Resentment among dealers is building they take all the risk, and the margin they're getting on fuel cards doesn't cut it any more.

Independent retailer Barrie Richards of St Blazey Service Station, said: "We need a strong voice in the industry to enable us not just to pick up crumbs, but to support and sustain our businesses going forward. Pinning us down to impossible returns is not going to support the card companies beyond the short term either.

"What do card operators think we make from fuel? It's clear we are not very good, as an industry, at getting our message across."

Back to our 'exasperated' retailer: "We are all too content to continue griping, yet readily accept the status quo. Independent retailers control the lion's share of retail and commercial sites in the UK and have the critical mass to change their destiny. Ask yourself am I happy with this situation?"

Maximising value

Forecourt Trader's 2014 Fuel Market Review reports that an historic tipping point has been reached, with the first increase in the number of forecourts recorded since the '60s, and a significant upturn in the number of dealer sites, and this change is being reflected by a surge of interest in forecourt properties.

A missed opportunity?

The 'Review of the Refining and Fuel Import Sectors in the UK' by the Department of Energy & Climate Change (DECC) has come at a crucial time for the sector, but many in the industry feel it has done little to point the way forward.

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Weekly retail fuel prices: 2 December 2019
RegionDieselLPGSuper ULUL
East130.4464.90137.85126.18
East Midlands129.9982.90139.43126.05
London130.54139.65126.88
North East128.54136.77124.41
North West129.2561.90138.14125.60
Northern Ireland127.29130.90123.52
Scotland129.94136.84125.21
South East131.0865.90138.76126.97
South West129.90137.19125.67
Wales129.05134.76124.63
West Midlands129.85138.70125.98
Yorkshire & Humber129.2763.90138.21125.38

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