Market rationalisation, declining fuel margins, and diversification into food and drink sales to stay in business. It’s a familiar tale - and one that is obviously not bound by oceans. For this is the background to the Canadian petrol station market, where a recent study tour in Toronto - organised by the Association of Convenience Stores - showed how, as in the UK, reinvention and innovation has been the driving force for survival.
Canadian service stations have transformed themselves from the traditional forecourts of old, to modern, bright and clean operations with clearly defined petrol and retail sides to their business. In order to boost food and drink sales they have allocated more floor space to selling higher margin products and have drastically improved the range and quality of products on offer.
Foodservice - and more precisely coffee - is at the heart of many of their offers. Esso, for example, has a 10-year exclusive agreement with Tim Horton’s, Canada’s largest quick-service restaurant chain. Founded in 1964 as a coffee and doughnut shop, it has now evolved with a menu that includes premium coffee, flavoured cappuccinos, speciality teas, home-style soups, fresh sandwiches and fresh-baked goods. The average Esso site with a Tim Horton’s offer apparently does 1,200-1,400 cups of coffee a day. Without, it does 60-80. The offer is thus very complementary and fits in well within the On The Run format, Esso’s global forecourt store offer - seen in the UK with Costa.
Another company incorporating established brand names is Canadian Tire - a big corporation including retail, financial as well as petroleum operations. It describes itself as the country’s largest independent fuel retailer with 250 sites and 60 car washes. In the past year it has established a new forecourt store concept for customers on the go, called Q. The 8,500sq ft store forms the centrepiece, linking a Starbucks restaurant and drive-through on one side, and Sobey’s - a 4,000sq ft convenience store, on the other. Sobey’s is a massive grocery store in Canada, which has devised an express version specifically for the new concept, to satisfy the ’immediate needs’ shopping occasion. The offering emphasises ’fresh’, and includes fresh produce, fresh flowers, and a refrigerated deli case with cheese, meats and sandwiches.
In the Q store we were shown in Mississauga - which had been open for just six weeks - is a Tuckers Express Kitchen offering fresh, high-quality food options. The 1,000sq ft area offers customers freshly-prepared meals such as made-to-order omelettes and stir-fries, as well as fresh sandwiches. Ample seating means customers can eat in or take away.
The Q brand format extends to 12 pumps with pay-at-pump convenience and advanced touchless car wash system. It also offers an extended Canadian Tire convenience offer, including confectionery, beverages, DVDs, cards and gift wrap, branded toys, magazines, general merchandise and premium items. High-visibility loyalty programmes drive fuel customers into the store and vice versa. "The Q concept was introduced in 2005 to meet a specific need in the marketplace," says Marie-Andrée Bonneau, operations manager at Q Store. "We want it to be a one-stop shop for customers, offering all they need under one roof. Sobey’s offers everything you would find in a big grocery store, but on a smaller scale. The Q store provides a restaurant for breakfast, dinner and lunch. It’s not ’fast food’ - it’s healthy.
"The concept developed following research which showed customers wanted more than chips and chocolate bars. We brought the brands together - we rent the space to Sobey’s and Starbucks. We have three Q stores, and the feedback is good - the concept has been very successful so far."
In contrast Petro-Canada has, over the years, established its own coffee and doughnut operation under the brand name JavaStop. But as part of the study tour we visited a Petro-Canada forecourt with an ambitious new format under the brand name Neighbours. Customers entering the store were welcomed with an extensive food and beverage offering. Freshly-made sandwiches, salads, paninis and wraps, as well as a premium coffee and beverage offer, were being served in a modern and tastefully-designed environment, with dark trim and high ceilings. A very focused and smartly presented convenience offer meant customers could still purchase essential items.
The most striking area was around the tills - not just because of the large circular overhang - but because there were no cigarettes on show behind the counter. The only indication that they were being sold was a white sign bearing a few prices and the word ’cigarettes’. The cigarettes were actually stored in a draw - in readiness for new tobacco legislation, which will lead Canada into a ’dark’ market. By May 2008 tobacco will not even be allowed to be displayed. Currently, as part of the Smoke-Free Ontario Act which came into force in May this year, retailers are allowed to display just three cigarette prices, with restrictions on the use of brand-associated colours; retailers must ask for ID for anyone under 25 - previously 19; and counter-top displays are prohibited.
A disappearing tobacco market is threatening the prosperity of many forecourt and convenience businesses in Canada, according to Dave Bryans, president of the Ontario Convenience Store Association, which represents 7,000 of the 10,000 convenience stores in Ontario, of which 3,000 are service stations. It has just joined forces with the Western Convenience Stores Association to create a new national organisation - the Canadian Convenience Stores Association. Fighting for compensation in the light of the tobacco legislation is one of its key aims : "We don’t have beer and wine, therefore we don’t have replacement categories for the declining tobacco category," says Bryans. "Tobacco in a typical convenience store is 65% of the business. In a gas station it’s probably 30-35% - so there are some huge issues on how to help small family businesses survive. We are launching a new age-verification programme ’We expect ID 25’ to help members develop responsible community retailing in the eyes of the public.
"People in the UK should be aware that we’re dead against governments being dictated to by health groups. If the government wants to change the legislation, it’s going to have to compensate us. Give us beer and wines - and give us dollars."
=== Market structure ===
There are 14,054 service stations in Canada - 4.3 outlets for every 10,000 people - with independent owners operating 72% of these. Outlets have declined at the rate of 2% a year from 20,360 in 1989, although the latest figures suggest this decline has bottomed out.
Like the UK there are integrated refiner-marketers and independent marketers. Some of the larger networks of independent stations include Wilson Fuels, Couche-Tard (which has just purchased 236 Shell sites in the US and is the largest convenience store operator in Canada), OLCO, Canadian Tire, Cango and Domo.
Generally the large independents have a 15-25% share of the sales volume in urban markets.
The three major refiners - Imperial Oil, Shell and PetroCanada - account for about 36% of the branded stations in Canada and have the largest share of stations in each of Canada’s five regions (Atlantic, Central, Prairie, West Coast and North) except the Atlantic.
Imperial Oil is the largest petrol retailer with 1,978 Esso stations (ExxonMobil has a 69.6% share of Imperial Oil), followed by Shell’s 1,762 and PetroCanada’s 1,375 sites.
In 2005, Canadians consumed 41 billion litres of petrol, and although fuel prices increased by 14%, sales fell by just 0.4% from the previous year - the first year-on-year decline in demand in recent times.
Diesel fuel sales exceeded 26bn litres, with growth significantly outpacing that for other fuels, with demand growing by 4.2% in 2005.
Average retail output per site was 2.72 million litres per annum.
In 2004 Shell service stations averaged sales of 4.1mlpa per site, while Esso and Petro-Canada’s co-owned sites had average sales of more than 5.6mlpa.
Since 2000 the three major oil companies have increased their sales by 4.5%, despite reducing the number of outlets they own by 18%.
While the major and regional refiner-marketers have been closing some of their low-performance outlets, independent retailers have been increasing their presence in the gasoline market - the most notable new participants being supermarkets.
Grocery chains such as Superstore and Safeway have entered the retail gasoline market - and are recognised as an efficient and aggressive new source of competition in the industry.