Something of a whirlwind has been making its way through BP’s retail operation for the past nine months, and not much has been left unaffected by the prevailing winds.
At the heart of all the activity is Graham Sims, retail director for BP, who also holds positions on BP’s Group Leadership and Executive Boards. This is the man who spearheaded the transformation of BP’s Iberian business, which led to substantial growth in market share with double-digit performance improvement.
He came back to England at the end of 2000 and took control of the UK retail team as general manager with a brief to transform the retail business, and to prepare and then launch a new retail strategy and offer. In 2001, this role extended to the whole of the Western Europe Business Unit. He is now leading the transformation of BP’s global retail business into a more customer-driven marketing offer, a programme of change that goes by the name of ‘Accelerator’.
“I’m probably one of the few people who has got to this role in any of the oil companies who has spent most of their life in retail,” says Sims, who joined Mobil – prior to its merger with BP – 23 years ago.
“And while I sit on the global retail executive committee, I took on the retail director role for the UK and Ireland, because it required a focus on transformation – and I guess I do have a penchant more for transforming businesses rather than the traditional BP way of just cutting costs in isolation.” So for the past nine months or so, as well as his other responsibilities, Graham Sims’ role has been to invent and put in place the principals of Accelerator.
“Accelerator is a funny name but it probably does accurately describe what we’re trying to achieve,” he says. “If you look at the dynamics of the UK market, we are facing a precipice. As an industry, we have costs that are too high – and strangely we have a reduction of competitors in one area, but a growth of competitors in another area. That shift in emphasis is clearly going to continue away from just being two pumps and oil, and increasingly towards offering something more to the customer.
“Our asset base in the UK is too high; we’ve got an unfriendly government, whether it be in terms of taxation or the environmental agenda; and it’s not helping us evolve our business as an industry.
“We can’t change the industry, but we can change BP. So the Accelerator comes from a desire to accelerate the transformation of our business at every level.”
Accelerator was born from a think tank in 2002. Its effects are being felt first in the UK and three cities in America. “It’s about focusing on the customer – an over-used expression,” says Sims. “But it means carrying out work so that we really understand our customer – what he or she will buy; when and in what quantities. That leads us to believe that with the right philosophies and models we can grow the business from a much leaner base than we’ve ever had before. So one of the fundamental principals – and something I work on everyday – is changing the whole psyche, the culture, the people and the environment in which they work. We really are trying to move ourselves from being a fuels retailer to a ‘true’ retailer. That may sound clichéd, but this is our big chance. There’s no part of my business that is not changing in some way – some parts radically, some not. But change is everywhere.”
The basic components of Accelerator were established through a series of work-streams, covering a broad range of elements including: how to become a lean retailer; network efficiency; fuels; partners; customers; organisational effectiveness; IT; and category management.
This has triggered myriad changes throughout the company from site level up to the Milton Keynes head office, which has been sold – although BP will continue to occupy it as one of eight tenants. It is currently being transformed into a “lean, mean retail office”, and a customer-focused and strategising environment, rather than the plush aura more associated with an oil company – such as BP’s designer international headquarters in St James’s Square, London. It even has its own inbuilt Wild Bean Café – BP’s food and beverage offer – and merchandising units so the staff can experience what the customer does.
More significantly, 150 staff across the board have had to go; while more than 50 new staff have, or are in the process of, being recruited from the retail sector, in particular from food, beverage and grocery companies.
“These people are catalysts for change,” explains Sims. “They are making us think differently. We now don’t think like an oil company, we think like a retailer.”
Sims wants to capitalise on the growth in convenience to help take the sting out of the volatility of fuel sales, but he does not want to surrender this growth and shop margin to the supermarkets, as he believes other oil companies may have done by allowing them to ‘cherry-pick’ the best sites.
“We have our experience with Safeway, so we know the capability of doing a grocery-only store, and we’re very pleased with that relationship. But we do see some impact on fuel sales because of the busy-ness of the store – cars are parked everywhere. We strategically have decided not to play in that space. They’re neighbourhood sites, and I don’t see that as the solution to all my network. With Connect I think we’ve found a niche.
“BP has proved its Connect model and will continue to develop it. Today the shops business is about 25 per cent of our total gross margin, which is probably the highest in the industry.”
The Connect network has undergone the Accelerator treatment. This has seen shop inventory reduced by 30 per cent and keenly sharpened operating practices. Sims talks of a basic BP-operated Connect in the southeast doing a record £75,000 a week in store sales – 25 per cent of which comes from The Wild Bean Cafe. There are apparently lots more Connect sites doing £40-£60,000. All Connects in the future will have The Wild Bean Café, Thresher off licence, grocery elements, impulse and BP fuels. There are currently 80 Connects, with another 30 due for completion before the end of the year. Sims believes the Connect format works well enough to be able to offer it as a franchise to dealers.
“We are satisfied that the cost of construction, the operating costs, and the opportunities for top-line growth are so attractive, that the right dealers will want to take it on. The model works. The challenge is converting that into a franchise – and that will happen sometime in the next calendar year.”
Developing the franchise is part of the partner work-stream, which is focused on how to make both sides win more. This covers both potential partners (such as the recent link-ups with Ford, for example); and existing partners – the retailers.
“We’ve been harsh on some of the smaller dealers because we’ve been walking away from some where we simply can’t make a return. But there’s no good us as an oil company permanently subsidising other retailers, because we’re not allowed to subsidise ourselves with upstream profits. We need to get away from fixed margin deals, it drives the wrong behaviours and it doesn’t encourage entrepreneurial activity. We are looking more to a market-related structure, whether it be margin share or Platt’s related, but not with a view to this being a subservient or an adversarial relationship, but one of a partnership. We want high-quality business people to represent our brand and we’ll help them grow their business. I think in the future the dealers I’m looking for would be the professional mini groups as well as the independent dealers who are a force for good in their local community, and run a credible offer. Both parties have got to make money. There’s no minimum volume – BP isn’t in the volume game – although I think the market will eventually get rid of everything under two, three, even four million litres.”
BP has de-capitalised a lot of assets during the past two or three years, with probably 150 sites having left the brand completely, and a similar number sold to dealers while retaining the BP brand. BP now has around 1,200 sites, of which 7-800 are dealer-owned, 500 company-owned, with 270 direct-managed. While Sims stresses the company is still a national player, there are areas where BP-owned sites are thin on the ground.
“Ultimately our goal is to focus on two markets with our assets, which is the south east of the United Kingdom (from Birmingham down) and central Scotland, which is a fast-growing area, and where we had the quality of base assets to develop – hence our recent site-swap with Texaco,” explains Sims.
“Outside of that we will do our best to create the best dealer network in the country and we will support that dealer network with the same things as the company-owned, company-operated (co-co) network. In the end I can see our business being based on two primary channels of trade – co-co and dealer. They will be equals and both will be Connect. I reckon there will be 4-500 Connects; of which two thirds will be co-co and the other third will probably be dealer franchises.
“In the next year, you’ll see a substantial number of Connects either built/refurbished/retrofitted, and Connect becoming the true dominant site that’s on everyone’s corner. We’re going to put a lot of money behind the brand, as well as further marketing support on the BP Helios.
“Nectar of course will continue to underpin our activities. It helps me keep my volume – we’re seeing growth of four per cent, when the market is probably in decline. Our market share is currently around 19-19.5 per cent. Over six million Nectar customers use BP, and it is an important part of what we’re trying to do to help the dealers develop their business.”