The advantage of having been around the block a few times is that your experience ought to help prevent you from doing anything too disastrous. Unless you’ve been exceptionally lucky you’ve found out the hard way that embarking on a course of action without weighing up all the possible consequences can be an expensive and time-consuming exercise
However, the disadvantage of having been in business a long time is that sometimes you get hidebound in your thinking. But because something has always been done a certain way doesn’t necessarily mean it’s right.
So whenever I come across something in business that doesn’t seem to make sense, I try to explore all the possibilities before passing judgement. Now I’m the first to admit that in areas not directly connected with our trade I’m often totally out of touch. When Dixons first introduced free access to the internet with Freeserve I couldn’t possibly see how it could pay. But within 12 months Freeserve was worth more than the whole of the Dixons’ portfolio.
However, when it comes to running forecourts, my pride says I ought to be able to understand what’s going on. But in considering Shell’s current marketing strategy I have to admit defeat. First, some specifics.
On October 26, 2007 one company-owned Shell site near me was selling at 94.9/95.9ppl while another was at 95.9/96.9ppl. The one at 95.9/96.9 was undercutting a Tesco directly opposite it that had moved to 96.9/97.9 four days previously.
Looking at the unleaded position first, 94.9 is 80.765 ex-VAT while 95.9 is 81.617. Platts mid cif on October 26 for unleaded was 79.41ppl. So at best, the total margin Platts-to-pump on one site was 2.2p while on the other it was 1.3p. Okay, not a gross loss but, at best, after transport costs and credit card charges, we’re only talking of a site margin of between zero and 0.9p.
The diesel, on the other hand, was another matter. Platts price on October 26 was 83.57ppl. That means a total Platts-to-pump margin on derv of minus 1.9p or minus 1.1p. Allow for 1.3p transport and credit cards etc and we’re talking minus 3.2p or minus 2.4p on every litre sold. So the first thing I consider is tank storage on site - maybe they filled up and are using old stock? Well the last time derv was below 81.617ppl was Friday October 12. Two weeks storage? I don’t think so.
Maybe it’s selling at a loss in order to keep the punters coming into the shop. That’s certainly the strategy for the hypers, but they are targeting the big, once-a-week shop together with the motorist who fills up once a week. Forecourt shops are aimed at top-ups between hyper visits while Shell forecourts are targeting high-mileage, more-than-one-fill-a-week, motorists. Do you have to keep your fuel price highly competitive in order to sustain your convenience shop turnover? I would have thought that to a large extent convenience is convenience. Yes be competitive, but surely you don’t have to undercut the hypers?
The other possibility is that Shell has too much product and can’t get rid of it. That would seem strange when at Stanlow there has often been a situation of diesel being on allocation because of a shortage. Then there’s the export market. Besides which, how much extra volume does this suicide pricing generate - 500,000 litres a site, a million? But if excess product is the driving force behind this pricing stance, isn’t Shell missing the obvious?
The dealer market is struggling when it comes to choosing a supplier. Between the arrogance of BP and the desperation of Texaco, there are the increasingly-confused Total and Shell. There are hundreds of million of litres of sales up for grabs but they won’t fall Shell’s way if there is a company-owned site nearby. Increase the price on your sites and sign up large, profitable dealer business. Do the same volume for much higher returns. Or am I missing something?