It’s a bit of a difficult judgement call, at times. If I keep on writing about the banking crisis and the, now-official, recession I run the risk of boring you all. On the other hand to only concentrate on the minutiae of forecourt life runs the risk of being accused of rearranging the deck chairs on the Titanic.
As it happens, in our trade we are relatively fortunate at the moment, and references to the Titanic seem a little premature. However, while we may not yet be on the verge of doing a Woolworths, there are plenty of submerged rocks out there that will need some careful navigation.
One of the main features of the path to our current economic woes has been the realisation that the world has been living an Alice in Wonderland existence. As bank after bank reluctantly decides to confess how ephemeral its assets really are, it is hard to escape from the conclusion that those in charge were either totally incompetent or totally corrupt. Incompetent because they didn’t understand the complex, but unsubstantiated, spiders’ webs of ’investments’ created by their underlings or corrupt because they did know but were happy to take their bonuses and hope that the house of cards didn’t collapse until after they had retired.
What is most definitely true, however, is that the rest of us mere mortals have lost fortunes as a consequence of believing in the probity of the banking system. And, perhaps more significantly, because although we didn’t understand how something worked we were happy to accept the experts’ reassurances that all in the garden was rosy.
And so we come to my moment of truth. I have to confess that, despite over 30 years’ experience in the forecourt trade, I cannot understand what Shell is playing at. I just can’t make any sense of it whatever. What is the rationale of retailing unleaded at 83.5ppl when Platt’s plus duty etc is over 85.5ppl?
I can understand, even grudgingly admire, the hypers approach of making minimal return from petrol retailing if it helps drive trade into their stores. But over the past couple of years even they have been looking to increase their forecourt margins and, as I write, I have no hyper near me retailing at less than 85.9ppl. I can most definitely understand those retailers who have developed their sites to the extent that their business model produces profits with zero contribution from petrol. But I can’t find any of them retailing at a gross loss.
So if the strategy is to make profit from the shop, none of Shell’s competitors seem to feel the need to trade in a similar manner. And they all have far better, and more profitable, shops than Shell has. In the past, one explanation has been that you have to consider the upstream profit and not look at downstream in isolation. But right now we’re looking at below $40 a barrel, not $120-plus, so I wouldn’t have thought that was the driving force. Indeed, with new reserves proving hard to find and some existing reserves not being able to be exploited, there could be an equally justified case for preserving existing resources and pumping less rather than more.
Or is it due to the refineries? Is the low pump price designed to drive volume in order to keep the refining percentages high? But if that was the reason why not just sell it from the refinery at a competitive, but slightly positive margin, price? Or is it a case of hoping to drive the competition to the wall so that margins can be widened later? Can anyone at Shell really think that any of the serious players will pack their bags and set off for the hills? Maybe they are driving volume with a view to future sell-out? But anyone considering a purchase who conducted the scantest of due diligence would see that the volumes were unsustainable. While ignorance may be bliss, this is really bugging me. Can someone please write in and explain it to me!