Looking at the petrol retailing market at the moment, it is difficult to escape a feeling of chaos. While upstream the majors report one record quarterly profit after another, downstream at the retail end we see the same majors disposing of entire distribution networks in both the UK and Ireland. At the time of writing it is common to see pump prices of derv at over 95 or even 97 pence per litre, with unleaded just a few pence cheaper and the ‘super’ grades only just below the 100ppl mark. There’s little doubt that the continued high pump price is having an impact on the retail end of the industry, in both of sales and costs.
For example, while June’s headline shop sales figure of £52,297 doesn’t look too bad at first glance, strip out the effect of retail price inflation and the picture changes to something rather less favourable: in real terms June 2005 saw a drop of (0.26%) in shop sales compared to the corresponding month last year, and (0.43%) lower than the value from June 2003. Although over the past 12 or 18 months we’ve become used to seeing the occasional monthly sales ‘dip’ below the figure from the previous year, this is the first time in over nine years of producing the current Database series that real, ‘current’ sales have fallen below not just the previous year but below the year before that! Common sense would suggest that as customers are paying a lot more for fuel they’ll have a lot less to spend in the shop, and suddenly start noticing how expensive some fuel retailer’s shop lines look compared to a typical supermarket – or even many of the convenience chains. Still, June may have been a fluke – let’s wait for July and August before panicking.
Record fuel prices also have an effect on retailers’ costs. You sell 30 litres of diesel for, say, 94.9ppl to a customer who pays you with a credit card. The card company is charging you, say, 1.5% on that sale, which works out as 42.7ppl for the transaction. In other words, the card company is taking 1.42ppl off your diesel margin. Now what did you start with off your oil company’s invoiced price – 2ppl perhaps? At today’s pump prices the card companies are making more out the sale than you are.
OK the market’s awful. You can’t do anything about global fuel prices or the spending patterns of UK consumers – there’s no immediate sign of relief by means of increasing revenues. All you can do is to look at each aspect of your operation and ask yourself whether it’s working as efficiently as possible, and if you spot signs of funds leaking out where they shouldn’t, doing something about it. Quickly. For example, look at our ‘Cash Short’ figure from June: £103 this year compared to £54 last year, when even ‘inflated’ sales values are virtually static… Is that #20 k of stock really there, or is it just a historic ‘virtual’ value on the back-office PC? When was the last time you undertook a full physical inventory of what’s really there? Look at your wages costs – is your staff working on an efficient roster?
Are you spending your own time in the most efficient and productive way? If you spend hours in the back-office on administrative paperwork to cope with payroll and VAT, rather than in the shop, wouldn’t it make more sense to leave that work to someone who can do it more quickly and efficiently? If ‘DIY accounting’ isn’t what you came into business to do, why are you spending countless hours doing it, when you could be looking after your business at the sharp end, where your own expertise is at its most valuable. In short, retailers ‘do retail’ better than they do ‘admin’ and the most efficient use of their resource is to control their staff and encourage their customers!
To be really able to analyse your business and make appropriate decisions you have to have information that is reliable and up-to-date, and an open mind with which to perform the analysis – even if that means taking external, unbiased advice. Unfortunately, the immediate reaction of many businesses when going through a ‘rough patch’ is to make knee-jerk cuts in the wrong places, because they haven’t investigated thoroughly enough, or they’re working from out-of-date information. Some simply can’t see beyond their own preconceptions of how they believe a business ‘should’ work. Survival depends on the flexibility to adapt and genuinely improve efficiency. Those who start earliest are more likely to ride out the storm.