Our latest database figures simply highlight the depressing reality that Ray Holloway mentioned in his column in last month’s issue – that retail is in a bit of a mess right now unless you happen to be Tesco. For the first time since 2001, February’s fuel volume was below that of the equivalent month a year earlier, and by quite a large amount (6.8%), while shop sales did little better – down by 1.2% in cash terms, which is really a drop of over 4% in volume terms if we adjust that figure for price rises. Continuing high pump prices are not helping make forecourts attractive places for consumers; and as has been mentioned before, the state of many forecourt shops these days is quite pitiful – many fuel vendors seem to have completely given up trying to be retailers.
And then we have site numbers: whether you take the figure as being 10,351 as per the Energy Institute, or 10,475 courtesy of Catalist, the numbers are still dropping; although the pattern of oil companies selling chunks of network to independents was more pronounced than ever during 2004 and into 2005. One consequence of this is surely that along with some decent sites, the sale is likely to include some not-so-decent ones. To our surprise, we frequently receive enquiries from potential clients who are in the process of acquiring groups of sites from the majors, and who seem to believe that all they need to manage those groups are some sales figures at site level and just a single set of management accounts for the group.
However we would recommend separate sets of management accounts (and a lot more besides) for each site in a group. Whether you’re buying five, 10 or 100 sites from a network, there’s a strong probability that at least some of those will be sites which the previous owner would have closed if you’d not bought them. You’ll have capital tied up in them whether you really want to or not. It’s also quite probable that you’ll have borrowed that capital from a bank or similar lender, and they’ll be expecting to have it back, with interest. If you’ve signed your house away as security for the loan, and things go wrong, they’ll have that too. Your lender will have asked you to show them a business plan for the next couple of years, which is then used to set financial performance targets against which they’ll review your solvency and financial results. It is nigh on impossible to create a realistic group business plan without having site-level information on revenues and costs in the first place, but if you try to compare ongoing group results against forecasts and targets without having up-to-date, detailed financial information for each site, you’re sunk before you start. When the bank asks you to explain any shortfall in performance against targets, and the best that you can point to is a set of sales values from individual sites then your whole investment is at risk.
When times are tough, as they surely are now, you need more detailed performance figures, not less. You need to be able to isolate which sites are dragging the rest of the group downwards, investigate the causes and take the appropriate action – including closure if nothing else works. But to know what action to take and where to take it, you need to have the financial data from each site in the first place. Take it as read that the high street retail networks all keep a pretty keen eye on the financial return from each store – how else do you think that they pick which sites to expand and which to close?
Despite the adverse trading conditions this is a time of great opportunity in the forecourt sector. There are still many hundreds of sites out there that will become available for independent operators to buy as most of the oil majors give up on retailing. Suddenly there’s an opportunity for new entrants into a market that was long considered closed. But to make the most of that opportunity requires investment in financial and management information systems and procedures that will provide you with the ability to make the right decision in the right place at the right time. Relying only on raw sales and margin data for a network is about as clever as driving a loaded petrol tanker through a foggy night on sidelights – just to save the headlamp bulbs. In a hostile environment only the fittest survive – but they then tend to go on and do rather well for themselves when the upturn arrives.
DATA SUPPLIED BY EKW GROUP