Although our database figures for fuel volume and shop sales so far this year are not spectacular, they don’t look too bad at first glance. Bear in mind however that, while nobody is making a big noise about it at the moment, the traditional inflation indicator (RPI) for each month of this year to date is showing inflation at 3.2% above the corresponding month in 2004. In real terms therefore, shop performance can best be described as ‘static’ – in other words while retail in general may be drowning, petrol retailers are at least treading water.
Or are they? There are some disturbing trends evident within the database if we look beyond the sales figures: as both profitability and liquidity have fallen noticeably since the end of 2003. Although the monthly net profit figure that we publish is not in itself particularly meaningful as a value, the profit trend is because that indicates that current levels of profitability are roughly where they were back in early 2001. That’s despite the fact that fuel volumes and ‘real’ shop sales are both currently some 13% higher than four years ago. Just as worryingly, the liquidity figures that we’re seeing are now pretty much consistently below 70% whereas four years ago the figures were in the high-90s. At its simplest, that indicates that more and more operators are becoming indebted, whether to their bank or their suppliers, or both.
Take both trends together and it follows that the average site is making and retaining less money than it did a few years ago, regardless of the sales and gross profit figures (shop gross profit has been quite steady at around 20% for the past few years). Costs have increased faster than revenues.
Now none of this will come as a big surprise to most of you, but perhaps it does explain the recent suggestion that the future lies in ‘cluster’ operations, whereby one retailer runs five to 10 individual sites. After all, if a typical commission-operated singleton-site can only be expected to generate ‘net profit’ of £12-15k a year, then it will hardly provide anyone with much incentive to run the place properly. Unfortunately that is the return that we are starting to see across many commission-operated networks.
However, the problem doesn’t stop there. In recent months there have been readers of this magazine who’ve reported that they’ve been asked for various ‘securities’ and ‘deposits’ if they were to become self-employed commission operators for a new site owner taking over their sites. Now in itself that’s not too unusual since ultimately they’ll be responsible for a considerable amount of cash belonging to the network at any particular time.
However some of the figures being quoted do look rather high – ranging anywhere from £5k to £30k. Our database figures suggest that many commission-operators simply don’t have that kind of cash available – they will struggle to find enough cash to buy the shop stock in one go, let alone pay a similar amount to the network.
Naturally there’s a whole industry out there of ‘financial experts’ and ‘brokers’ of one sort or another who will try to fill the gap with various loan and mortgage offers. Our advice is simple: don’t take on any additional financial commitment unless you’ve prepared a proper business plan beforehand.
You also need to know your own financial position in detail – after all, you’ll probably still be paying off loans, mortgages, overdrafts or HP balances from your future earnings, and that’s before you take into account the repayment of the new loan. When you’ve got all that information, it can be used to calculate the profitability and cash-flow effects of the new business proposal for the next 12 months, and done properly, give you a good idea of what your business balance sheet will look like a year into the new business.
Really it’s just common sense, and any respectable lending institution will insist on you having a business plan and cash-flow projection before they’ll lend you money. That is even more important when profits in this business sector are falling. Some lenders will offer to do one for you, but most prefer to see that you’ve done it on your own. Naturally we’ll be pleased to assist you, but it is essential that anyone who needs to raise finance for a change of business, or to remain in their current business, should do the sums before committing themselves to going further into debt.
DATA SUPPLIED BY EKW GROUP