Change for the better

This year the top-level numbers would suggest that the forecourt sector has been fairly quiet over the past 12 months with the number of open sites being only three fewer than last year. However, you only need to scratch the surface to see that there have been a lot of changes culminating in February with the second largest dealer group, the Motor Fuel Group, buying the largest dealer group, MRH, for £1.2bn.

The deal is subject to clearance by the Competition & Markets Authority (CMA), but is expected to complete this month. The combined group will have about 924 sites, making it the largest UK forecourt operator based on number of sites more than the company sites of Shell and BP combined.

Generally, continuing on the story from the past two year’s Fuel Market Reviews, there is a lot of confidence in the forecourt sector and all the signs continue to be positive. There are more vehicles on the UK’s roads (37.5 million), retail fuel volumes are stable, margins have been holding up and there has been a lot of investment over the past 12 months. There has been significant demand for site acquisition which has outstripped supply over the past year. Consequently buying prices have risen although there is a lot of informed opinion that suggests we have seen the peak and prices will stabilise or see a slight fall in the next 12 months.

Prior to the MFG/MRH deal both groups were continuing to buy up smaller groups, which restricted the opportunities for other groups to acquire sites. In addition, some of the oil companies were back in the market buying sites Certas Energy adding sites into its Fuel Express network of unmanned sites, Harvest Energy acquiring the Retail Fuels Group and Applegreen picking up sites on a regular basis.

After 2016’s record 2.7 million new vehicles on the road, the expectations were that the new car market would decline in 2017 and this proved to be correct with a drop of 6% to 2.5 million new vehicles. There are two significant issues affecting the forecourt sector here the move away from diesel cars and the rise of alternatively fuelled vehicles (AFVs).

Sales of new diesel cars in 2017 dropped by 17% and this trend has accelerated into 2018 with the four months to April showing a reduction in new diesel cars of 31% against the same period in 2017. New petrol cars in 2018 are up 9% on 2017 and this represents 62% of all new cars this year. This trend is likely to continue until there is much more clarification from government and the industry on the proposed restrictions and increased costs of driving a diesel-powered car.

Only around 5% of new vehicles are AFVs and of the 37.5 million vehicles on UK’s roads more than 99.5% are powered by an internal combustion engine that requires a visit to a forecourt to buy petrol or diesel. In addition, most AFVs are hybrids, which still require petrol or diesel, and there are fewer than 20,000 pure electric vehicles on our roads today. Current numbers equate to, on average, one AFV in every 250 vehicles passing a forecourt. With respect to electric vehicle charging points which are starting to appear on forecourts around the UK, there are currently some 5,800 locations where there are charging points installed according to Zap Map (www.zap-map.com), but only a few hundred are on forecourts.

Following on from three years of increases, reports from the Department for Business, Energy & Industrial Strategy (DBEIS) and HM Revenue & Customs indicate that road fuel volumes used in calendar year 2017 were the same as in 2016 at 47.2bn litres. The government has stopped reporting road fuel volumes by sector and the 47.2bn litres includes HGV diesel, which we estimate at about 11.2bn litres. This leaves motor fuel volume through the network of 8,422 forecourts at 36bn litres for 2017.

Over the past year Experian Catalist has visited and resurveyed 4,500 sites across the UK and this report is our view of the retail forecourt market. This time last year we reported 8,425 sites so we have seen a net reduction of three sites over the year. But this small net loss covers some significant changes with regard to new-builds, sites reopening and closures.

In terms of new-build investment over the past 12 months, we recorded 31 new-build sites, down from 53 in the previous year 15 by the major multiple retailers (13 Asda, one Tesco, one Morrisons) plus five more Costco locations. In the past 12 months we also saw four new-build dealer sites (down from 15 in 2016) and seven new-build oil company sites (up from five in 2016). In addition, 27 sites reopened after a period of closure (down from 36 in 2016). With respect to closures, we recorded 61 sites closing in the past 12 months (down from 151 in 2016) two company owned and 59 dealers.

Despite the oil companies having stopped their major disposal programmes the ’Big 5’ dealer groups (groups with more than 100 sites) still managed to increase their networks by buying up smaller groups.

The exception to this was the Co-op Group, which reduced its network by four sites in 2017 at the same time as undertaking a major redevelopment programme on the remaining sites. The Co-op also moved a further 26 sites to own branding in 2017 and these sites are included in the increase in ’hypermarket’ sites in 2017. Over the past 12 months Euro Garages has shifted its attention outside of the UK and now, through its parent company the EG Group, it has acquired networks in the Netherlands, Italy and Germany. In addition, in February it paid $2.15bn for Kroger, a US c-store and fuel operator with 762 sites. The ’Big 5’ dealer groups, together with six other site owners/operators the four multiple retailers plus BP Express Shopping and Applegreen make up a group of 11 that have significant influence in the UK market. They sell 70% of the retail fuel volume and 57% of the forecourt shop sales from 44% of the sites (3,738 sites).

Fuel prices have been on a roller-coaster ride over the past four years since early 2014 when unleaded prices were about 130ppl. As the chart on the left shows, prices fell for two years until early 2016 when they were close to £1 per litre for both unleaded and diesel. They then climbed back to around 122ppl in January 2018. Since then prices have steadily climbed in line with the price of crude and the fall in the value of sterling, with unleaded up to 128ppl and forecasts for prices to go higher in response to higher world demand and restrictions on supply.

Market Structure

Overall numbers have changed little since the last review and we are now reporting 8,422 open retail sites in the UK with a total retail motor fuel volume of 36bn litres. Average fuel volumes are 4.29mlpa per site, and total shop sales are £4.47bn with average shop sales of £11,300 per week from an average 71sq m shop. There are now 5,558 independent dealer sites in the UK, a net decrease of 100 compared with the last review. Approaching 50% of these sites are operated by dealer groups with three sites or more. The average dealer site now sells 2.42mlpa and turns over £9,700 per week through a 68sq m shop.

The hypermarkets have 18% (1,556) of the sites and we now have them with a 44.7% share of motor fuel sales, a marginal increase of 0.4% over 2016, and they are the single largest sector by some degree. There have been 21new-build sites in the hypermarket sector over the past 12 months, plus the Co-op rebranded 26 sites to its own fuel brand and hence moved classification from the dealer sector to hypermarket sector. Asda has been the most active, adding 13 new sites over the year. It is still building new sites in the car parks of its large stores but it is now offering payment options as well as card only, rather than unmanned automats. Over the past 12 months we have also seen another five Costco automat sites added, taking its total to 13 sites. Costco has stated its intention to have fuel on all its 28 UK locations.

The dealer sector now has 66% of the sites and has seen a minor decrease in motor fuel market share over the past year to 37.3%. Over the past year 59 dealer sites have closed, with 25 from the unbranded sector and 21 from Certas Energy brands. In addition, 62 dealer sites were bought by the oil companies and moved into the company sector (Applegreen, Harvest Energy and Certas Energy all bought dealer sites over the past 12 months). There were four new-build dealer sites added over the past 12 months, plus 21 dealer sites re-opened after a period of closure, and 19 sites were acquired from the oil companies and were added to the dealer sector.

After decreases over the previous two years the oil company owned sector has added 51 sites over the past 12 months. Oil company sites now represent 15.5% (1,308) of the sites and its market share has marginally increased to 18%. There were six new-build oil company sites two Applegreen, two BP and two Certas Energy and four sites were rebuilt and reopened after a period of closure. In addition 62 dealer sites were acquired into the company sector. On the minus side four company owned sites closed and 19 were sold into the dealer sector. Essentially, the company owner sector is Shell with 567 sites, BP with 316 sites and Esso with the 198 Tesco Alliance sites. Applegreen is next with 91 company sites then Certas Energy with 44 sites, comprising its company owned chain in Scotland plus its Fuel Express network of 22 automat sites.

The regional breakdown of the forecourt sector continues with the market dominated by London and the South East region with 24% of the UK’s motor fuel sales and 27% of forecourt shop sales. Northern Ireland has the smallest regional market share in terms of fuel volume (2.6%) but with 7% of shop sales from 572 sites (7% of the UK sites). The number of unmanned sites (automats) has increased again significantly by 37 sites over the past year. The Asda network now has 156 unmanned forecourts, Certas Energy has 26 unmanned sites and Costco has added a further five new unmanned sites in the past 12 months. Tesco has maintained its total of seven unmanned sites and has recently made statements about adding eight more compact automat units with two pumps and above-ground tanks. A further 24 automat sites are in Northern Ireland including the new Emo Express 24/7 at Belfast Airport. The total number of unmanned sites in the UK is now 238, less than 3% of the UK total sites.

Market Shares and Brands

For the third year in succession the brand with the largest increase in number of sites supplied over the past 12 months was Esso with an increase of 63 sites to 1,144. Esso is now second behind BP in terms of site numbers. Essar increased its site numbers from 29 to 49 over the past 12 months. Applegreen also added a further 15 sites to 92, although many of them are partially branded as ’Low Prices Always’ rather than a full Applegreen. The brands with the largest losses as seen by us were BP (-35), Certas Energy (-24) and Texaco (-24).

Unbranded sites have decreased by 44 to 580 and they remain most vulnerable to a squeeze on margins and to the pressures on the environmental factors surrounding forecourt operation.

In the dealer sector Esso, Shell and Essar show the largest increases. Esso has increased its dealer presence by 63 sites, Shell by 20 sites and Essar by 19 sites. Esso has also overtaken BP in supplying the most dealer sites with 946 followed by BP with 932 and with Texaco now in third place with 739 sites. In terms of motor fuel market share in the dealer sector, BP continues to lead the way with 25.8%, followed by Esso with 24.1%, then Shell with 14.3% and Texaco with 13.9%. These four brands now account for almost 80% of the motor fuel sold through the dealer network. More than 10% of the dealer network (578 sites) remains unbranded but they have only a 2% share of the motor fuel market.

Forecourt Shops

Overall 88% of sites have a forecourt shop of some form. The forecourt shop sector continues to have sales of around £4.5bn per year. There are now more than 2,362 sites with c-stores (up by 75 sites from 2016) and they retail 58% of the forecourt shop sales. The average c-store turns over £21,000 per week from a 139sq m store.

Sites with the BP fuel brand have the most forecourt shops 1,248 with 273 of these being M&S Simply Food. BP has a 22.6% market share of the forecourt shop sector with Esso just behind on 22.3%. The next brand, Shell, has only 13.7%.

In the dealer sector there are 4,906 forecourt shops with total shop sales of close to £2.5bn per year (55% of the overall forecourt shop sales). Within the dealer sector 88% of sites have a shop and 27% of the sites (1,489) have a full c-store. BP dealer sites have a 24.7% share of the dealer forecourt shop sector with Esso next on 20.9%. There are still 457 dealer sites with no forecourt shop and 195 just have a kiosk.

In terms of forecourt shop fascias, Spar is the leading forecourt shop fascia with 1,094 shops selling 17.3% of the forecourt shop sales. Spar has increased its presence on the forecourt by a further 40 shops over the past 12 months. The Tesco/Tesco Express shop fascia remains in second place on 691 sites (including the Esso/Tesco Alliance sites as well as the shops on its own Tesco forecourts) with a 16.3% share. We are still recording that over 15% of forecourt shops (1,158) have no recognised fascia brand although this is 74 less than the previous year.

Over the past year the forecourt shop sector has suffered some major upheavals. The Euro Garages/ Sainsbury’s Local trial was stopped and the sites reverted to Spar. The MRH/Co-op trial was also discontinued and MRH signed up with Budgens (Booker). Morrisons extended its Morrisons Local arrangement with Rontec to more than 50 sites, and the Shell/ Waitrose operation has continued quietly in the background. The collapse of P&H at the end of November 2017 looked like it could cause a major problem for the forecourt shop sector. However within a few weeks the industry had rearranged the logistics and all shops were fully stocked and back to normal trading. The following month the Tesco bid for Booker was cleared by the CMA and in April it cleared the Co-op’s acquisition of Nisa. Despite these major upheavals the forecourt sector has adapted to the new position and moved on.

Car Wash facilities

There are 3,967 forecourts with some form of car wash facility this represents 47% of the forecourt network. This has decreased by 100 sites over the past 12 months. In the dealer sector there are 2,487 forecourts with car wash facilities 45% of the dealer network. The BP dealer network has the highest number of car washes 538 with Esso on 506 and then Texaco on 410.

In summary, while there have been any number of challenges facing the sector over the past 12 months, it is good that I can finish with the same sentiment as last year in that everything is looking positive for the UK forecourt sector and the position of the independent dealer is looking better than ever.