Strong growth continues to underpin the financial performance of MPK Garages Ltd, with the Leicester-based forecourt operator reaping the benefits from its partnership with Londis and an incisive fuel supply strategy. Last year’s turnover for the Top 50 Indie rose by over 20% as its portfolio of 25 filling stations, based predominantly in the East and West Midlands, achieved shop sales of £9m. "We drive growth organically and, where we can see a strong return, through acquisition," explains Paul Kershaw, director of MPK Garages.
"As group dealers, we benefit from economies of size, both in our negotiating strength and ability to cross-subsidise to reduce the pain if, for example, a filling station is caught up in a price war with a local supermarket. We recognise the importance of site numbers but not for numbers’ sake and our business model is always about unlocking potential."
Nothing emphasises this more than the tie-up with Londis, which has seen revenues increase by 50% on some sites. An ongoing programme of reinvestment across the network remains an integral part of MPK’s strategy as it looks to improve facilities and drive further growth. Several shop developments are currently in the pipeline along with a full-blown development, while work will start shortly at Dordon Filling Station, situated on the busy A5 near Tamworth. The site currently pumps 5mlpa with an additional 3.5mlpa from bunkering.
Post-development, Londis predicts that shop sales will ’go through the roof’ as the current 500sq ft shop will be replaced by a c-store five times larger.
"We plan to introduce the Gulf brand at Dordon and also at another high-volume site Drayton Service Station, Fazeley," confirms Paul, who had sat on the fence for 18 months before Gulf became an MPK Garages-preferred fuel brand.
"We have a good working relationship with Certas Energy; our day-to-day contacts are people we know and respect from the Total days, but we had mixed feelings about Gulf as a forecourt brand. I think we may have been living in the past and thinking back to our Burmah days where we dealt with majors, mini majors and the rest!"
The catalyst for the change of mind was the recent rebranding from Total to Gulf at Tean Service Station near Stoke-on-Trent and Moulsford Service Station at Wallingford in Oxfordshire.
"We decided to test the waters and have been pleased with results. Both sites have shown growth of over 20%," enthuses Paul. "Moulsford has been revitalised and when fully illuminated at night the transformation is dramatic."
He adds that Gulf’s cross-acceptance agreement with the Shell card is also proving good for business.
Paul says Gulf’s understanding and flexibility in its dealings with MPK puts it up there with the best.
An important part of that flexibility relates to the fuel supply arrangements, which are uncomplicated and based upon weekly Platts and margin share.
"I simply refuse to consider daily Platts. It protects the supplier but not the independent," claims Paul. "It’s not conducive to delivering a consistent localised retail offer and there is an arrogance within some oil companies who refuse to see an alternative. That also applies to the CSO (Compulsory Stock Obligation) tariff when it appears as a standalone part of the agreement and is subject to change at short notice. A good deal can soon become a bad deal if there is no control over CSO and other cost elements."
Another factor that Paul cites as a threat to the future of the independent is the close alignment between the major oil companies and supermarkets.
"I can see short-term gains for Esso dealers coupled with the Tesco Club Card, but what happens five years down the line when margins are scaled back and the costs increase? The handcuffs might be too tight by then, knowing that you have no access to the Tesco database and therefore little scope of protecting any of the incremental volume."
The success of MPK has always been driven from a low cost base and that continues today. The company stock may be on the rise but overheads remain tight and Paul does not see any reason for change. "It’s not our style to introduce middle managers or financial controllers on high retainers. We run the business from the P&L it’s the only way and costs at the top are kept to a minimum.
"We outsource key services such as IT support and wet-stock management. These can potentially be a massive drain on the business and we recognise the need to contract out to experts. For one site these represent a significant cost, multiply that by 25 and it’s why we take them so seriously. By increasing our wet-stock controls we have seen losses fall from 0.4 to 0.2%. That is a saving of over £100,000 a year.
"We believe that wet-stock losses could be reduced even further with the introduction of automatic temperature compensation (ATC) system. Our initial calculations suggest a payback within two years from a proven ATC system at the pumps. It’s something we are looking at very closely."
Another cost is Allstar and those of credit cards in general. Paul believes that dealers must stand together collectively if they want to see changes.
"It’s difficult at the best of times to run a petrol operation and the current Allstar costs are completely unreasonable; a drain on profits for all independents and crippling for some. The PRA has our full backing in its lobbying efforts. It’s a travesty in this country that charges range from 1.5% to 3% when in Germany the ceiling is 0.3 %. The government must act and all petrol retailers should be putting their weight behind Brian Madderson and his team on this issue."
Despite the challenges and threats, Paul is optimistic about the future for the independent and thinks the landscape is clearer now than it has been for some time. "Add to that the long-term commitment to the dealer market of companies such as Londis and Certas Energy and we can eliminate some of the uncertainty of the previous decade. That said, it’s people that make this industry tick and the people working for us, for our suppliers and for our retailers, who are responsible for our success. We are immensely proud that around 80% of our retailers have long-term relationships with the company."
MPK operates a 50/50 split between managers and franchise-based retailers. Until about two years ago, it was struggling to see the benefits of direct management and undertook a thorough review. Things now appear to be working much better since the introduction of stricter controls and an incentives competition for all sites based upon site presentation and appearance. According to Paul it has introduced healthy competition and an element of fun. "We reward the top performers and judge with a sense of realism," he continues.
Paul says it’s ’horses for courses’ as to whether a site goes down the franchise route or not. "We have some great retailers and exceptional managers. One thing’s for sure, we will always reward good performance and encourage revenue growth. Our retailers are incentivised to buy through Londis and if any of them can make a couple of thousand, they deserve to keep it. An individual who is required to be a shop keeper, salesperson, cashier, forecourt operator and health and safety expert, all rolled into one, deserves the utmost respect."