Shell plans to add a further 10,000 service stations globally to its current tally of 45,000 sites by 2025, according to István Kapitány, Shell’s executive vice president of global retail. The ambitious plan includes building its customer base to 40 million a day and, in most of the countries it operates, for 80-90% of the population to be living within 10-15 minutes of a Shell service station. The plan also includes building 5,000 fully fledged convenience stores around the world.
"It is a commitment to our investors and from those 5,000 c-stores to the very significant additional income we will generate," explained Kapitány. He was talking during a roundtable discussion alongside the company’s Shell Make the Future Live event at London’s Queen Elizabeth Olympic Park last month about the evolution of convenience retailing.
Shell believes the key to unlocking increased profitability is to strengthen its focus on convenience retailing. The company’s retail division made $2.2bn net income after tax last year, with average ROS on capital employed of 24%, and average year-on-year growth rate over the past four years of 7%.
"Within the Shell group retail is a very important cash generator and contributor to overall profitability," stressed Kapitány. "And contrary to what many believe, this business is not linked to oil price. Forecourt retail is very different. If you do a good job, have a good brand, regardless whether the oil price is high or low, you are able to grow your profitability because customers are not coming to you because of the fuel price. Interestingly when there was a drop in the oil price from $110 a barrel to $28 the fuel volume increased by only by 1% not a huge change.
"So the focus should be on the customers. We have 30m customers every day, and are making close to 11bn transactions a year. The margin on on convenience retailing is significantly higher than fuel, and is therefore playing an ever-growing role in our business.
"We believe the biggest advantage we have is a very strong brand, and a very strong customer base. We have 52m customers around the world who are in our loyalty programmes, so we have connections to those customers on a regular basis. We are able to reach them, give them an offer, find out what they want and how they want to buy from us.
"We believe we have a competitive edge. Around the world we have half a million staff wearing a Shell shirt dealing with our customers. We’re meeting tens of millions of customers every day and getting their feedback."
Apart from Shell’s well-publicised projects to prepare itself for whatever future fuels its customers may require, it is also busy with significant retail trials. In Holland it is currently testing a feature on its mobile app to enable its customers to order food and drink from a Shell Select food store (which Kapitány says are five minutes away from 90% of the population); and for it to be delivered.
Holland is also the site of a fuel delivery trial. "If someone has to disrupt us it’s a good idea if it’s us," explained Kapitány. The company is trialling a programme similar to Zebra Fuel in the UK. It has developed small, 900ltr transportation tankers; customers order from wherever they are at home, the cinema the Shell truck arrives, fills up their car, cleans the windscreen and it is paid for with the app. It costs forecourt pricing plus £3.99.
"We’re finding that people like it it doesn’t mean they’ll always use it; but the product is always delivered from the nearest logistically most optimum Shell Service Station, so you’re not losing volume from anywhere, you’re simply making that last mile delivery to your customer."
Shell currently operates in 82 countries and is targeting growth of 5,000 sites from existing markets in India, China, Indonesia, Mexico and Russia. The other 5,000 will come from new markets, either through acquisition or licensed partnerships. Continued growth is also planned for the UK.
Bernie Williamson, Shell’s UK retail general manager, said: "We’re resilient as a business. We’re growing both in our premium fuels and in our food sales outperforming the market from a convenience sector point of view. One of the reasons we’re becoming more successful in this space is because we are increasing the offer to suit our customers’ needs. We have key partnerships which bring breadth of choice, with Booker doing our supply chain operations, and also the Budgens brand; plus we partner with Waitrose. We are changing one store a week into a new format. For me this is a really exciting time where we can leverage our footfall. One in three of our transactions are non-fuel retailing, and half of our transactions include food and drink. That’s really changing the face of what we’re doing. It gives us the opportunity to think where and how far can we take this? What can technology and artificial intelligence bring us? There are so many possibilities, it’s just a brilliant time of investment for us.
"Customers are giving us a very clear message that convenience retailing is very important to them. In the UK 75% of the population can reach a Shell service station in 15 minutes. That’s a clear indication of where we can take our business."
trending Positive vibes
The discussion was mediated by Jack Stratton, from trend spotting agency, Insider Trends, who said there was a genuine sense of optimism and positivity about the forecourt sector as opposed to similar discussions held within the wider retail landscape, which focused on bricks and mortar versus online, and the inconvenience of the high street.
"People can’t park on the high streets. It’s so much easier to order online, and many retailers are simply blaming Amazon but they’re entirely missing the point," he stressed. "The changes are way beyond one ’bad’ guy, they are much more fundamental.
"If retailers are going to have any kind of physical space, where can they go where their customers are; and how can they create great experiences?
"What I love about forecourt retail is that almost by accident, the sector is already there.
"You’re in convenient places, you’re ready for so many other trends, it’s merely a case of deciding what you’re going to do."