Dramatic falls in the price of petrol and diesel, and a boom in the fleet of vans making home deliveries, have helped to turn around a weakening fuel market. The total volume of road fuel sales looked to be in permanent decline after year-on-year falls from their peak in 2007 to 2013, but the trend is now positive again.
According to the 2016 Statistical Report from UKPIA (UK Petroleum Industry Association) the figure increased slightly for the second consecutive year in 2015. Nevertheless total road fuel sales are 9% lower than they were in 2007.
UKPIA’s report also analyses the way pump prices have changed over time. Petrol and diesel climbed steadily, with occasional spikes, from 1995 until mid-2014. However, with crude oil prices falling by more than 70% between mid-2014 and the end of 2015 there was an exceptional fall in prices at the pumps, with petrol down 12.5% during 2015 and diesel prices falling by 14% over the same period.
Lower prices have helped drive sales, but standard fuels are a high-volume/low-margin commodity, so dealers, and the oil companies supplying their fuel, are increasingly looking to premium brands to drive extra profits. Yusuf Hans, co-owner of Ravensthorpe Service Station in Dewsbury, believes there is value in providing customers with four fuel grades including a premium product.
After a major rebuild costing £1.2m and lasting four months, Ravensthorpe reopened in late December 2015 under the Gulf brand, and with its premium product Endurance prominent throughout the forecourt.
"We have had a working history with Shell and we talked at length with the Gulf team about premium fuels and whether Gulf Endurance would have the same pull," explains Yusuf. "It is why Endurance is so strongly branded on our new site. Lo and behold, taxi drivers who you would normally think of as quite cynical have been singing its praises, saying it’s better than the premium fuel of the major brands. With the local taxi community now fully on board, Endurance accounts for around 25% of our diesel sales, even though it’s 8ppl above our regular diesel price."
Ramsay MacDonald, Certas Energy’s retail director, believes premium grade fuels can open up new opportunities for Gulf dealers to increase their revenue streams. "Gulf’s Endurance range can account for more than 20% of a forecourt’s gross profit on fuels," he says. "That supergrade, although it may be only four, five or six per cent of fuel sales, in terms of cash margin because of the pricing differential it has a significant impact. In the two Co-op sites that we took over in October, incremental sales of Gulf Endurance are 10,000 litres a week. That equates to an extra £30,000 a year."
The latest development in the premium sector is Ultimate with active technology, which BP described as its biggest fuel launch in a decade when it was unveiled in April. Natalie Cattermole, UK marketing manager, BP, comments: "We are pleased with the launch. In Spain, where we piloted our active technology, we have seen a sales uplift, and we expect to see that in our other markets including the UK. In the UK, our dealers are energised by the new offer, as are our customers. Engine dirt causes engine inefficiencies; we are proud to offer our customers a product designed to address and correct that issue over time."
She says there will be another wave of advertising starting this month on TV, radio and through digital channels, direct mail and emails from Nectar adding: "We know active technology is a game changer and we will continue to promote and support it."
The oil companies are shy about releasing sales figures for their premium offerings, but most observers believe Shell’s V-Power Nitro+ fuels are the UK’s best-selling premium fuels. Marcus Sheldon, Shell UK fuels marketing manager, says: "Shell V-Power Nitro+ fuels continue to grow in popularity with British motorists and are Britain’s number one performance fuels.
"We have invested significantly in recent years and this investment is really showing its value as demand for Shell V-Power Nitro+ grows, as more motorists recognise the benefits and are loyal to premium fuels."
Phillips 66 has added to competition in the premium sector. Guy Pulham, manager, regional sales at Jet, comments: "Since introducing our Jet Sentinel Diesel premium grade product to the market last year, we’ve had a very positive response from both our independent and group dealers. Our aim was to respond to demand from our dealers for a premium diesel product to complement their existing fuels mix and also to meet customer demand for a premium diesel. Feedback from our dealers who have introduced the product suggests that customer response has been positive in all cases.
"We support our dealers with Sentinel Diesel sales through a range of pos material including tank stickers, posters, leaflets and feather flags. We’re also introducing pump crowns. Raising consumer awareness of the availability of the product on the forecourt is key to increasing sales. We now supply Sentinel Diesel to a number of our Humber-fed locations and we’re looking to extend our supply to include other locations."
An issue of concern for many dealers is the proposal to increase the amount of ethanol in petrol from the current 5% (E5) to 10% (E10) in order to comply with EU renewables legislation. Many people thought the Brexit vote might result in the proposal being shelved, but shortly after that there were reports that government ministers were drawing up plans for its introduction.
However, last month PRA chairman Brian Madderson reported that the government was taking a more "realistic" and "pragmatic" approach to the introduction of E10 fuel, following a meeting with officials at the Department for Transport (DfT). The PRA has been resisting the introduction, warning that neither consumers nor the industry
are ready for it, and smaller filling stations would be put at a financial disadvantage that could push many of them out of business.
After the meeting Madderson said: "It seems that officials and the Government have heeded our warning that before they commence any proposal for the introduction of E10, the commercial implications must be fully explored and solutions agreed both by industry and government."
While oil companies continue to develop their petrol and diesel fuels, they also need to be aware of the development of alternatively fuelled vehicles (AVCs) as pressure grows for lower carbon emissions from transport. Electric vehicles offer least scope for fuel stations as they can be charged at home or at the increasing number of charging stations popping up. However, despite claims from bodies such as the AA that they are reaching a tipping point, electric vehicles make up only a tiny proportion of the market. In recent months electric cars have stabilised at around 1.25% of new registrations in the UK, accounting for less than 21,000 sales this year compared with the overall total of 1.6 million cars sold.
Shell has been piloting the supply of other fuels. Jane Lindsay-Green, Shell UK retail future fuels manager, explains: "Shell is developing alternative transport fuels, including biofuels, hydrogen, and liquefied natural gas (LNG). Hydrogen fuel cell electric vehicles (FCEVs) have the potential to be an important part of a low-carbon transport system. They produce no emissions at the exhaust pipe, only water, and refuelling only takes a couple of minutes. In the longer term, hydrogen can help reduce CO2 emissions from transport, if the electricity used to produce hydrogen is made from renewable sources. This year, together with our partner ITM, we will make hydrogen fuel available to customers in the south east, with refuelling stations on three forecourts. The first of these will open at Shell Cobham later this year.
"Taking what we’re learning from our investments and partnerships in Germany and the US, our experience shows that for hydrogen mobility to succeed, vehicle manufacturers, fuel suppliers and governments need to work together. Three major factors are needed to be successful in launching hydrogen in any market: the cars, the retailers with the room to install hydrogen equipment and government support. However, car manufacturers will only invest in developing vehicles if the refuelling infrastructure is in place. And in turn, fuel suppliers will only invest in infrastructure if there is demand for hydrogen fuel from customers. In Germany, H2 Mobility aims to address these challenges facing hydrogen commercialisation: aligning the ramp-up of FCEVs and retail sites with the support of the German government."
She says LNG is emerging as a cost-competitive fuel for heavy duty road transport. "LNG fuel has virtually no sulphur and reduces particulate and nitrogen oxide emissions. Shell has five fuelling sites in operation in the Netherlands and is examining potential locations across Europe and the UK to bring LNG to our fleet customers. We are also examining the potential to introduce electric vehicle charging points across some parts of our UK retail network from early 2017 onwards."
Case Study: Premium diesel
Nick Baker, owner of NJB Services, introduced Jet’s Sentinel Diesel at four out of five sites three months ago, and is planning to introduce it at his fifth site over the coming months. His Balby site in Doncaster has a Sentinel nozzle on every pump and sales now equate to 15% of the site’s total diesel volume. Across all his sites Sentinel represents a minimum of 10% of diesel sales.
He says: "There’s no doubt that more and more customers are expecting premium grade products. Our sales of super unleaded weren’t particularly strong and we actually found that many customers who filled up with super unleaded did so by accident, because of a misfuel. However, our customers are actively looking for higher-grade diesel and since introducing Sentinel across my four sites, sales have been very positive. It’s still too early to tell if customers are coming to the sites specifically for this product, but there’s been a marked migration from standard diesel to Sentinel. I think that when customers have used the product once, they are unlikely to go back to the standard grade diesel."
He adds: "Customer feedback and my own direct experience is that you definitely get higher MPG. The product protects the car and improves the overall performance of the car. The performance improvements far outweigh the additional costs associated with buying a premium product.
"If any dealers are considering introducing Sentinel Diesel or another premium grade diesel then I’d say it’s a no brainer. It’s cheap to introduce, particularly if you’re simply swapping an existing diesel pump, and the margins are very good. Depending on the forecourt’s layout you may want to alter nozzles and pumps, but if the opportunity to introduce it is there, it’s well worth doing. It’s a win-win for dealers in terms of margins, and for customers, who expect a premium grade these days and get the performance benefits if offers."
Diesel versus petrol
The 2016 Statistical Report from UKPIA (UK Petroleum Industry Association) shows the UK trend away from petrol in favour of diesel has continued, but predicts it will end soon. Annual sales of petrol have been falling since reaching a peak of 33bn litres in 1990 when it had a 73% share of the market, and by 2015 had halved to 16.5bn litres. Meanwhile, diesel has shown annual growth rates of 3% over the past 20 years and overtook petrol as the biggest seller in 2007. The report notes: "As a result of the marked rise in popularity of diesel vehicles and increased growth in freight transport, diesel sales in the UK exceeded 28bn litres in 2015."
However, diesel may be close to its peak, according to the report. It says: "As petrol engine efficiency improvements continue to catch up with that of diesel, forecasting the current dieselisation trend long term is difficult, particularly as the growing drive for a reduction in carbon emissions from transport will increasingly result in tax levels becoming more aligned with vehicle carbon emission levels, and most likely lead to a marginal increase in the attraction of smaller capacity gasoline-fuelled vehicles. For these reasons, along with emerging air-quality arguments, analysts contend that the growth in diesel’s market share will slowly cease and reach a peak in 2017, followed by a gradual decline."