I recently caught up with Mark McKenzie, CEO at the Australasian Convenience and Petroleum Marketers Association (ACAPMA). Mark shares some fantastic insights, ranging from issues facing petroleum retailers to the vital role independents play in the fuel industry. We also discussed the upcoming Asia Pacific Fuel Industry Forum and why fuel retailers should attend. Enjoy….
In your role as CEO at ACAPMA, you see first hand the big challenges facing petrol retailers. What are the main things independent retailers should be looking out for at the moment?
My guess is that many readers would expect me to cite the looming structural change in our market that might flow from the imminent decision of the ACCC in respect of the BP-Woolworths issue.
But let me go out on a limb to suggest that this is somewhat of a side issue for independent retailers.
Many of the messages we are hearing are more localised and can be boiled down to the increasing costs of doing business in the face of (a) increased energy and employment costs, (b) increasing regulation and compliance costs and (c) accommodating the challenges of an open and fiercely competitive market.
As an industry, we also face a crisis of public confidence in our industry in respect of employment compliance. That is, the Australian community wants to be assured that ALL market participants are paying our employees (often their sons and daughters) the correct wage.
This issue is not just reputational. It extends to the distortion of competition as a result of some market participants gaining an unfair (and illegal) advantage over the majority of fuel retailers that are doing the right thing. This is something that we, as an industry, cannot tolerate.
In my discussions with the Federal Government on the wage issue, we have been clearly told that we, as an industry, need to clean up our act – or it will be cleaned up for us.
At ServoPro, we believe that the independents play a vital role in the Australian downstream petroleum industry. Do you agree and what do you see this role as?
I would qualify this question by stating that both independents and dealer-owned franchise operations play a vital role in ensuring that there is healthy competitive tension in the Australian retail fuel market. The maintenance of this tension is vital to the future success of the Australian retail fuel market.
The Australian community expects that the level of competition in our industry is as strong as it can possibly be, given that the cost of fuel is a key weekly cost for households and an input cost for Australian business and industry.
It follows, therefore, that retail fuel prices need to be as low as possible to minimise costs to Australian households and to enhance the global competitiveness of Australian business and industry – whilst still ensuring that fuel retailers earn a sustainable profit from their operations.
Independents and dealer-owned franchise operations are widely recognised for making pricing decisions independent of the larger market participants. This mix of small and big operators is a foundation of competitive markets. It follows that independents and dealer-owned franchise businesses are essential for the maintenance of a healthy level of market competition.
What advice would you give the independents in order to be more competitive with the major petrol retailers in Australia?
A frequent complaint that I hear from independently branded fuel retailers is that they do not believe that consumers reward them for posting lower fuel prices.
While some of this phenomenon can be attributed to a stated preference of some consumers for long-established and widely recognised brands, we believe that our industry is in the midst of a significant shift in consumer purchase behaviour. These changes are apparently driven by an increasing consumer desire for convenience shopping and a lower sensitivity to unit fuel prices due to an increased number of fuel efficient vehicles.
The Millennial Generation – that is, the group that will live more of their life in the 21st century than the 20th – and online shopping, means that there are a growing number of people who are using small format supermarkets (i.e. convenience stores) on a more frequent basis as opposed to shopping in the traditional large format supermarkets. These people are looking to top up their groceries or buy prepared meals and their store of choice is increasingly the convenience stores located at service stations in their area.
In fact, growth in annual convenience store revenue in recent years has averaged 9% when compared with the 1% recorded for supermarkets.
I believe that independents need to recognise that this shift is occurring and look for ways to diversify their convenience store offerings in a financially sustainable way.
Put simply, we are seeing signs that Australian fuel consumers are choosing retail fuel sites on the basis of the total fuel and convenience offering – not simply on the basis of fuel price.
Many of the bigger fuel retailers have recognised this change and are adapting their offerings. Independent retailers need to do the same if they are to remain competitive in the future.
I am not saying that fuel price will not continue to be important to consumers, just that the diversity and quality of convenience items are likely to be an increasingly important factor in the consumer’s decision to patronise a specific retail fuel site.
The Asia Pacific Fuel Industry Forum is coming up in mid-September this year. Is this an event that independent service station operators should attend? If so, why?
All fuel retailers are time poor and are rightly required to devote all of their available time to survive in a very competitive national fuel market.
But if the focus is purely on short term survival, chances are that business owners will not see some of the big changes coming until they are impacting on their revenues – which is typically too late.
All we ask of our members is that they devote two days a year to attend a strategic forum – the Asia Pacific Fuel Industry Forum – that seeks to provide them with a concise summary of the big issues that are likely to shape our industry in the short and medium term.
These include changes in regulations, changes in competitive structures, workplace relations issues and changing consumer attitudes.
The APFI Forum is not a two-day junket. Rather, it is a forum run by the retail fuel industry for the retail fuel industry. It is designed to provide participants with at least one strategic insight that will help them manage their business in the near term.
This year, we will hear from the ACCC Chairman, Mr Rod Sims, on current competition issues, as well as the Australian Fair Work Ombudsman on employment compliance issues within our industry.
We will also be unveiling research about consumer attitudes relating to the total fuel and convenience offerings of our industry, in the hope that it will provide fuel retailers with the knowledge needed to ensure that their retail business is continually adapting to changing consumer attitudes and receiving the economic benefits of the same.