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August 25, 2005
Infraline Energy Research & Information Services
Conference on
STRATEGIC SHIFT IN INDIAN DOWNSTREAM SECTOR
Making India Export Hub for Petroleum Products and Innovations in Petroleum Retailing
Non-Fuel Retailing : From Fringes to Focus
2
Agenda for Today
• Importance of Non-Fuel Retailing to create sustainable
competitive advantage
• Key Global Trends in Non Fuel Retail
• Future of Non-fuel retailing in India and options for
Petroleum Retail companies
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Increased Activity in Fuel Retailing in India
Key Changes in Auto-Fuel Retailing
� Growth in retail outlets and new oil retailing formats to target growing diversity in consumer tastes and preferences
� Diversification into non-fuel sales
� Supplement margins in oil-retailing with non-fuel margins
� Better utilization of physical assets – additional
income source
� Alliances with other parties to get into non-fuel retailing
� Increased customer focus and differentiation to capture/protect market share in oil retailing
� Better quality and improved fuel product mix
� Improved service orientation
� Branding and loyalty programs
Phase-wise increased decontrol of fuels
PSUs increasingly becoming customer-centric in their
outlook to protect market share
Players with > 2000 crores investment in the sector now
participating in retailing
Increased decontrol
New players > 2000 crores
Shift from selling to marketing
Growth in the demand sectorin all segments – highway, urban,
rural
Growth in demand
The Indian oil retailing sector is witnessing significant market activity that is altering the nature of competition
Major drivers for increased activity
Major drivers for increased activity
1
2
3
4
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� Historically a mere dispensing point for product
� No marketing or service focus
� Customers less evolved
� Maturi 800, Scooters more prevalent
� No experience of modern trade for non-fuel
Externally Neutral
� Deregulation and competition hotting up
� Customers becoming more discerning
� Increased focus on branding, creating better ambience and service at retail outlet
� Organised retail evolving, so are opportunities for non-fuel emerging
Externally Supportive
� New competitive forces in the horizon
� Global standards emerging
� Beyond petro branding…non-fuel and services become differentiating factors and growth and profit enhancers
� Retail Outlet becomes core focus, supply chain re-formed to service them better
Externally Agressive
Phases in Evolution
Evolution of Role of Petroleum Retail Outlets
• The petroluem retail outlet is moving from a mere “point of sales“ to the “core of competitve differentiation“, thanks to maturing customer, greater degree of
competiton and higher degree of sofistication of the end-use segment
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Evolution of Role of Petroleum Retail Outlets
• Before: Mom & Pop
From:
To:
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What is Non-Fuel : From Customer Need Perspective
Petroleum Retail Outlets
– Location
– Quality Assurance
– Price
– Performance
– Ambience
– Time/service
– Friendly attendants
– Rewards
– Other needs?
Non Fuel
Convenience
– Food and grocery
– Fast Food
– Dashboard dining options
– Gifts
– Florist
– Cafe
Planned Shopping needs
– Car accessories
– Pharmacy
– Specialty restaurants
– Books
– Music
Services
Related
– Carwash
– 2nd hand car sales
– Auto finance
– Parking
– Repair
workshop
Unrelated
– Launderettes
– Photo shop
– Courier
– Travel Agent
– Crèches
– Rest/refreshments
Need Analysis would vary from segment to segment
Illustra
tive
Fuel
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Why Develop Non – Fuel Retail
Need for Non Fuel
Retail
Value
Migration
Value
Migration
Building /
Leveraging
Competencies
Building /
Leveraging
Competencies
Create
Differentiation
Create
Differentiation
• In US, non-fuel sales contribute to almost 40% to the overall sales
• In US & Europe, typically non-fuel contributes 30-50% to the overall profitability
• In India, the margins are extremely thin (< 1%) on fuel retailing
• Using real estate for non-fuel sales can significantly improve the margins
• Non-fuel retailing is a different ball game altogether as the wining propositions are significantly different compared to fuel retailing
• Theoretically need to develop alliances with parties that understand non-fuel retailing better
• But where are strong National/ Regional players for developing alliances?
• Raise entry-barriers for new entrants
• Especially from the point of view of possible FDI in retailing
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Agenda for Today
• Importance of Non-Fuel Retailing to create sustainable
competitive advantage
• Key Global Trends in Non-Fuel Retail
• Future of Non-fuel retailing in India and options for
Petroleum Retail companies
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Who has Better Bargaining Power?
• 60% increase in US supermarkets with pumps
• In UK: BP/Safeway, Esso/Tesco Combos
o Supermarkets combined petrol share larger then Esso
• In France, grocery controls 60%+ of petrol market
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Key Trends in Convenience Retail
• Biggest Opportunities:
o Fresh Expansion
o Strategic supply chain management
o Meeting Shopper’s need
• Biggest Challenges:
o Big Box entry
o Staff Quality
o Oil company culture
o Differentiation
Boots: UK market leader
in pre-made sandwiches
50% of all C-stores in Japan
are franchisedby superstore chains
Woolworth’s in Australia
adds petrol,Coles Myer
launches small stores
Tesco and Sainsbury’s
“small stores” in UK
Amoco “Split Second” in US: 20% of store devoted
to fast and fresh foods
Esso in Singapore has in-store bakery
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Key Trends in Convenience Retail
Convenient Products
Co
nve
nie
nt L
ocatio
ns
Independents
Big Box
Retailers
Fuel C- Stores
SpecialistC- Stores
Big Prize for cracking the“convenient products in convenient location”
conundrum
Big Box adding necessary scale
C-stores upgrading consumer proposition
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Agenda for Today
• Importance of Non-Fuel Retailing to create sustainable
competitive advantage
• Key Global Trends in Non-Fuel Retail
• Future of Non-fuel retailing in India and options for
Petroleum Retail companies
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Key Questions for Non – Fuel Retail Business
• What purpose does it serve:
o Stand-alone profit center (which it should be) or
o Just “frill factor” to create differentiation for fuel retailing
• What is the overriding consumer value propositions:
o Convenience and / or
o Planned purchase
• In Indian context “cash rich, time poor” is not the only target for C-stores
o Do consumers visit C- stores only when they come to the station to fill gas or
other occasions too based on need?
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Non-Fuel Retail Options
Conventional Thinking
Convenience Format
Un-Conventional Thinking
Specialty Format
Convenience Store
• Food and grocery• Household utilities
• Fresh food • Gifts
• Florist
Impulse Purchase Planned Purchase
Specialty Concept
• Car Accessories• Health and beauty
• Music• Dashboard Dining
Retail
Format Options
Potentially huge opportunityas big-box competition is relatively nascent and there exist a need gap for better organized and structured chain of C-stores putting a
better value proposition than the neighborhood mom and pop stores
Create a destination concept, not restricted to only car owners who come to gas station to fill fuel, but an extended target in the defined catchments
Possible mix of both formats present, depending on location and space availability
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Key Considerations for Non – Fuel Retail
• Own operation or third party: either way sourcing must be centralized
• Scaling up, otherwise poor customer acceptance and low profitability
• Efficient Value Chain Management and strategic relationship with vendors
• Organization capability building, fuel and non-fuel retailing are entirely
different ball-games
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Product •Product innovation and mix•Auto accessories, fresh food, ready to cook/eat products, “dashboard dining”, loss leaders
•Exclusive private labels / Contract farming
Price•Price Differentiation•Customer Segment-wise pricing
•Exclusive premium range? •Multiple formats depending on location
•Happy hour/day
Service•Service Differentiation
•Quick check-out•Friendly attendants•Rewards Program•Tele ordering (and pick up when in gas station)/ home delivery•Long opening hours•Free car treatment while shopping
StandardizedWinning Customer Value Proposition
3 Dimensions of Building Winning Value Proposition
• The three dimensions of Value Proposition
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Key Issues for Services Retail
• Key is to find out what are the related as well as unrelated services where
there is a need gap, where an organized provider fits in:
o Launderettes
o Photo shop
o Courier / travel agent / crèches
o Auto finance/ second-hand car sales
• Rather than taking these as “frill factors” (which currently they are), one has
to evaluate each from a business viability perspective
• One more profitable opportunity is alliance marketing with other related
service providers
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Summary
• Non-Fuel Retail can be an independent and attractive business opportunity
on its own
• Key options to consider: Build from scratch or Make alliances
o Given the current demand –supply mismatch, “Build” is still a viable option
• Like all other forms of organized retailing, scaling up and creating strong
distinctive value proposition is of primary importance at this stage
• Multiple formats can be considered in a nascent market such as India
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