What is the future of fuel retailing in South Africa?

fuel-retail

The complexity of the fuel retailing sector and the myriad of issues that surround it are enough to make anyone’s head spin. For those operating fuel retail stations it’s like juggling multiple balls at once… on the one hand focusing on the challenges of the fuel conundrum in South Africa with its declining volumes and profit margins, and onerous legislation from both government and industry standards and labour issues. On the other hand balancing much-needed income streams from forecourt shops and other services with onerous franchise agreements. No other industry is as complex and as challenged as the fuel retailing sector.

When the Fuel Retailers Association held its annual conference in September 2019, the theme of the conference was ‘Changing Landscape’ and focused on the Fourth Industrial Revolution that was going to mark the turn of the decade. According to Reggie Sibiya, CEO of the FRA, the presentation by international guest speaker Mark Wohltmann, Director, National Association of Convenience Stores (NACS), Europe at the conference focused on the big industry issues, the trends that would impact the sector and what the next big disruptors would be. “We could see what was happening in Europe and the USA, with total deregulation and the move to electric and hybrid mobility starting to become a reality but we thought we had enough time to wrap our heads around how we would tackle the issues when they came our way. Little did we know that six months later we would have to fast-track to 4IR due to Covid-19 and the changing economic and consumer landscapes.”

Speaking at the Franchise Association of South Africa (FASA) Conference held at the end of August 2021 that highlighted the Automotive sector as one of the key franchise sectors, Reggie Sibiya stressed that fuel remained a very strategic resource albeit capital intensive due to the nature of its assets. “The bottom line, however, is that the economy and people need fuel – at least for the immediate future. It is also very labour intensive and currently employs over 83 000 people and has 4 500 SMMEs running fuel retail operations.”

Fuel is the major part of the business making up 60 – 80%, depending on location; urban sites progressively doing more convenience and other supplementary streams, more than in rural areas. Margins are fixed, pump prices are increasing and change every month. “With no relativity between fixed margin and the movement of prices, most of the operating expenses are linked as a percentage of the pump price so when the pump price goes up, the operational expenses also go up yet the margin is fixed annually,” says Reggie Sibiya. “This leads to the erosion of the operational margin at the end of the day which is not a good or healthy situation to be in.”

“COVID-19 impacted the industry with volumes dropping by 80% with many operators pleading for rental relief from landlords, bank holidays and with very little or no support from government. Then came the July riots and looting and the sector lost over R300 million to looting and property damage – the combined COVID-19 and looting cost the industry billions of rands in both revenue and tax collection through fuel levy and road accident fund.”

FASA Franchise Association South Africa
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