Thursday, September 11, 2008

Zooming ahead with Petro Retailing

Retail is one of India’s largest industries, accounting for over 10 per cent of the country’s GDP and around eight per cent of the employment. With a contribution of 12% to this industry, the petroleum retail sector is one of the largest segments of the industry. The petroleum retailing industry in India faces significant challenges in the deregulated environment with low product differentiation, lack of customer loyalty, coupled with intense competition, a downward pressure is exerted on margins forcing players to adopt new and innovative strategies .India has deregulated the pricing mechanism for retail petroleum in 2002, enabling new players to enter the market. The entry of new players like Reliance will increase the number of stations from existing 19,000 to over 30,000 in the next 4-5 years. This will also reduce the average throughput per station, and total fuel volumes per player. With a market determined pricing mechanism, prices will have to be lowered, thus reducing margins from fuel products. With limited growth in the number of vehicles, the retail fuel volumes will remain stagnant, thus offering little scope for further improving the overall revenues and margins. In such scenario, the petroleum retailers will need to develop differentiated value propositions, to improve revenues and their bottom lines, by adopting a customer focused approach and building strong brand equity.

To drive revenues and margins, the retailers will have to attract new customers or increase share of their existing customer’s wallet. The latter can be achieved by offering non-fuel products and services. Non-fuel products, which offer higher margins compared to petroleum products, enable companies to sustain themselves, especially during times when oil prices are high. However, keeping in mind that petroleum retailing is a retailing of product and service, with differentiation possible petro-retailers will have to take a look into the retail skills and accordingly have to make adjustments in that. Network optimization, proposition/brand management, dealer management, site operations management, partner management, customer relationship management etc. are some of the skills that should be incorporated to succeed in the changed scenario. Immense competition in this sector will make loyalty programs for every segment of consumers as an integral program of the day- to-day functioning of petro-retailing. Moreover, proper understanding of market forces and economics at state/territory level will be the most important factor which will help not only help in smooth functioning of business but also drive customers to the outlet.