Transcript Document

Global Future
of Fuels Retail Marketing and
Implications for China
Franz B. Ehrhardt
Executive Consultant & Manager
Business Development, New Areas
July 21, 2015
Copyright© 2000 CASCA Consulting, L.L.C. All rights reserved
1
Global Future of Fuels Retailing:
Implications for Asia
 Global Retail Markets
 State of Retail Marketing in Select Countries
 Key Influencing Factors that Drive Change
 Select Key Success Factors
 What to Expect next in Global Trends
 Implications in Asia
July 21, 2015
Copyright© 2000 CASCA Consulting, L.L.C. All rights reserved
2
Market Control
UK
Thailand
Germany
Canada
Japan
Malaysia
Korea
India
Vietnam
Mexico
Indonesia
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Medium Growth
Brazil
High Growth
China
Emerging Markets
(Agriculture) - Simplistic
July 21, 2015
Australia
Low Growth
FULL CONTROL
MONOPOLY
PARTLY
CONTROLLED
Turkey
USA
Mature / Saturated Markets
(Industrialization) - Sophisticated
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Market Control
UK
Thailand
Germany
Canada
July 21, 2015
Turkey
Malaysia
Australia
Korea
Brazil
Vietnam
Mexico
Indonesia
Emerging Markets
(Agriculture) - Simplistic
Copyright© 2000 CASCA Consulting, L.L.C. All rights reserved
Mature / Saturated Markets
(Industrialization) - Sophisticated
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High Growth
India
Medium Growth
China
Low Growth
FULL CONTROL
MONOPOLY
PARTLY
CONTROLLED
Japan
USA
Global Retail Trends:
Free Markets
Time
Hi
Hi
Rack-to-Retail
Margins
Investment
Per Station
Break-Even
Expenses
Number of
Stations
Retail Volume
Per Station
Non-Fuel
Income
Lo
Lo
July 21, 2015
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5
Retail Unit Margin
Pressure Factors
(Not by sequence or significance)
High
Aggressive (Independent) Competitors (Price)
C-Stores with Gasoline
Margins
Supermarkets with Fuel
CP Income
Inflation
Cost Reduction
Over-Building
Co-Branding
Self Service
Rationalization
Mergers
Joint Ventures/Mergers
Low
July 21, 2015
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6
Competitive Positioning
Lowest Cost Break-Even Thrust
High High Vulnerability
Low Vulnerability
Cost Margin per Unit
Convenience Products
x
Company
A
Company
B
x
Operating
Cost Increases
Services
Company
C
x
New Investment
x
Company D = Trendsetter
e.g.: Supermarkets
Low
Low
July 21, 2015
Monthly Volume/Revenue
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High
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Competitive Positioning
Cost Margin per Unit
Lowest Cost Break - Even Thrust
High High Vulnerability
Low Vulnerability
Company
B
Company
A
Company
C
Global Trend
Company D = Trendsetter
e.g.: Supermarkets
Low
Low
July 21, 2015
Monthly Volume / Revenue
Copyright© 2000 CASCA Consulting, L.L.C. All rights reserved
High
8
Time
High
High
Margins
Station Population
Overbuilding
Rationalization
Low
July 21, 2015
Low
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Time
High
High
4-6 Points
over C.O.C.
Station Population
Margins ROAE
Overbuilding
2-3 Points
over C.O.C.
Cost of Capital
Rationalization
Loss
Low
July 21, 2015
Low
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Global Trend Prediction
in Free Markets
 Further rationalization and decline in numbers of retail facilities
 Size and investment in individual facilities will continue to
increase significantly
 Fierce competition will force operating cost much lower;
trendsetter will target a zero expense margin for fuels
 Mass merchandisers (e.g.: super markets) are there to stay in the
fuels business and will expand while heavily squeezing retail
margins
 The majority of retail earnings will come from non-fuel activities,
especially from convenience products and fast food items
 Macro and micro mergers of retail operations will result in lower
break-even costs and heavily pressure those that do not act in
response
July 21, 2015
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Global Trend Prediction
in Free Markets (cont’d)
 Many long-term traditional fuels retailers will sell their networks
 Actual and quasi-unattended fuels operation will expand
significantly
 With approaching C-store saturation, oil companies and traditional
C-store operators will engage in fierce price battles
 Unleaded low aromatics gasoline and ultra-low sulfur diesel will be
the norm
 Diesel will continue to play a strong, even growing role alongside
gasoline; automotive LPG will continue at a low but steady level;
automotive natural gas is likely to expand significantly; methanol,
ethanol, hydrogen; electricity, etc., for the time being will find
rather limited applications when not heavily subsidized
 Motor fuel availability will remain in a surplus position
July 21, 2015
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Global Trend Prediction
in Free Markets (cont’d)
 Environmental soil, water, and air protection standards will be
further tightened. Full vapor recovery (Stage I and II) will be
required.
 Stricter safety standards will be legislated and enforced
 Smart credit and debit cards will dominate payment transactions
 Computer-based information and communication technology and
the Internet will have a profound impact on fuel and convenience
product marketing
 Lube change intervals will be constantly extended
 Specialized car services will continue to expand outside stations
while retail facility-connected lubrication and repair service will
give way to convenience product and other non-automotive
services
July 21, 2015
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Implication on Asia and India
 The remaining Asian and Sub-Continent retail markets could
require another 5-7 years until full decontrol
 Tremendous investments and training efforts will be required by
national oil companies, their local partners, and foreign oil
companies to elevate the respective networks to prevailing world
standards
 The listed global trends will, over time, impact India and the rest
of Asia as well
 Natural gas as automotive fuel will play a bigger role in India and
the rest of Asia, then in other parts of the world
 Local and multinational joint ventures will be a preferred
approach to retailing
 National oil companies will expand across borders
July 21, 2015
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Implication on Asia and India (cont’d)
 Traditional bureaucratic structures and approaches of national oil
companies, and other companies operating in controlled markets will
have to dramatically change and greatly increase their efficiency
 High unemployment in many countries will require the continuation of
full retail service to ensure employment especially for of entry level
labor
 Convenience-stores at fuels stations will rapidly penetrate the
markets
 Oil companies and governments need to cooperate more effectively
to eliminate product co-mingling, smuggling, and other manipulations
 Traditional powers of bureaucracy personnel over approval
processes and the linked exploitations, are not likely to ease
significantly, even after “decontrol”
July 21, 2015
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Concerns and Issues for China
 Station Network Consolidation:





Imbalance, select strong overbuild, select scarcity
Ownership consolidation into larger companies
30% of stations to be rebuilt or retrofitted
30-40% of stations to be replaced
Significant investment requirements to reach free market
standard competitiveness (5.0 - 10.0 billion $ equivalent)
 Change in Operation
 Switch in customer expectation
 Fundamental change in service quality
 Program required for Chinese retailers to be competitive in a
free market
 Operation standards to be elevated to world class
July 21, 2015
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Concerns and Issues for China
• Products
–
–
–
–
–
July 21, 2015
Total product bucket at world market price
Continuous focus on diesel
Retail taxation as a government policy
Control of smuggling
Environmental standards
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Facility Replacement
- Investment Patterns
(At least 10,000 - 15,000 cr. Rs for India)
100%
80%
% of Replacement
Free Market
60%
Decontrol
Gap
40%
20%
Controlled Markets
0%
Years
July 21, 2015
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(12 -15)
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Global Future
of Fuels Retail Marketing and
Implications for China
Franz B. Ehrhardt
Executive Consultant & Manager
Business Development, New Areas
July 21, 2015
Copyright© 2000 CASCA Consulting, L.L.C. All rights reserved
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