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By
ARVIND DWIVEDI
First and foremost, I would like to express gratitude to my Institution, University of Petroleum
& Energy Studies for providing me a magnificent opportunity in the form of this dissertation to
work and learn.
I would like to express gratitude to Prof. Atul Razdan for sharing the journey of
conceptualizing and developing all the ideas. He stood in times of difficulty and despite of his
busy schedule devoted a major chunk of his time towards this project. He has been a part of all
the activities and duly guided the project to its destination. I am indebted for his endeavours in
making this project a success. He has truly fulfilled his role as a guide.
I would also like to acknowledge the help and support extended by all my friends whose names
could not be mentioned here. They all have been very co-operative and provided impetus to
this project. Without their help this project would not have reached its destination. I express my
gratitude for their suggestions and help they extended to this project.
I will not miss the opportunity of expressing thankfulness towards all my teachers and the
faculty of University of Petroleum & Energy Studies for sharing their knowledge, which
provided necessary ingredients to this project.
In the end, I want to thank Mr. Bill Gates and his Microsoft Corp. for MS Word and MS
PowerPoint. Without them this report would not have been in its present form.
KEY TERMS………………………………………………………………………………………………………………………..1
EXECUTIVE SUMMARY……………………………………………………………………………………………………...2
RESEARCH OBJECTIVES……………………………………………………………………………………………………..4
RESEARCH METHODOLOGY……………………………………………………………………………………………….6
FINDINGS
CHAPTER 1 Background of Indian Petroleum Industry………………………………………………………………….…7
Bibliography.……………………….…………………………………………………………………………………………….……..69
Non- Fuel Products & Services: All the products and services which are sold or provided on
petro retail outlets other than fuel (petrol, diesel, A-LPG, CNG)
Retailing: Retailing is the set of activities that markets products or services to final consumers
for their own personal or household use whereas Retailer is someone who cuts off or sheds a
small piece from something
Optimal Utilization: These are the methodologies for improving the quality and desirability of
the current product or a product concept.
Strategy: These are the short term techniques which need to be exercised in order to achieve
the organization goals & objectives.
The Indian retail industry can be segmented in different segments viz. cosmetics, footwear,
sanitary products, entertainment etc. The downstream petroleum retailing is one of the largest
segments of the Indian retail industry and the petro-retail sector is one of the most organized
sectors of the retail industry.
India had deregulated the petroleum retail sector in 2002 by dismantling APM and enabling
new players to enter the market. The entry of private players like Reliance, Essar, Shell, NRL,
and many more have increased the competition by means of the quality of fuel and the non fuel
offerings at their retail outlets.
With a market determined pricing mechanism in place, prices will be lowered, which would
reduce the margins from fuel products. In such circumstances, the petroleum retailers will need
to have differentiated value propositions to improve revenues. It will require customer centric
approach and building of a strong brand equity and identity. Non-fuel products tender higher
margins as compared to petroleum products and enable companies to sustain themselves,
especially during times when oil prices are high. However, it is to be kept in mind that
petroleum retailing is a retailing of petroleum product and service, with differentiation possible
in either or both areas.
Now, it is not all about offering fuel only at the petrol stations. The new look petrol pumps,
apart from dispensing fuels; now offer the best of retail chains providing a value added service
to busy consumers. This trend is in circulation in the international markets and the big petrol
station convenience stores earn more than 30 to 40 per cent of their profits from the non-fuel
activities. The range of value added services is all beneath one roof. The new-look petrol
pumps are now the more advanced multi-purpose dispenser petrol-pumps. The petrol pumps
The study gives a comprehensive overview of petroleum industry in India, the way it has
evolved through shackles of time and its current status with respect to companies, regulations
and customers. The study tracks the origin and the journey of industry till date. It has also
focused on the kind of services expected by consumers, which are being provided on retail
outlets and which can be provided on outlets. These services will cumulatively increase the
revenue realization as well as optimal utilization of land available on an outlet.
The first objective of this study is to study the Indian petroleum industry in details. The
objective would encompass the genesis of Indian petroleum industry, the consumption mix,
the major players and regulators in this industry and its contribution to the economy.
The second objective had been framed to focus on the changes which have taken place in
the industry post liberalization. This objective has taken in consideration the reasons for
liberalization, pre-liberalization scenario and the changes which took place in refining and
marketing sectors post liberalization.
The third objective has led to reasons for increasing importance of non fuel retailing in
context of Indian Petroleum Industry. This objective has streamlined the process to explore
the reasons for increasing importance of allied retail business. It also focused on ways to
enhance the market share and level of customer satisfaction.
The fourth objective of the study focuses on the importance of retail, its presence in India,
non fuel initiatives of global oil majors and analyses the non fuel offerings of Indian oil
marketing companies. It has also encompassed the various services provided by the
petroleum companies and the brands under which they are served.
• To showcase the advantages of non fuel services for optimal utilization of real
estate
The last objective of the study highlights the importance of non fuel services for optimal
utilization of real estate. Here we have taken a case study to showcase the revenue
enhancement that can be achieved by introduction of various non fuel offerings on the real
estate available on petro retail outlets.
Sources of Data:
Limitations
The oil sector came into existence in India in late 19th century. Oil was first found in Assam at
Digboi in the year 1889. Until 1960, oil exploration and production activities were confined to
the North-Eastern region of the country producing on an average 5,000
,000 barrels per day. The
sighting of the Cambay onshore basin, in 1958 and the Bombay offshore basin, in 1974
enhanced
nced the production level to 0.7
.7 million barrels per day. The first refinery came up at
Digboi in the year 1901. However, new refineries came into existence in the late 1950s-early
1950s
1960s by international majors such as Esso, Shell, and Caltex. The process of nationalization of
petroleum industry was started in 1970’s, after the Oil Shock, and was complete by 14th
October, 1981. The process of nationalization forced the international oil companies
comp to move
out of India. After
fter nationalization, distribution systems and pricing of products came under
government’s control.
1.4% 5.2%
7.8%
30.1% Natural
Gas
Oil
55.5%
Primarily, the Indian oil sector has been a regulated sector dominated by Government
undertakings. However, with the Government loosening its control, new private sector players
are now gaining presence. Unlike the international oil majors; the Indian oil sector has
companies operating in three distinct sub-segments: Oil & Gas Exploration and Production
(E&P), Crude Refining, marketing of petroleum & petroleum products (R&M) and, their
Distribution. The various players in each of these sub-sectors are listed in the figure below.
ONGC, OIL
ONGC is the leading player among the Indian exploration & production companies. Other
players in the upstream sector include
1. Oil India Ltd.
2. Gas Authority of India Ltd.
3. Indian Oil Corporation
4. Gujarat State Petroleum Corporation
5. Reliance Industries
Government Controlled Companies: OIL, ONGC, IOC, BPCL, HPCL, and GAIL. CPCL,
BRPL and IBP are now the subsidiaries of Indian Oil Corporation whereas,. KRL and NRL
have become subsidiaries of Bharat Petroleum Corporation Ltd..
Joint Sector Companies: MRPL was the joint venture of Aditya Birla Group and Hindustan
Petroleum. However, ONGC has bought the stake of the Aditya Birla Group making it a
completely public sector company.
Private Sector Companies: Reliance Petroleum Ltd. (RPL), Gujarat Gas, Essar Oil Ltd., etc.
It is evident that Government companies have subjugated all the sectors of the Indian
Petroleum industry. However, on a futuristic note, Government is relaxing its control over
pricing & distribution, giving an opportunity for the private players to enter the industry.
The Ministry of Petroleum and Natural Gas (MoP&NG) governs the Indian Petroleum
industry. This ministry governs the activities associated with exploration and production of oil
The three key organizations under the control of MoP&NG are the Directorate General of
Hydrocarbons, the Oil Co-ordination Committee (OCC) and the Oil Industry Development
Board (OIDB).
OCC has been dissolved with the dismantling of APM,(administered price mechanism) from 1
April, 2002. It has been succeeded by the Petroleum Planning and Analysis Cell (PPAC).
• to analyze the trends in the international oil markets and domestic prices
• evaluate and forecaste import and export trends of petroleum
• to maintain an information database and communication system to deal with emergencies
and unforeseen circumstances.
PPAC also administers the subsidies in LPG sale as well as the freight subsidy for far-flung areas
and operationalise sector-specific surcharge schemes.
• Indian Oil Corporation Limited (IOC) and its two subsidiaries, Chennai Petroleum
Corporation Limited (earlier Madras Refineries Limited.) and Bongaigaon Refinery
and Petrochemicals Limited (BRPL)
• ONGC
• Reliance Petroleum Limited (RPL)--merged with parent Reliance Industries Ltd. (RIL)
with effect from April 1, 2001.
There are 18 refineries having a combined annual installed capacity of 116.97 million metric
tonnes (as on 1st April, 2003). RPL is a private sector refinery, MRPL a joint venture of ONGC
(after buying stake from Aditya Birla group) and HPCL, and the rest public sector enterprises.
ONGC has commissioned a mini-refinery with a capacity of 0.078million tonnes at Tatipaka in
East Godavari district of Andhra Pradesh in September 2001.
Marketing of petroleum products is done mainly by the three public sector undertakings (PSUs),
namely IOC, HPCL and BPCL. While IOC, HPCL and BPCL have integrated operations in
refining and marketing, IBP (earlier an independent marketer) is a pure marketing company
taken over by IOC in February 2002.
Earlier, the marketing sector was under the strict control of GoI. However, now it has been
decontrolled. With effect from April 1, 2002, pricing of all products are linked to import parity
prices. While the administered pricing mechanism for domestic LPG, Kerosene, Petrol and
Diesel have been dismantled, prices of domestic LPG and kerosene are subsidised. PSUs account
Distribution and marketing of gas is done primarily by GAIL. The players in the natural gas
distribution industry are small and regional in nature, such as Indraprastha Gas Ltd. (in Delhi),
Gujarat Gas (in Gujarat), Mahanagar Gas Ltd. (in Mumbai), and the two State Government
undertakings in the North-Eastern States (Assam Gas Company Ltd. and Tripura Natural Gas
Company Ltd.).
The per capita primary energy consumption in India is very low 305 kg when compared to the
world average of 1,487 kg. With a total primary energy consumption of 314.7 million metric
tonnes of oil equivalent (MMTOE), India accounts for just 3.4% of the total world primary
energy consumption.
However, at this stage, the point to note is that while the consumption of primary energy in the
world grew at a low compounded annual growth rate (CAGR) of 1.1% during 1991-2001, it
experienced a higher growth of 4.3% in India. The world primary energy consumption showed a
higher growth rate of 3.1% per annum during the 1970s before declining to the current level.
The decline in the growth rate is due to technological advances and process improvements that
improve fuel efficiency. These efficiency gains are apparent in items as diverse as automobiles,
airplanes, household electrical goods, power plants and manufacturing equipment.
Oil, gas, hydroelectricity, nuclear power and coal are the five constituents of primary energy. Oil
and gas account for 62.2% of the total world primary energy consumption. This figure is higher
However, the share of oil & gas has increased from 34.8% in 1991 to the current level of 38.4%.
The reasons for the growing importance of oil and gas are to be found in their multiple, varied
and cost-effective applications. Further, other factors such as environmental problems (in the
case of coal and nuclear energy), difficulty in handling (coal), higher capital costs, and limitation
to specific geographic regions (hydroelectricity) have restricted growth in the use of other forms
of energy.
As per the Hydrocarbon Vision 2025, the share of oil & gas in the primary energy is expected to
increase to 45% by the year 2025. While, the share of oil would decrease to 25%, the share of
gas would increase to 20%. Growth in share of gas would largely be dictated by environmental
reasons coupled with efficiency factors.
As in the case of per capita primary energy consumption, the per capita consumption of oil & gas
in India is also a low 117 kg against the world average of 925 kg. Thus, the growth in primary
energy consumption, the increasing share of oil & gas in the primary energy consumption, and
the low per capita consumption of oil & gas are indicative of an enormous potential for growth in
the demand for oil & gas in India.
Oil and gas is a major contributor to economies worldwide. There is hardly a nation that does not
seek this indispensable natural resource. A country that already possesses oil wants more.
Nations struggle to explore for oil, and import it at almost any cost. It is also an important
contributor to the export realizations of many countries. In countries like Russia, nearly half the
hard currency earnings come from crude oil exports. The figure stand at about 80% for
Venezuela and 95% for Nigeria and Algeria.
A wide range of chemical fertilizers, pesticides, chemicals, medicines and toiletry items are
produced from petroleum. In spite of these varied and multiple applications, the common man
has a very obscure idea of where all these products come from.
The importance of the oil & gas sector is best explained in terms of the economic effects
whenever oil supply disruptions have taken place. Oil price shocks accompanying supply
disruptions have hurt a number of economies and have been a major cause of inflation and
recession, as was the case in the 1970s. The economic impact of oil supply disruptions in terms
of increased inflation and unemployment, and reduced economic growth can be so severe as to
result in a loss of gross domestic product (GDP), mostly because of lost investments. For
instance, during the 1973 oil shock, GDP declined for the US, Europe and Japan by 4.7%, 2.5%
and 7%, respectively. Similarly, in the 1979 oil shock, world GDP declined by 3%.
Similarly, low oil prices also impact economy negatively. When oil prices fell to historic lows in
1998—in real terms they were lower than the 1973 level—the revenues of the OPEC members
plunged to about US$100 bn., only one-fifth of their 1998 revenues in real terms. Oil price
movements have also had effects on the financial performance of oil companies. The six biggest
American oil firms posted grim fourth quarter results for 1998: their after-tax profits fell by 90%,
or US$4.8 bn., compared with the same quarter a year earlier.
The two ways in which oil shocks had weakened a nation’s economy were through direct (or
wealth transfer) costs and indirect (or adjustment) costs. The economy bears direct costs when
the rising prices of imported oil cause a transfer of income from the consuming to the producing
Supply disruptions raise oil costs, which reduces the profit-maximizing output of oil-using firms
and thereby lower the GDP. As GDP shrinks, the demand for labor and non-energy inputs
declines, further increases unemployment. There is a strong linkage between GDP and energy
consumption (of which oil and gas are major components), and with the exception of only two
periods—1974-1975 (after the 1973 crisis) and 1980-1982 (after the 1979-1980 crisis) energy
and the economy have followed a similar path of progress.
The petroleum, oil and lubricants (POL) segment has been an important contributor to the Indian
Exchequer (Central and State). The major components of the revenue contributed by the oil
companies are as follows:
• Crude Oil: Royalty of 20% of well-head value with a ceiling of Rs. 850/tonne; Cess of
Rs. 1800/tonne under the Oil Industries Development (OID) Act; Sales tax of 4%;
Custom duty of 10% on imported crude;
• Natural Gas: Royalty of 10% and sales tax varying from State to State;
• Petroleum Products: Custom Duty and Excise Duty. Sales tax on domestic sales.
• Dividends: The contributions under this head are significant since the Government is a
major shareholder in most oil companies
Recently, the Government has divested its stake in many public sector oil companies—with the
objective of mobilising resources to meet the fiscal deficit. This would lead to lower dividend
inflow to the exchequer in future. Some of the initiatives on the disinvestment front included the
cross-holding arrangement among ONGC, IOC and GAIL—where each of these companies had
*as on March 15, 2002. Source: Oil Companies, Ministry of Petroleum and Natural Gas
The public sector undertakings (PSUs) in the oil industry earn good profits and account for over
38% of the total profit after tax earned by PSUs as a whole. Moreover, the dividends declared by
the oil PSUs comprise close to 45% of the total dividends declared by PSUs as a whole.
Figures are only for profit making PSUs Source: Public Enterprises Survey, 2000-
2001
Moreover, the excise and custom duty collections from the oil PSUs (as shown in the
following Table), show that the petroleum sector's share of the total contribution on this
account has averaged at a significant 20%. Thus, with one-fifth share of the national customs
and excise revenue collections, the petroleum sector plays a key role in the nation's economy.
CHAPTER 2
Government of India liberalized the economy in 1991, to liberate the ailing economy from
shackles of balance of payment crisis. Government asked World Bank & International
Monetary Fund (IMF) to bail out its ailing economy. A structural adjustment process (SAP)
was initiated across all sectors to accelerate and extend the liberalization process which earlier
had been instigated (at least in hydrocarbon sector). The main features of SAP for sectors
other than Hydrocarbons were:-
i) Privatization, and,
ii) Opening up of economy to foreign companies.
However, even before SAP, the petroleum sector was open to foreign companies. The
affirmed policy of the government of the independent India was to develop hydrocarbon
industry under public sector. However, in actual practice, the industry from its inception was
very much dependent on foreign technology, capital and even on expert personnel. The
foreign involvement has increased through the times across all the stages of industry such as
exploration, production, transportation and refining.
Indian petroleum industry in the post independent period (1947-till date) can be divided into
three distinct phases:-
Traditionally, the Indian petroleum industry was controlled by American companies. They
dominated the industry till later second half of 1950s. However, after independence, the
nation wanted to play an important role in this vital industry. The industry policy resolution of
1948 and 1956 reserved future development of petroleum industry for public sector
undertakings. But foreign assistance was a necessity at least in the early stage. As
collaboration with American oil majors were ruled out, other alternatives were explored.
The government considered four options as under for the development of its petroleum
industry:-
Though, collaboration with a small but neutral power like Austria was thought of as the best
option, but the government decided for the first option. Thus, the Soviets took charge of the
nascent Indian hydrocarbon industry. However, as their influence diminished over the years,
U.S. companies and multilateral funding agencies like World Bank played significant roles in
this sector.
In the early seventies, the government of India nationalized the refinery and marketing
facilities of three foreign oil companies. Burmah -Shell, a British company desperately tried to
stay in India even as minority partner to a joint venture with a national oil company . At that
There were many important developments which took place during seventies and eighties,
which need to be mentioned here to understand the liberalization process of this industry.
ii) In 1974, the government offered 7 million acres of Bay of Bengal to Natamas Carlsburg
Co. of USA and Kutch basin (Gujarat) to Readings and Bates, USA for offshore
exploration and production. It was mutually agreed that initially the foreign company
would have 61% share in the joint venture and the price of the crude if produced would be
based on Indonesian and Persian Gulf crude. The expenses would be recovered by means
of Cost Oil which would be 40% of the total crude. ONGC would take 65% of the
remaining crude and rest 35% would be taken by US Company. However, the ventures
were unsuccessful.
Till 1990, the government had invited four proposals for bidding. One noticeable feature
of the fourth round was that, Indian private companies (along with foreign partners) were
allowed to participate for the first time. As no major field were discovered by foreign
companies, the government over exploited the existing fields. At a time when the global
crude price was coming down, India’s crude production was increasing sharply from
iii) In 1980’s, the government allowed Indian private companies to enter into refining sector
as a joint venture partner with a public sector refining company. Reliance Industries Ltd
(RIL) was allowed to self build the largest refinery in the country. For refining
technology, the public sector refineries, during 1980s, were completely dependant on one
American company M/s Universal Oil Products (UOP).The technology could not be
absorbed because UOP did not transfer their technology to the refineries rather they leased
it to the refineries. The same technology was being leased to many refineries thereby
making no value addition to the industry.
iv)The marketing policy followed by the public sector companies made the economy and the
society completely dependent on petroleum products. It had successfully replaced/barred
entry of other alternative energy sources including natural gas.
Against these developments, we shall now discuss the effect of post 1991 economic
liberalization on this vital industry. We will focus only on refining and marketing.
1] Refining:
In the eighties, the government decided to invite private companies in the refining sector. The
private company Reliance Petroleum Ltd (RPL) became the second largest player in oil
refining sector with a 27 MMTPA state of the art refinery at Jamnagar(now 33 Mtpa), Gujarat.
Apart from approving new refineries in the private and joint venture (involving Indian and
foreign companies) there has been no major policy change for the establishment of new
refineries. However, the refining sector was de-licensed from June 1998. Moreover, private
and joint sector refineries have been permitted to import crude oil freely without import
license for actual use in their own refineries.
It may be seen that there would still be a wide gap of about 30 MMT between the refining
capacity and demand by 2010.
2] Marketing:
In the nineties, major policies as under in the marketing of petroleum products with far
reaching implications were announced by the government.
i) To attract private investment and simultaneously the international oil majors in exploration,
the government had announced that any company investing nearly US$400 million (Rs20
billion) in exploration and production or other specified avenue, would be eligible for
marketing rights for petroleum products in India.
The APM had its roots in the early seventies when Shipping Corporation of India (SCI) took
loan from the World Bank to purchase oil carriers. The World Bank had then recommended a
'cost plus' pricing formula to SCI for freight calculation. The same principle in the name of
'retention concept' was introduced in 1976 for pricing of crude and petroleum products. The
price of indigenous crude was based on operating cost plus 15% post tax return on capital
employed. And oil refineries and marketing companies calculated the price of their products
on the basis of operating cost plus 12% post tax on net worth.
This pricing policy backed with elaborate distribution system has made the entire economy
almost completely dependent on petroleum products. The 'retention concept' on the other hand
The economy had become dependent on petroleum and private parties were not happy with
12-15% assured return. They wanted more. Hence APM was dismantled in a phased manner.
In this changed situation, the refining and marketing PSUs with old refineries and decades of
'retention' culture are finding it difficult to face competition in the post APM phase.
Added to this, private sector refineries will not be bound to purchase crude oil from national
oil companies. They will search for better quality crude at cheaper rates from alternative
sources. However, if the government compels the public sector oil refineries to purchase crude
at a higher rate from ONGC/OIL, those refineries will be uncompetitive vis-a-vis private
sector refineries. Existing public sector refineries will also face many more hurdles in the de-
regulated economy. The disadvantages of the economy of scale and finding matching crude at
competitive price for old refineries will be the major challenges before the refinery sector.
a) Economy of Scale:
Except Koyali refinery in Gujarat, all other fourteen public sector refineries are small
in size (less than 8MMTPA capacity).Their capacities range between 0.65 MMTPA at
Digboi (Assam) and 12.50MMTPA at Koyali(Gujarat).And most of these refineries
were built before 1980s.Compared to this, the Reliance refinery built in 1999 with
state of the art technology has a capacity of 33MMTPA. It is estimated that a new
complex of 6.0 MMTPA refinery with Hydrocracker and delayed Coker as the major
secondary processing units and in-house power/hydrogen production will have a net
margin of about US$5.8/bbl. If the capacity is increased to 9.0MMTPA, the net margin
will improve to around US$6.3/bbl. However, this estimate varies depending on the
price of crude and petroleum products. In September 2001, the refining margin of
IOCL refineries was only 30 cents per barrel as compared to RPL's margin of US$1
per barrel. In 2000-01, IOCL had to forgo over US$400 million on account of lower
refining margins compared to the earlier years. The effect of de-regulation was visible
brazenly.
It would be difficult for the existing refineries to compete with new or upcoming refineries in
a liberalised scenario, until they modernise and up grade to bring improvements in product
specifications. This is evident from the drop in the sales volumes of lubricants of public sector
oil companies in the last couple of years.Some of the petroleum products like Lube Oil Base
Stock (LOBS), Naphtha, LPG, Kerosene etc., have administered prices if sold by the public
sector oil companies. These are also used as feedstock in the manufacture of other free trade
products. For example, LOBS is used in the manufacture of lubricants; Naphtha is used in the
manufacture of Benzene and Toulene and LPG is used in the manufacture of polypropylene
feedstock (PPFS).
India had deregulated the petroleum retail sector in 2002 by dismantling APM and enabling
new players to enter the market. The entry of private players like Reliance, Essar, Shell, NRL,
and many more have increased the number of retail outlets as well as the competition. On one
hand it would foster competition but on the other hand it will also reduce the average
throughput per station and total fuel volumes per player.
With a market determined pricing mechanism in place, prices will have to be lowered, which
would further reduce the margins from fuel products. With insufficient growth in the number
of vehicles, the fuel volumes are expected to remain stagnant, offering little scope for further
improvement of the overall revenues and margins.
In such a scenario, the petroleum retailers will need to develop differentiated value
propositions to improve revenues. It will require customer centric approach and building of a
strong brand equity and identity. To impel revenues and margins, the retailers will have to
attract new customers or increase share of their existing customer’s wallet. The second option
of increasing share of customer’s wallet can be achieved by means of non-fuel products and
services.
Non-fuel products tender higher margins as compared to petroleum products and enable
companies to sustain themselves, especially during times when oil prices are high. However,
it is to be kept in mind that petroleum retailing is a retailing of petroleum product and service,
with differentiation possible in either or both areas.
The retail sector is destined to witness intense competition in future due to entry of the private
players. In the competitive scenario, whosoever will have adequate infrastructure for
transportation, storage and distribution will emerge as winner. With this game plan, the
existing as well as private oil companies are strengthening their retail network continuously.
3.1.2 Mounting Expectations of Consumer
One major challenge that the oil marketing companies are facing today is the need for the
alternate revenue sources. Many factors have prompted this new affair in today’s petro-
retailing environment.
Ever since the market was deregulated, the oil companies have been actively bringing in the
branding concept in petro-retailing which was a commodity market for years with no
differentiation. However, consistent efforts make them taste success with the advent of
branded fuels such as Speed, Xtrapremium etc.
Also, at the same time outlet branding was initiated and PFS (Pure For Sure), Club HP and
Q&Q outlets came into existence. But still the oil companies have not found the way to make
a customer point towards an outlet and say that “as this outlet belongs to a particular
company, it will be the best in Q&Q and others concerns”. In other words, corporate branding
is on the cards in the future of petro-retailing.
The dismantling of APM has removed the privilege of assured returns for the PSUs thereby
increasing the pressure on their margins. To compete with the private players, who are with
deep pockets, it is an imperative to make huge investment in the services being offered at the
outlets. Since the base product is same, the differentiating element would be the non-fuel
services.
Also, the changing face of the Indian consumer is one of the main reasons for offering the
non-fuel services at petro-retail outlets. Today, he is looking at a one stop solution to all his
needs – buying groceries, withdrawing cash from his bank, making utility payments, renewing
his insurance cover, grabbing a quick bite, obtaining Pollution Under Control Certification
and of course filling fuel in his car. On the other hand the driver on the highways is seeking a
clean and hygienic place to relax and freshen-up, service his vehicle and have a good meal at
the restaurant in the pump.
Price until recently was not a differentiating factor in Indian market. Prices were controlled
and fixed by the Government making it same for all the companies. However, with private
The growing competition will increase pressure on margins. Therefore, the retailers will have
to seek for alternate sources of revenue. By taking examples of foreign experiences, to taste
success in this ruthless competition, retailers need to develop a sustainable non-fuel model
which should find synergies with core fuel business. However, strategic foresight is one thing,
but what matters most is the superior execution of the strategies. This is the factor which
shapes core competency for a company that is hard to replicate by the competitors.
Currently there are some stark differences in the Indian market when compared with the more
developed markets (here we have considered U.S. market)
Let us find the contrast of Indian petro retail sector to the U.S. petro retail.
• Parameters such as integrity of fuel quantity and purity would become hygiene factors
• Consumer needs will change and require changes to the value proposition being
offered
Given the opportunities and changing consumer needs, there are three key imperatives for
retailers. Let’s first have a look at the two important or key issues.
Key Issues
Providing refreshments and a free vehicle cleaning would attract customers. A local paper
can be used to promote the event (such as free check up camps, etc). Both retailer and
customer stand to gain, especially if a prize is there from supplier. Invite the paper people
to participate in publicity. Liaison with the paper to measure response, and ensure they are
in attendance with photographer for follow-up publicity.
Inviting outlet does not mean a total makeover - just rearranging furniture and creating an
interesting shop window will make a difference. Few new posters or branded displays will
also help.
3. Community Spirit
Local charities or community organizations such as the local Chamber of Commerce, Lions
Club, and Round Table, Women's Institute, school fetes or fairs - all will bring potential
new customers. A shop or counter can be set. Setting up shop does not have to be
expensive - it may be just a table with brochures and latest offers. A sponsorship to any of
these events can do wonders.
One should not forget local media - it can provide many PR opportunities. Local press
generally support businesses in the area, and its surprising what can develop from a small
advertisement. The trick is to not only consider the implications for the business, but also
remember to find and highlight the benefits for the third party.
5. Partnerships
All options should be kept open for potential partners, as they are also seeking to attract
new customers. This may be a local retail outlet, restaurant or supermarket. All of these are
excellent shop windows for joint promotion of events. Offer to provide a placement/staff
member in their environment on a trial basis to see if this attracts new customers and
simultaneously demonstrate that new customers can be attracted into their store in return.
Develop in-depth consumer insight (Know the Consumer) and Building offerings
around the target consumer
To answer such questions, a management team must understand which customer segments
are most attractive in terms of size, profitability, and growth. They must also make an
honest assessment of their company’s capabilities to meet each segment’s needs relative to
the competition. Some segments “fit” a company better than others -- that is, the company
has greater ability to serve these segments in a way that is differentiated from competitors.
Some segments are more profitable, either because they generate higher revenues, because
they can be served at lower cost, or both. And some segments are growing faster.
Segments with high growth, high profitability, and sufficiently large revenue potential are
a company’s natural focus. But the company may also be able to adjust its value
proposition to serve high-growth customers that are not currently very profitable.
Effective segmentation can also reveal underexploited opportunities within the customer
base. By “de-averaging” customers and prospects, often a hidden pool of profit can be
found which could be more fully exploited. A great starting point for this sort of analysis
Retailers will need to create offerings depending on the needs of the target segment, which
differentiate them from competitor
competitor.
Following are shown 8 parameters based on which differentiation can take place.
• Speed of service
Quantity
• Attendant disposition
Location
• Station Ambience
“Retailing is the set of activities that markets products or services to final consumers for their
own personal or household use whereas Retailer is someone who cuts off or sheds a small
piece from something “
Retailers organize their availability on a relatively large scale and supply them to customers
on a relatively small scale. Retailer can be a Person or Agent or Agency or Company or
Organization, who is instrumental in supplying the Goods, Merchandise or Services to the
End User or end Consumer.
Retailing has been the most vigorous and eye-catching sector of last decade. Retailing
industry has been present since ages in our country; it is only recently that it has witnessed so
much vitality. The impetus to retailing in India has been due to the increased purchasing
power of buyers (especially post-liberalization), increase in product variety and availability,
and increase in economies of scale, with the aid of modern supply and distributions systems.
The retail sales are at their peak and new technologies are enhancing retail productivity.
Though there are many opportunities in retail business, still, retailers are facing numerous
challenges.
Location is the most important and prime ingredient for any business that relies on customers.
It is typically the most important deliberation in a customers store choice. Location decisions
are inflexible because retailers have to either make sustainable investments to buy and
2) Merchandise:
The primary goal of the retailers should be to sell the right kind of merchandise. Nothing is
more central to the strategic thrust of the retailing firm. It consists of activities of acquiring
particular goods and services and making them available at a place, time and quantity so as to
achieve the targets set by the retailer. Merchandising is perhaps, the most important function
for any retail organization because it decides what finally goes on shelf of the store.
3) Pricing:
Pricing is a crucial strategic variable due to its direct relationship with a firm's goal and its
interaction with other retailing elements. The importance of pricing is increasing, because
today customers want good value for money while buying merchandise and services. Also,
price is the easiest and quickest variable for change.
4) Target Audience:
"Consumer Pull", however, seems to be the most vital driving force behind the sustenance of
the industry. The purchasing power of the customers has increased significantly. It is
influencing the retail industry to a great extent.
Scale of operations includes all the supply chain activities, which are carried out in the
business. It is one of the challenges that the Indian retailers are facing. The cost of operations
is very high in India as compared to global costs.
* The top 3 modern retailers control over 750,000 sq. ft. of retail space
* Growth in organized retailing on par with expectations and projections of the last 5 Years:
on course to touch Rs. 35,000 crores (US$ 7 Billion) or more by 2005-06
India is the country with most unorganized retail sector (More than 99% retailers function in
less than 500Sq.Ft of area). Traditionally, the retail business was run by having a Shop in the
front of the house. All the merchandise was purchased as per the fancies of the proprietor. The
pricing was done on ad hoc basis or by seeing the face of customer. Generally, the accounts of
trading & home were not maintained separately. The Manufactures used to distribute goods
through agents to Distributors & Wholesalers. Retailers used to source the merchandise from
Wholesalers & sell it to consumers. The merchandise price used to get inflated to a great
extent as it reached from Manufacturer to End-user. Selling prices were largely not controlled
by Manufacturers. Brand was not an issue for majority of customers. More than 99%
customers were price sensitive & not quality or Brand Sensitive. Weekly Bazaar in many
small towns was held & almost all the commodities were on the shelf including livestock.
Impulsive buying or consumption was restricted to food, vegetables etc. Purchasing power of
Indian urban consumer was very low and that of Branded merchandise in categories like
Apparels, Cosmetics, Shoes, Watches, Beverages, Food, Jewellery, were slowly seeping into
the lifeline of Indian City folks. In the coming times, organized retailers will find it difficult to
strike balance with the unbranded retail market which is very huge.
2) Second Gear: (Meet customer expectations) {Here lies Indian Retail Sector}
* Consumer-driven
* Category management
* Vendor partnership
Arvind Dwivedi: University Of Petroleum & Energy Studies, Dehradun
* Stock turns
* Channel synchronization
* Consumer acquisition
* Aggressive rollout
Retailers need to invest much more in capturing more specific market. Intelligence as well as
real-time customer purchase behavior information is very important. The retailers also need to
make substantial investment in understanding/acquiring some advanced expertise in
developing more accurate and scientific demand forecasting models. They should also look
forward to re-engineering of product sourcing philosophies-aligned more towards
collaborative planning and replenishment. The existing small and medium independent
retailers should closely examine the changes that are taking place in their immediate vicinity.
They should also make some investments in improving the interiors of their respective
establishments so as to make shopping an enjoyable experience for the customer.
With retail marketplace changing shape and increase in competition, the potential for
improving retail productivity and reduction in cost would no longer create differentiation.
They will be replaced by value and relationships. It is important to note that these strategies
are not strictly independent of each other. Value is not just a function of price, quality and
service but also can be enhanced by Personalization and memorable experience. For winning
in the intense competition, it is critical to understand the target customer's definition of value
and make an offer, which not only delights the customers but is also difficult for competitors
to replicate.
Till a few years ago, petroleum retailing in India was a staid and dreary business. Cars, buses
and two wheelers drove in, got the vehicles fuelled, paid cash, and drove out. The
environment started changing when Shell did a makeover of some petrol pumps as part of the
economic reform process. Improved signage, use of credit cards, and carwashes soon became
an integral part of the petroleum retail outlets.
Earlier petrol stations were merely used for selling fuel; now they are quickly getting
converted into multi-facility joints. The idea, common enough in countries like Singapore and
Malaysia —is to buy fuel, and shop alongside. However, these pumps are either owned by
state-owned petroleum product companies like Indian oil, Bharat Petroleum and Hindustan
Petroleum or are run as franchises by private entrepreneurs with limited capital.
Indian Petroleum Industry has been witnessing a steady growth but the margin pressure has
increased. There has been a steady growth of 2.8% in the last five years (2002-07). The
desired impetus would be provided by enhanced economic activity.
To overcome margin pressure, Indian PSU Oil companies have started their Non Fuel Effort,
similar to their global counterparts. Even losses of over Rs 300 crore (Rs 3 billion) per day
from selling automobile fuels have not stopped government-owned oil marketing companies
from expanding their retail network across the country. The three government-owned
companies -- Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and
Hindustan Petroleum Corporation (HPCL) -- are together planning to expand their non fuel
business on existing outlets and provide the same on existing outlets to boost profitability.
The marketing businesses of oil retailers are suffering losses as they are forced to sell petrol,
diesel, LPG and kerosene at subsidized prices. Demand for these products is growing at a
healthy rate of about 8 per cent per year. It is perhaps a blessing in disguise.
In last few years, opportunities in petro retailing have risen in two key areas:
• Sale of Value Added Fuels – Branded Fuels
• Value added products and services – Non Fuel products and services
The Indian Petro retailing industry is now poised to make huge tread both in terms of new
forecourt retailing opportunities and better offerings for the customer at the retail outlet. With
the onset of the deregulated scenario, the character of competitiveness among the petroleum
companies augur well for the consumer with each of the companies espousing innovative
ways to capture larger part of the consumer’s mind.
The emergence of organized retailing and a growing demand from consumers for a superior
shopping experience has made Convenience Retailing a key business area for petroleum
companies due to their wider presence at strategically located sites and the existing mammoth
customer base.
Convenience need gaps have been felt in various fields and research shows that the urban
consumer today seeks convenience in shopping for their basic requirements so that their
precious time is reserved for more productive activities. Petrol retail outlets provide an
excellent framework for setting up convenience retail chains. Here, the consumer enjoys dual
occasion of, opportunity of combining shopping with the fuelling.
Hence, along with the strategic locations, the number of footfall in the petrol retail outlets
gives petroleum retail companies the competitive advantage. Worldwide, petrol station
convenience stores have developed into a serious business in itself with companies like BP,
Shell, Exxon running their convenience store chains profitably. All of them have deployed
best retail practices in their stores and offer a wide range of services including laundry, postal
services, courier services, fast food etc.
To deliver the many conveniences and services, various oil marketing companies have
associated with leading brands and companies like ICICI Bank, Coca Cola India, Fed Ex,
Café Coffee Day, Western Union Money Transfer, US Pizza, Barista, Domino’s Pizza,
Skypak, etc.
The facilities on a particular outlet would depend upon the purchasing power of the people.
The facilities like Café Coffee Day, Barista, Domino’s Pizza, US pizza, Crossword, Skypak,
etc and other expensive outlets may not work everywhere. Apart from them there are many
other facilities which can be offered to draw more and more customers, thereby increasing
profitability and level of customer satisfaction.
Here, we will have a glimpse of some of the facilities which are expected by a customer and
can be offered to them on an outlet:
An ATM is the most expected facility at an outlet. Almost every customer now has a debit/
credit card and he/she expects an ATM at the outlet.
a) Customer will get an additional facility along will fuel and it will help to draw more
customers.
b) Increase in revenues due to the lease rent from the bank.
A room 120 square feet is required to install an ATM which is a nominal expense. The company may
get rent in the range of Rs 8000 to Rs12, 000 per month depending upon the location.
A mechanic who can quickly give a service to the concern vehicle and also he can do the air
check. In the quick care point, various lubricants and coolant can be displayed with the
A cleaning man can wipe the windscreen of four wheelers and front or body of the two-
wheelers while customer is getting his/her vehicle fuelled. This will augment the customer’s
perception of brand as well as organization. An extra attendant can serve for the role of
cleaner.
In the outlet some free health check up camps can be organized by the company doctor. This
will illustrate the responsibility of the organization towards the society. Some of the camps
which can be organized may include the Pulse-polio camp and AIDS awareness camps.
A citizen reward program can be conducted during the same camp, which would cater to
honoring of some local people who have made contributions to society. Auto/taxi drivers
segment can be recognized and honored for their outstanding service to society.
On similar approach best employee award can be given to outstanding employee. It will boost
the pump attendants to give perform best in their jobs. There performance can be monitored
on the following parameters:
1) Punctuality: - Time of arrival and departure.
2) Discipline in the job.
3) How well an individual is prompting for branded fuel and other allied services.
4) Behavior with the customers.
5) Neatness.
4.4.5 INDE-PAY
Flight tickets
Rail tickets
Utility Bill-Pay
Cinema tickets
Budget Hotels
Contests
High ROI
With the purchase of the terminal in addition to the value added services, PCO and
POS the retailer gets the following
Wireless POS working over IP – saves per transaction dial out cost
The end user will be able to accept payments in cash, credit card and cash card.
CURRENT FUTURE
SERVICES BRANDS
SERVICES SERVICES
*Source: www.indepay.com
Tata – 3.15%
Idea – 2.5%
Vodafone – 2.5%
MTNL – 4%
BSNL – 4%
Source: www.indepay.com
This machine costs Rs 15,995. It requires an internet connection which can be given by the
basic PNT phone at the outlet, at a monthly rental of Rs 250* with an allowable 1 GB data
transfer. This can be housed in the existing (3ftx5ft) Kiosk.
Vending machine of coffee and coca-cola will help in enhancing the revenues. It will also
augment the customer satisfaction level. Along with them, beverages items like mineral
water bottles, snacks etc. can be display in a stand near the dispenser for sale.
This is another facility which can be provided to the customers. It requires very less space
and has low initial investment as well as zero maintenance cost. The pay phone will help in
drawing the customers.
Toilets:-
Neat and clean toilets facilities should be available for the customers.
Drinking Water:-
Purified drinking water facilities should be available to the customers. Depending upon the
climate hot or cold water can be provided.
From the above suggested non-fuel product mix earning per square per month from the
above suggested non-fuel product mix:
In 1996, Indian Oil Corporation (IOC) became the first Indian debutant in the Fortune 500 list.
It is India’s single largest enterprise covering the entire petroleum value chain from
exploration, refining, marketing, pipelines, petrochemicals, gas to global operations. It has
announced plans to be a $60-billion entity by 2011-12. It has made a good beginning towards
achieving that target by growing at the required CAGR (a little over 11 per cent).
To power its growth strategy, the company is exploring new horizons. These include non-fuel
initiatives in petroleum retail. As of now, it is setting up pure retail operations, quite on the
lines of what the big retail players are doing across India. It also has, surprising yet
innovative, plans to start fuel services at shopping malls. For this initiative, it has already had
discussions with the Ansals and Kishore Biyani’s Future Group. The third plan of IOC’s retail
initiative is to strengthen the Convenience stores (they sell a wide range of packaged foods,
hot and cold drinks) that it had set up at select petrol pumps a few years ago. Some of these
initiatives should happen over the next couple of years.
Oil behemoth Indian Oil Corporation (IOC) is eyeing an annual turnover of Rs 2,000 crore
from non-fuel retail in five years. The company’s non-fuel retail turnover is currently a mere
Rs 4 crore, out of its total sales of Rs 2 lakh crore.
As a part of its strategy to push the non-fuel retail business, the company has tied up with
major retailers and set up convenience stores, super markets and other formats, depending on
the real estate it has at its outlets. It has been following a revenue sharing model. IOC has
around 21, 000 fuel outlets in the country.
IOCL is seriously looking at the non-fuel business in a big way. They have plans to unlock the
real estate stock on their outlets and develop them as profitable business ventures. Besides,
this will also give opportunities for the retailers to tap the market further.
IOCL has 108 Kisan Seva Kendras (KSKs), its low-cost petrol pumps that sell agriculture
inputs, equipment and daily essentials in rural areas. The company is planning to set up 2,500-
3,000 new such pumps by the end of 2010.
Indian Oil has already unveiled its XTRACARE retail outlets all over the country. The
XTRACARE retail branding exercise was kick-started with a countrywide retail
transformation project nicknamed 'Operation Everest' in mid-2003. Over 1,000 select retail
outlets were included as part of the campaign. Indian Oil XTRACARE outlets are
benchmarked to international standards of quality and quantity, housekeeping, maintenance
and customer service certified by the globally renowned agency - Bureau Veritas (BV).
While the industry standard is to take samples on a quarterly basis, Indian Oil has moved
several steps ahead by introducing fortnightly, random sampling with specific importance
given to RON (Research Octane Number) sampling which is truly the definitive test for
quality and quantity.
In another pioneering move, the third party certification, by BV, is also being done, for the
first time, on a range of parameters that include hygiene, service, and efficiency of fore court,
allied services and customer satisfaction. The scale and spread of the 1,000 retail outlets is
also an industry record.
The non-fuel services are being given a major fillip in the Indian Oil XTRACARE plan and
the wide range of loyalty program with Xtra Rewards, Xtra Power and co-branded cards like
Indian Oil Citibank Credit Cards. The automation project of XTRACARE is by far the most
state-of-the-art in the country.
Bharat Petroleum has its convenience non fuel retailing initiative in the form of “In &Out”
brand. This initiative was launched after having a greater understanding of consumers’ needs
and to show consistency to its core objective of continuously adding value by innovation. The
In & Out chain of convenience stores has been set up in the urban market at strategically
located retail outlets having high customer footfalls.
The “In & Out” stores were launched in 2001. It offers a convenience proposition where a
number of typical household necessities have been aggregated under one roof for the benefit
of the customers. Presently, there are more than 240 In & Out stores across India. Strategic
alliances have been formed with major brand owners and retailers in the country to further
strengthen the convenience proposition.
In & Out stores have a wide range of services which include ATMs of leading Banks, Music
stores from Planet M and Music World, Beverages from Pepsi, Coffee and snacks from Cafe
Coffee Day and Coffee Day Xpress, and a variety of impulse buys including confectionery,
snacks, convenience foods, toiletries and select range of branded groceries and other FMCG
products through exclusive tie-ups with such FMCG majors like ITC, Cadbury and Frito-Lay.
Customers can use their Petro-Card (Loyalty card) at In & Out stores and earn Petromiles
(loyalty points). In & Out stores are the largest organized convenience store retailing chain in
the country with a standardized (same with minor changes based on location) layout across
the country. It maintains a high level of aesthetics and ambience to offer consumers a
revolutionary solution for their daily needs.
The In &Out stores offer Western Union Money Transfer facilities in Mumbai. They also
offer prepaid mobile recharge cards and e-charging of mobiles. It also has music stores by the
name of Satellites and Unplugged from Planet M and Music World respectively at select
outlets for music cassettes and CDs.
All purchases in these stores are through computerized billing. The retail information network
and the sales data helps in getting information about the products customer's want.
Based on consistent customer feedback BPCL has made cell phone recharge cards available at
the In & Out stores. BPCL has also launched E-Charge service. It is a complete system and
service provider offering “electronic delivery system” for the prepaid product industry
through electronic terminals.
With introduction of the E-Charge service through the In & Out stores, the customer would
have the convenience of purchasing recharge cards of the desired cellular company and
denomination of his choice. The service optimizes customer convenience, ensures complete
security of the prepaid PINs and is highly scalable. The technology can also be leverage to
introduce other products like movie tickets, etc and services like Bill Payments etc. Currently,
this service is available at stores in Mumbai, Delhi and Hyderabad.
Club HP is an important part of HPCL's strategic non fuel retail marketing initiative. It assures
“high - quality personalized vehicle and consumer care”, as claimed by HPCL. The Club HP
concept provides an assurance of "Expert and Personalized Service", "Consumer
Conveniences" “Quick Fills", and "Total Vehicle Management”.
Club HP outlets hold the assurance of ‘Good Fuel Promise’ and deliver the right quality and
quantity of the products. Fuel is delivered to these outlets in tank trucks fitted with tamper
proof locks and a high degree of control is kept by to ensure that quality standards are strictly
enforced.
The bouquet of services at Club HP outlets have a distinct set of basic and value added
offerings which include digital air towers, efficient & expert Service, vehicle finance and
insurance related assistance, , quick care points, bill payment facilities, eateries, refreshments,
etc.
To deliver the many conveniences and services, HPCL has struck strategic alliances with
leading brands like Fed Ex, Coca Cola India, Western Union Money Transfer, ICICI Bank,
Café Coffee Day, Skypak, US Pizza, and many more. HPCL is also forging service specific
alliances with several automobile companies and OEMs like Tata Motors to jointly recognize
"Club HP" outlets, which will be authorized service centers for leading automobile brands.
The roll out of "Club HP" began by initially targeting 85 outlets in the cities of Mumbai,
Delhi, Bangalore and Kolkata. The “Club HP” brand is now available at around 1000 outlets
in all major cities and towns across India.
"Club HP" outlets have been cataloged as Standard, Mega and Max depending on the levels of
services and amenities available. Each outlet offers a bunch of standardized services
depending upon market requirements and logistical abilities. Let us review them.
• Vehicle Care - Each Club HP Mega and Max outlet is equipped with a service station.
In addition, the outlets also provide vehicle consumable and accessories, all under one
Arvind Dwivedi: University Of Petroleum & Energy Studies, Dehradun
roof. More and more outlets will be progressively upgrade to authorized service
stations as part of our association with various vehicle manufacturers.
• Digital Air Towers – The performance and safety of new generation cars depend a lot
on the correct air pressure maintained in the tyres. The specially designed digital air
pressure equipment not only ensures accurate air pressure in the shortest time but also
adds to the comfort and safety of travel.
• Quick Care Points - Consumers are offered a free check up of vital elements such as
engine oil, brake oil, battery water, coolant, fan belt, radiator hose etc. by the specially
trained "Club HP" attendants. In addition, a quick inspection of the tyres is done and
recommendations given in case any immediate action is required.
• ‘Good Fuel Promise’ Towers - Consumers are offered the facility to personally
conduct simple tests with the help of specially designed standard apparatus. A simple
procedure booklet is also provided to help anyone check the quality and quantity of
fuel. The consumers are also invited to fill in the printed certificate booklet which will
be available at all "Club HP" outlets in order to record their assessment. This feedback
is regularly screened by the HPCL team to plan remedial actions or service upgrades
in accordance.
• ATMs - HPCL has taken the lead in providing ATM facilities at its outlets in
association with leading banks and is targeting over 400 ATMs very soon. Select Club
HP outlets have already been equipped with ATMs.
• Vehicle Finance and Insurance Related Counsel - HPCL has tied up with leading
vehicle insurance and finance service providers for these activities which include
assistance towards issuance and renewal of policies as well as extension of loans for
purchase of new or second hand vehicles.
• Bills Payments - HPCL has tied up with Skypak Financial Services which is
providing drop boxes at all "Club HP" outlets. Consumers can utilize these drop boxes
to pay bills relating to a variety of service providers. All one has to do is drop the bill
and payment instrument (Cheque / Demand Draft) for the designated service provider
and Skypak will route the same to the correct destination at no extra cost.
• Basic Amenities - Each "Club HP" outlet will extend basic amenities such as "safe
drinking water" through water purifiers, hygienic rest room facilities, food counters,
basic medicines and first aid facility. HPCL has also tied up with Coca Cola India to
provide beverages and bottled water as well as snacks at all "Club HP" outlets.
• HPCL - ICICI co - branded Credit Cards and the Club HP Smart1 Cards -
Customers visiting the "Club HP" outlets will be able to use the HPCL - ICICI Credit
Cards to reap the higher reward points offered by this unique product. The "Club HP
Smart 1", a smart card based loyalty program launched for the cash paying customers,
will also be available at select Club HP outlets to reward loyal Club HP customers.
Strategic Alliances is the ideal way for introducing the Value added services at the petrol
pumps. FedEx and HPCL tie-up is one of the examples22. FedEx has opened “FedEx
Authorized Ship Centers” across Club HP locations. Presently, these centers have been
opened on 100 Club HP pumps in the cities of Delhi, Mumbai, Chennai, Bangalore, Kolkata,
and Hyderabad. With this tie-up both the Companies have leveraged their strength which has
resulted in value addition for the customer. Both the companies have derived advantages from
this strategic alliance. Let’s have a glance on their individual advantages.
o New revenue stream for HPCL and its dealers at no additional cost.
o World Class Value Added Service and convenience for their Customers.
• Advantage FedEx
Let’s have a look at some of the statistics which prompt the oil companies to go for non fuel
retailing of fast moving consumer goods and eateries
These statistics talk about India’s current status and indicate the hidden potential of retail
market.
• Organized retailing is less than 3% of total retail whereas; it is 20% in China, 36% in
Brazil and about 50% in Malaysia.
• Organized retailing has forecasts to become 24% by 2010 in India
• Estimated at 12 Million retail outlets of which, 95% would be smaller than500 sq. feet
(estimated number of outlets in Brazil approx 1.1 Million and around 905, 000 in US)
• Lowest retail space per capita in the world at 2 sq. ft per capita.
• Early mover advantage still available due to huge untapped resources and facilities
Potential for high market capitalization
• Shifts in consumer expectations and buying behavior
There are 3 formats which are being currently practiced and implemented by Indian petro marketing
companies. The formats have been designed specific to category of location and the expected level of
customer expectations.
The three prominent formats have been shown with the help of the diagram below along with the
facilities they offer.
These retail outlets have been designed specifically for national and state highways. These
outlets cater specifically to the expectations of truck or transporter’s segment. They also cater
to the needs of long driving passenger vehicles.
Some of the examples of highway stops are: BPCL’s Ghar, IOCL’s Swagat, HPCL’s Club
HP,
All these outlets have facilities of eateries, ATM’s, rest houses, factory outlets of apparels,
cosmetics, confectionary shops, etc.
These outlets have been developed to tap the heavy traffic which prevails on the highways.
These outlets provide a one stop shop for all the commuters travelling on the highways. They
are huge in size and have all the modern amenities at customer’s disposal.
These outlets reside primarily on entry of cities and in particularly rural areas. They cater to
the needs of passengers travelling in or out of city and the drivers of heavy vehicles segment
who want to take a halt out of city. They act as a short stop or small halt places. These outlets
are categorized by the presence of small factory outlets, lube stores, ATM’s, service centers,
etc.
These outlets are city outlets. They are smaller in size and cater to the needs of urban people.
These outlets generally have ATM’s, outlets of branded apparels, company’s store of
consumer goods. Depending upon the size and location of outlet, they can have eatery points
such as Domino’s pizza, Café Coffee Day or book stores such as Crossword. Some of the
stores also have music stores of Planet M and Music World.
This case has been taken from a presentation made by Trammel CrowMeghraj Property
Consultants Private Limited (one of the leading international property consultants in India) to
FICCI on the issue of opportunities for real estate in fuel retail.
1. Land area for fuel retail outlet: 1.00 acres ( urban or sub urban stop)
2. Fuel operations: 0.65 acres (includes space for dispensers, tanks, office buildings,
3. Retail operations: 0.35 acres (vacant space or unutilized space which can be used for
4. Assumed FSI for retail development: 1.0 (FSI stands for Floor Space Index- ratio of
total floor space to total plot size. Here FSI indicates that total plot area is being used
6. Land cost: NIL (included in cost of fuel outlet i.e. while setting up fuel operations)
7. Construction cost: INR 1,200 per sq. ft.(average cost of construction in year 2006)
Convenient
4000 35 1,680, 000
Shopping
Entertainment
4000 20 960, 000
Zone
Others
The above hypothetical case clearly shows the kind of revenues which this kind of product
mix can contribute to the revenue stream of an outlet.
Such product mix will not only increase the revenue but will also enhance the brand
credibility, customer satisfaction and brand loyalty.
The launch of non-fuel retailing in India with much ordeal by petroleum majors has not
impressed the Indian customers. The consumer off-take of groceries, fast-food, medicines, and
FMCG products at fuel stations has not met up the expectations of the oil marketing
companies.
Considering non-fuel retailing is a proven business model in many countries — in the US, for
instance, the petroleum sector sells the highest number of burgers — why are non-fuel sales
not even one per cent of total fuel sales? Have the Indian petro companies got it wrong or the
Indian consumer rejected the concept?
At first instance, it is about priority. The industry is still being designed. Mergers, entry of
private players, issues on branding and consolidation in the upstream and downstream sectors
have pushed non-fuel to the back-seat. The key to success lies in identifying and meeting
customer behavior patterns and changing demographics.
The Indian petro retail scenario is balanced steadily for a quantum leap. Global names are set
to speck the petro-retail landscape. At the same time, new and emerging retail formats will
drive the diversity of the fast-changing retail backdrop.
Organized Retail means 'Big Stores'- a common myth. Organized retailing is all about
"aggregating value" and what shape, size and configuration the interface to customer takes is
largely a function of offer and proposition. A growing population, a young workforce and
zooming consumer confidence will fuel the expansion of this sector. As organized retail in
rural India awaits the arrival of Reliance Retail, current majors like ITC, Godrej and DSCL
are expanding their retail operations by setting up more stores, entering new states and
offering newer product categories, giving a magnificent opportunity to oil majors for
increasing their revenues by means of strategic tie-ups.
As the petro-retail arena grows in size and competition increases, the possibility for improving
retail productivity and cutting costs is likely to decrease. Thus, it would become important for
retailers to create a unique position in the marketplace based on value, relationships or
experience.
At the same time, it is critical to understand the target customer's definition of value and make
an offer, which not only delights the customers but also is also difficult for competitors to
imitate.
http://en.wikipedia.org/wiki/List_of_petroleum_companies
http://www.economywatch.com/companies/petroleum-companies.html
http://www.indiaenergyportal.org/
Dipankar Dey, Asia-Europe Dialogue, December 7, 2001, Globalization and the Indian
Petroleum
Retail in India
http://blogs.siliconindia.com/pollen/Retail_in_India-bid-i54Izoe249570105.html
19. Indian Oil eyes US$ 496.27 million from non-fuel retail
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