Australian Convenience Store News - C-Store Seminar -Pricing Anomalies in the Wholesale Petrol Market

As Garth Symington, General Manager of APADA, noted in his introduction, "this is an emotional subject." Three experienced and knowledgeable speakers presented very diverse views as they tried to explain how the market works and what causes the perverse movements in the price of petrol. If they don't know, no-one does. Their presentations were followed by a lively discussion with plenty of audience participation at the end.

Jim Lamb is both President of the Petroleum Marketers Association of Australia and Managing Director of Horizon Petroleum, an independent retail chain in Melbourne. His main message was that the industry players do not seem to understand the structure of the market and therefore choose the wrong strategies.

Jim went back to fundamentals and posed basic questions for marketers:

1. Is the product I sell unique?
2. Is the market in which I operate discretionary?
3. Is the market in which I operate growing?
4. Is the product I sell different to that of my competitors?

In the wholesale petrol market the answers are clear NOs. Therefore, the fight for market share is futile and destabilizing. Using an entertaining analogy with gold fish in a pond, Jim asked that the space be shared.

"If I put 100 Goldfish in a bowl and then connect another bowl of equal size, so the fish can travel freely between the two bowls, they share the space. Our fish bowl is the petroleum industry. What the fish have worked out and what we have not, is that other fish have a right to exist. No fish tries to take up more room. They just cruise around, sharing the space." Jim Lamb

Chris made an important distinction between anomaly and volatility.

"Anomaly is a variation from the common rule
Volatility is a variation driven by competition" Chris Mapstone

In doing so, it was clear how difficult it is to understand the market on any given day. However, terminal gate pricing should show when anomalies occur.

Tony Cudmore is Government Relations Adviser with Mobil Oil Australia. Formerly with the Australian Institute of Petroleum and adviser to Jeff Kennett, Tony is familiar with controversy.

Tony's explanation of Mobil's pricing mostly agreed with Chris's list of factors. However, he acknowledged that Mobil franchisees receive price support when requested to maintain their competitiveness in the market. He also acknowledged in question time that this discounting contributes to the magnitude of the volatility. His main message was that price movements are the result of competition between all suppliers.

"People react rationally to an irrational environment." Tony Cudmore

Jim later posed the challenge to franchisees to "take the hit" like independent retailers during periods of discounting.

"If we are better retailers we should we should survive and we have a right to exist." Jim Lamb

This drew loud applause. Tony was not necessarily in complete disagreement.

"No-one has a right to be in the market if they can't compete." Tony Cudmore

However, Tony defended the oil company's right to respond to competition through selective price support. Tony also emphasised the problems created for oil companies by government regulations, in particular the inconsistency of applying the Sites Act to the majors and not to Woolworths/Liberty.

The argument - price support is predatory v. price support is competitive - is still not settled. According to Jim Lamb, this is due to the failure of trade practices legislation.

"The ACCC (Australian Competition and Consumer Commission) cannot act unless a number of independents are forced out of business and this can be directly attributed to selective price discounting." Jim Lamb

But the ACCC also has to take into account the market outcomes for consumers who are annoyed by volatility but benefit from the fight.

"Retail competition in Australian metropolitan markets is amongst the most intense in the world, and petrol prices (pre and post tax) are among the lowest in the world." Tony Cudmore

Maybe they would also benefit from a bit of customer focus.

"When you go back to your service stations, or to your corporate office, start focussing on the customers you have, not on the ones you could get. Allow your competitors to have their share. Look to improve your performance and service to your customers. You will know who your customers are because they are at your place." Jim Lamb

Headline: Winning Edge in Carwash

Introduced by Tony Stephens, founder of the Australian Car Wash Association, two expert speakers presented the seminar: "Winning Edge in Carwash", highlighting opportunities, challenges and strategies, and presenting the critical factors for site analysis.

Mr Dowling said that, even allowing for factors such as dated perceptions of theft and damage, only one in ten Australian car owners is currently considering a car wash. This represents an enormous growth opportunity for the Australian industry, which Mr Dowling said could cope with a number of new participants.

Mr Dowling gave delegates some insight into the factors that are important for locating and promoting a car wash facility.

"There is more to running a car wash business than a machine."

To determine if a site is suitable you need to assess both the local rea and the actual location. With a Detailed Area Analysis that takes into account traffic conditions, the community, the demographic, the vehicle fleet composition, and the extent of competition, you can find out if you are in the right area. With a Detailed Site Analysis that takes into account size, access, and visibility you can find out if your site is suitable. Fortunately, most manufacturers can help with templates.

If there is an opportunity for a car wash, there are a number of types to choose from - automatic, semi-automatic, self serve/DIY, hand wash, and mobile. In this, you need to know your customer.

Once selected, branding must be clear, bold and clean, and all signage should reflect the brand. Keep the site clean and easy to use to foster customer relations. Customers want safety, a consistent standard, courteous service and knowledgeable staff. Make the best of the grand opening, and maintain customer loyalty through ongoing promotions and offers.

"Customers of all types recognise quality and service and are prepared to pay for it."

Tony Stephens supported Martin Dowling's call for a cohesive industry approach through an industry accreditation program, and the time, money and energy needed to achieve it.

Whereas Mr Dowling focussed on the Australian scene, Phil Braziel, International Sales Manager for Ryko, presented a large number of innovative ideas from overseas. After presenting his own staggering statistics - the top wash in Europe costs A$30 - Mr Braziel took delegates on a tour of the world's best car wash marketing programs, signage and promotions.

In the United States, for example, adding coloured foam can increase sales by 30% by moving customers from lower programs to the top wash. Adding fragrance and colour has the same impact, by changing the perceived value in the wash options on offer. Growth can be generated from a simple reminder at the console. When the operator asks the question, "Would you like a car wash today?" sales increase immediately 5-10%.

Signage that is fun and attractive, and delivers an appealing message such as addressing appearance and protection is effective.

Simple ideas work well, such as the postcard-sized picture of a sponge with an introductory offer on the reverse.

As a general rule, however, don't discount the car wash, but offer other tie-in products such as air fresheners and car care products.

Strong colours on the forecourt and in the store can deliver a clear crisp message.

For opening day, find a catchy theme to emphasise.

"Overall, I'd like to see more interaction with the customer." Phil Braziel