Australian Convenience Store News: Forecourt - Meet Gerry Hueston, President, BP Australasia

he supermarket offer is just not sustainable. The industry has played a major part in making Australia what it is today. It's farcical that we are still fighting in the marketplace with one arm behind our back while the supermarkets have free rein."

Gerry Hueston has a reputation in the industry as a decent, down-to-earth, straight-talking guy. His recent appointment to the position of President, BP Australasia is a popular one with the rest of the BP Australia and New Zealand staff. Gerry has been involved with oil and retail marketing for nearly 30 years. His most recent position was CEO Marketing Australasia, which encompasses BP's downstream businesses in New Zealand, Papua New Guinea and South West Pacific along with the Retail, Commercial Fuels, Bitumen, Distributor and Distribution businesses in Australia.

ACSN: What are your views on the recent developments in petrol retailing?

GH: The supermarket offer is unsustainable. Woolworths had a march on the market place for quite some time and I am sure its fuel offer increased supermarket sales. While no-one else was putting a hand up to compete on that basis, the offer probably remunerated. Coles and Shell then said that we'll match your offer and raise you one. The Coles Express offer was more compelling. It was more convenient in terms of the location of sites plus it would appear that a major brand fuel has some attractions in terms of fuel quality. With the proposed arrangements with Caltex, Woolworths has said we'll match you. It's a stand off.

This means neither can achieve market share gains once things stabilize. They will have a very expensive ongoing promotion. No company can afford to pour over $50 million a year down the drain for no advantage. The only way it would be sustainable is if they could keep on increasing share in the grocery market which would mean pushing out the other players or increasing grocery prices. A supermarket duopoly would have to be a concern for consumers long-term. Alternatively, if they can sustain the additional costs that are no longer remunerating, then I think that says something about competition in the supermarket business.

GH: The playing field is tilted every which way at the moment. In the short-term, competition between the major supermarkets will be quite devastating for some players. Our volumes are down about 5% in the Melbourne market overall. The impact varies depending on the site but it has particularly hit the sites that have traditionally been very competitive on price. We all know that an industry that struggles to put one cent per litre on the bottom line can't give away four and be in front. It will hurt a lot of the smaller players that are part of the dynamic of the petrol market, and ultimately it will hurt the consumer if these smaller players can no longer compete. My view is that the ACCC and the Government need to take a longer-term view on competition than they have in the past.

It is farcical that we are still fighting in the marketplace with one arm behind our back while the supermarkets have free rein. The inefficient regulation through the restrictions in the Sites and Petroleum Franchising Acts tries to stop us cross-subsidising between our refining and marketing margins but does not stop the supermarkets openly cross-subsidising between their fuel and groceries margins.

ACSN: But, a proposal to repeal these acts is now before parliament, is it not?

GH: Yes, but I am not confident that this archaic and obsolete regulation will be changed. The same old entrenched views that are still opposed to regulatory reform are still being listened to. These are the same views that effectively destroyed franchising as we knew it in the oil industry. They now claim to be the champions of the independents but the reality is that the majority of the independents would not know who the people representing their views are.

Now that the refinery exchange system does not exist any more, in Melbourne and Sydney BP is in exactly the same position as any other player who does not have a refinery. We buy our fuel from the local refiner so why should we have any constraints that are different to the ones that apply to other independents and the supermarkets?

The fuel market is de-integrated now. In practice, you could have a marketing business without a refining business and a refining business without a marketing business. Even though the cost of getting out of refining is very high, it is still not a sustainable reason to keep a refinery open. BP is very selective about its investments in refining and we have a huge refining base across the world so we have to make choices about where we invest. Places like Australia need every bit of help they can get. Parliament says it wants a domestic refining industry on the one hand, but regulates against it with the other hand.

GH: Not at all. The overarching goal is for BP to be successful in the region in a very difficult environment and, with 1500 BP-branded sites nationally, we are vitally interested in making sure that this part of the business does not get wiped out by unfair competition from the major supermarkets.

We went through a bad patch with our downstream business in Australia a few years ago. For example, we made no money in 2000. We looked like a part of the world that BP would not be interested in and if you look at the scale of BP's business globally we are not as material as we once were when BP was a smaller company. Exit then was at the forefront of people's minds. We have recovered from that and restored the reputation of the Australian business within the BP group. Now, we have to make sure that we remain profitable and sustainable.

Globally, the marketing business is a lot bigger than it used to be. BP committed to becoming a marketing company when it acquired the Arco position in California, Aral in Germany and Castrol globally. While marketing is not the biggest division by far, BP's retail business globally on its own would be a Fortune 100 company. It is big business.

BP has to be very selective in terms of where it invests. In this part of the world we have put a good offer on the ground. We can succeed in the convenience market driven by a great offer in great locations and great execution. Our global processes support this. If you walked into a state-of-the-art BP Connect store in the US or UK you would see a lot of elements that look the same as our stores in Australia. Our aspiration is to provide a distinctive food offer, top-up groceries and a world-class produce section, the same from one store to the next, one country to the next.

ACSN: Based on your many years experience, how would you paint the big picture for BP globally?

GH: I have been with BP for 27 years. I joined BP in a field role in 1976 but did not expect to stay long. My plan was to travel the world. And, I did - with BP. I've worked in Sydney, Perth, Melbourne, New Zealand, London and Europe. Now I am happy to call Melbourne home.

BP has changed dramatically in this time. We went through the energy crisis of the 1980s and of course BP nearly hit the wall in the early 1990s. The powerhouse of BP is exploration and production and over the past few years we have moved heavily from being dependant on oil to a far more balanced portfolio with a lot of gas interests, which is also important in terms of providing a more environmentally friendly fuel. We are also running one of the biggest solar businesses in the world. Although it is yet to prove itself economically we believe passionately it is going to be one of the fuels of the future. Ironically, in Australia we have BP's most efficient solar cell factory in the world but it exports 80% of its production.

Long-term, we can only be sustainable if we are part of the community in which we operate. BP globally is leading the way in environmental sustainability. There is a lot of passion around within BP for it to become a leading sustainable company in the energy sector. Lord Browne, our CEO, stood out from the group of major energy organizations and argued that, whilst there was some scientific doubt, we should not wait until the science was proven before we did something about greenhouse gases. Even though, short-term, a lot of what we have done and will do will not remunerate financially, long-term this business and our products need to be sustainable. There is no financial sustainability without long term environmental sustainability. This philosophy is now hard-wired into the organization. BP's values resonate with young people. When they join BP, they are often pleasantly surprised by the extent to which BP is passionate about the environmental and social values that they share.

GH: We are now moving beyond our own internal use of energy and looking at what our customers are doing. BP is a strong advocate for clean fuels around the world. In Australia, we have put in place a mechanism that allows users of our top of the range product, BP Ultimate, to offset their greenhouse emissions. Ten major commercial customers have indicated they are willing to get involved in it. Ultimately the average consumer will choose green energy and be willing to pay for it.

ACSN: Do you tell the people you meet socially at BBQs what you do and who you work for?

GH: Yes. I have never been more proud to work for BP than I am now. But, I do find it difficult to explain the fluctuations in the petrol price. The underlying price is logically the result of global oil prices and the exchange rate, but the variations at the pump are no longer logical. It used to be due to price support, but now it seems to be entrenched behaviour.

This is hard to explain at BBQs but I still tell people where I work - absolutely. I believe we are a force for good in society. The people that BP employs are amongst the best. I would stack up our people, ethically and morally and in ability, with the best around. One of the disappointments is our reputation in the marketplace. We (the oil companies) tend to be used as a political football. A lot of the aspersions are cast about us and this really hurts. BP is a company of people and every time misinformed politicians or journalists have a crack at the oil companies they have a crack at our people. The industry has supplied the infrastructure and has played a major part in making Australia what it is today.