Texaco marketing co-ordinator Helen Clark says: “We can’t put a Pizza Hut on it unless we own the site.” It seems a bizarre concern for a petrol company but sums up the dilemma facing Texaco, which is taking full management control of its retail sites in a move to maximise profits and forge a string of retail partnerships.
Texaco only manages 73 of the 560 sites it owns, or 13 per cent. It hopes to increase that figure to 120 by the end of the year. Meanwhile, it is cutting its sites to 450 by the end of 1996 – selling those that do not fit into its future plans.
Budgens and Tesco have both been suggested as potential buyers, underlining the fact that supermarkets hold a 20 per cent value share of the petrol market and are intent on building on that growth.
Texaco’s desire for absolute control is based on a simple truth which its critics believe it should have recognised years ago. Petrol prices are at an all-time low. Texaco’s share of the petrol market has fallen from 20 per cent in 1988 to ten per cent today. And competition has never been greater, with supermarkets taking 20 per cent of petrol sales, according to Petrol Retailers Association figures.
Texaco, in line with other petrol companies, makes an average 4p on every 64p litre of petrol sold on its forecourts. By contrast, the value of the retail convenience store business on its sites grew by 20 per cent last year, on margins of 22 per cent.
But Texaco has not seen the benefit. Most of the money goes directly to tenants or franchise dealers.
Texaco’s long-term aim is to wrestle control – and profits – from these tenants and brand, advertise and market its c-stores (as they are known in the US) more effectively.
But some petroleum industry observers believe the company has lost time by not addressing this problem earlier. Texaco was the first petrol retailer to open a branded c-store, called Star Market, on a UK forecourt in 1985. But its rivals quickly caught up, then surpassed it. “Texaco has to get costs down to the supermarket levels in order to survive [in retail],” says an observer.
It announced earlier this year that it was cutting its chain to 450 sites, and outlined a more concentrated geographic coverage in the UK.
Five of its sites now have restaurants or Quick Service Restaurants (QSRs). Texaco is negotiating with Burger King, McDonald’s and Pizza Hut to develop more partnerships. KFC has also been approached.
A new site which opened last week – with both a Pizza Hut and McDonald’s – is seen as a flagship experiment for the scheme. Not only does it have two fast-food rivals as partners at the same site, but it is also just minutes from one of London’s busiest cafe areas, Islington. The theory is that if the scheme can succeed there it can succeed anywhere.
A marketing team made up of staff from Texaco, sales promotion company IMP and ad agency D’Arcy Masius Benton & Bowles will develop a co-ordinated campaign to market the chain.
“Our brand strategy is one-stop fast refuelling,” claims Clark, “car, body and soul. Not in a religious sense, but in terms of a pleasant experience.
“These changes are a reflection of the switch from wholesaling to retailing for Texaco.”
Meanwhile, Shell UK is in the middle of a 350m redevelopment of its 2,300 service stations to expand its Shell Select stores.
Shell plans to have overhauled 900 stores by the end of the year. It is seeking sales of 400m – a 150 per cent rise – by the end of 1996.
The other big players are also investing in their retail chains. “All the petrol companies now need viable shops to make their forecourts viable propositions,” says Verdict Research retail analyst Richard Perks.
Esso remains the biggest player in the forecourt retailing market, with sales valued at 320m by Verdict Research. Shell, BP and Texaco are level at 160m each. Total forecourt sales equal 2.3bn when you add in the other 50 petrol retailers in the UK.
The convenience store market is valued at 35bn. Although it is falling in terms of total retail sales, it still offers expansion opportunities for the petrol firms.
The companies themselves admit most customers do not recognise the name above the forecourt, let alone the one above the convenience store. However, if Texaco is to succeed it will have to invest in stronger branding.
It is only now in a position to uniformly impose co-ordinated marketing across all its sites. Having made its decision to take control, Texaco must prove that it can deliver.