How to run a successful petrol station
Here are 5 tips on how to run a successful petrol station! Learn what the pros and cons are of running a petrol station and if you can make a success out of it!
The bigger picture
In South Africa there are approximately 4,600 service stations which pump approximately 300,000 litres of fuel per month nationally. Petrol stations not only offer consumers the essential service of filling up their vehicles, but they also offer a wide variety of additional products and services which are key contributors to their bottom line.
Is running a petrol station profitable?
Fuel provision is an essential service (at least for the time being) and contributes more than 6% to South Africa’s gross domestic product (GDP). It is also one of the most resilient South African industries and armed with a particular mindset, can see healthy profits during economic slumps.
How much does it cost to open a petrol station business?
A local petrol station business set up costs range in the region of R15 million and R100 million depending on the size and site. Further to this the operation payable to the oil company ranges between R2.5 million and R15 million, depending on the cost to develop, projected volumes and profitability. Then in addition to this, the normal working capital requirements for stock and operational expenses can range between R1.2 million and R1.5 million. Contrary to popular belief, when the fuel price increases, the petrol station doesn’t reap the rewards. In fact for every R1 increase in the fuel price, the average service station needs R100 000 in additional working capital. The retailer margin, determined by the Department of Energy, called RAS (short for Regulatory Accounting System) doesn’t make sufficient provision and there is an under recovery of nearly seven cents per litre. What this all boils down to is that the mammoth set up costs of a petrol station business are one thing, but a successful petrol station also requires ongoing access to quick working capital to manage all the financial demands.
Here are our 5 tips to owning and running a successful petrol station
1. Join a franchise benefit
There are various divisions in the franchise model ranging from independent fuel retailers to semi- independents as well as franchises. While owning a franchise means that operations are strictly monitored for high standards, being a franchisee means that start-up assistance is given, as well as mentorship and operational guidance and support. It also gives you access to franchise benefits and corporate partnerships that could benefit the growth of a petrol station like Woolworths partnerships with Engen or Seattle Co with Caltex.
2. Open up additional revenue streams
While fuel retailers specialise in petrol, South Africans are constantly on the go and need fast and efficient services to keep up with their busy lifestyles. This is where petrol stations fulfil an important public service. By joining forces with other service providers they increase their basket size, which is very necessary because fuel margins are fixed. In other words the only way to increase turnover on the forecourt is to increase volumes in the form of additional service offerings.
Traditionally this has come in the form of convenience stores, but this is also extended in ATM and courier services, grocery stops, artisanal coffee, pharmacies, online depots and carwashes. There are also many loyalty schemes in place to entice the consumer to be brand loyal thereby gaining market share.
3. Keep an eye open to future opportunities
While fuel will continue to be a necessity, under estimate change at your peril. It is essential that petrol station owners keep on top of fuel and energy trends and embrace change as an opportunity for new ideas. For example introducing an electric charging and biodiesel stations (an immediate alternative to diesel).
Another evolving trend is that fuel stations are no longer just about the car, but rather about the person driving the car. Meaning that all attitudes must revolve around making the customer’s life better and fuller. As already explained above goes beyond fuel. This could also extend to offering hot desks and WIFI services so that customers will start to associate petrol stations with experience rather that just services.
4. Fight the margin and squeeze where you can
General circumstances (and now COVID-19) has forced petrol station owners to think out the box and offer differentiated services and leaner operation. It has also accelerated creative thinking in this space. While fuel margins are fixed, other costs like card swipe fees and supplier costs are not. So it is vital to negotiate with all your suppliers and service providers to ensure you are getting the absolute best deal for your establishment.
5. Use funding for the right reasons
Being a petrol retailer is no different to other entrepreneurial businesses. Access to working capital is an essential service and can make an enormous difference to your overall profitability if used correctly. For example using a Merchant Capital Cash Advance to to fund the build of a car wash or hot desk base will bolster your existing convenience store turnover and set you apart from the competition.
The bottom line
If you want to run a petrol station, you need to think like an entrepreneur and work your business from every angle. This comes down to streamlining efficiencies around fuel, but then bolstering services and products in clever relatable ways to ensure higher basket sizes and return customers. This often requires working capital so it is essential that you have these reliable relationships in place. To find out how we can help fuel your petrol station’s future, contact Merchant Capital today.