Diversified offerings in store for fuel retailers

Automotive fuel retailers have experienced a revenue rollercoaster over the past five years. Revenue is expected to expand by about 12.4% in 2011-12 to $36.9 billion. The increase reflects somewhat higher retail sales volumes and, more particularly, higher fuel prices.

The ongoing recovery from the global financial crisis, strong growth in China and unrest in the Middle East have lifted demand and sparked concerns of oil shortages, boosting fuel prices.

Despite the large increase in 2011-12, industry revenue is expected to expand at a more moderate annual rate of 1.4% for the five years through 2011-12. The industry is expected to generate a profit of about $1.76 billion and to account for about 0.2% of Australia’s GDP. Fuel retailing is a high-volume, low-margin business.

The volume of petroleum and diesel (the industry’s main products) sold during 2011-12 are expected to be about 15.6 billion litres and 3.9 billion litres respectively. Diesel sales are expanding more strongly than petrol, as motorists switch to diesel vehicles that feature greater fuel economy. The volume of petrol sold by the industry over the five years through 2011-12 is expected to edge down at an annualised 0.2%, compared with expected growth of 4.8% for diesel.

The industry’s structure has changed quite markedly over the past five years, with supermarket chains growing in importance as oil companies reduce their retail presence to focus on the more profitable upstream oil and gas sector.

Despite increased mechanisation, the industry is expected to employ about 35,700 people in 2011-12, paying wages amounting to about $873.3 million.

The outlook for the industry is coloured by an upward trend in fuel prices. Revenue is expected to expand 2.5% per year over the five years through 2016-17 to reach $41.7 billion, although sales volumes are only expected to grow by 1.2% per year.

Industry profit is expected to grow more quickly than revenue, as firms seek to rebuild margins that have been eroded over the past few years.

The carbon tax due to commence on 1 July 2012 will not apply to household transport fuels, light vehicle business transport or off-road fuel use by the agriculture, forestry and fishing industries. However, the Federal Government plans to establish an effective carbon price for heavy on-road fuel use from July 1, 2014.

Products and markets segmentation

Retail sales of petrol and diesel, together with related products, such as LPG, oil and kerosene, account for about 65% of the revenue for automotive fuel retailers. Retail sales of other items, including car parts, confectionery, takeaway foods, milk, cigarettes and batteries, account for a further 25% of revenue.

Service income, which includes payments for motor vehicle repairs and meals sold for consumption on the premises, accounts for a further 5.0% of industry revenue. The wholesaling segment includes income from hiring or leasing, commissions and unclassified income, and accounts for the remaining 5.0% of revenue.

Petroleum product retailing is a high-volume, low-margin business. Accordingly, its contribution to industry value added is unlikely to match its importance in revenue. Services that are more profitable, such as motor vehicle servicing, provide a larger share of value added than their importance in revenue suggests.

Major Players

Caltex Australia Limited accounts for 22% market share followed by Wesfarmers Limited (21.5%), Woolworths Ltd (19.1?), BP Regional Australasia Holdings Pty Ltd (17%) and 7-Eleven Stores Pty Ltd (6.7%).

Industry Outlook

Fuel retailing will remain a challenging and volatile business, dominated by major retailers and, to a declining extent, major oil companies.

The expected moderate growth in the volume of fuel sold by retailers suggests that the search for increased market share and continued profitability will require an ongoing thrust into areas such as convenience stores and convenience car-maintenance services. Slow growth in petrol sales in particular will put considerable pressure on retail networks. The pressure on retailers will continue the trend towards fewer sites with higher sales volumes. These sites will also increasingly offer a range of services and products other than petrol.

By 2016-17, there are expected to be no more than 5910 service stations (representing a decline of 0.5% per year over the next five years). The same trends are expected to pull down employment numbers by 0.6% per year, with industry employment falling to 34,600 people by 2016-17.

To purchase IBISWorld’s full, 47 page report on Australia’s Fuel Retailing Industry visit: https://www.ibisworld.com.au/industry/default.aspx?indid=438