Petrol stations are slowly reinventing themselves to thrive in the medium to long term, with the age of the electric car upon us. But in the short term, forecourts continue to grapple with volatile oil prices, high fuel duties, tight profit margins and fierce price competition at the roadside.
These commercial pressures have precipitated a long-term decline in the numbers of UK petrol stations, from a 1950s peak of around 40,000 sites to just 8,385 in 2019, according to data by Experian and the Petrol Retailers Association (PRA).
Market research firm IBISWorld has found that the sector contracted slightly by 1.2% between 2014-2019, with low oil prices hitting margins in the first three years of that period.
Growing car use
Strangely, the sector’s decline has occurred despite a continuous growth in road traffic, even if environmental concerns and the high costs of car ownership have seen more people using bicycles and public transport.
Growing sales of electric vehicles and increasingly efficient internal combustion engines, which enable motorists to drive further on less fuel, have certainly dampened the rise in petrol and diesel demand.
Nevertheless, for all its challenges, the sector can be confident that most households will continue to own and regularly use at least one car in the decades to come. That a growing number of cars need refuelling by a dwindling number of petrol stations– whether with petroleum-based fuels or electricity – is also potentially good news for the operators that survive.
Petrol price wars
However, supermarkets are taking a growing share of the market through an aggressive pricing strategy, subsidising fuel with store profits and offering loyalty incentives. Led by Sainsbury’s, the four biggest market players are all supermarkets, which sold 46 percent of the fuel used in the UK in 2017, according to data from Statista.
Oil companies, led by Shell, BP and Esso, and dealer brands like Jet, Motor Fuel Group and Euro Garages, also account for a significant share of this £17bn market. The independent forecourts that offer small-business buyers a route into the sector tend to exist in rural areas with comparatively little competition from supermarkets and branded operators.
IBISWorld projected industry revenue to inch up by just 0.3% annually over the next five years – and that was in 2019, before the Covid-19 outbreak.
Citing plummeting oil prices and a 73 percent drop in road traffic during the lockdown, the Petrol Retailers Association (PRA) warned in April 2020 that around 1,000 independent petrol stations could perish.
Brian Madderson, chairman of the PRA, also said “the sector is unique, with over 70 percent of
income taken by the government through fuel duty and VAT.” The parlous state of the public finances because of the coronavirus crisis suggests that the government will have little room for manoeuvre in easing this hefty tax burden on forecourts.
Dreaming of an electric future
But forecourts can liberate themselves from that burden by gradually replacing fuel pumps with electric vehicle charging stations, with petrol and diesel models due to be phased out in the UK by 2035.
Forecourts that embrace this opportunity can look forward to no longer suffering from swings in the price of crude oil, high fuel duties and the challenge of storing highly flammable fuels. Forecourt retail chain Applegreen for one has welcomed the shift, telling The Times in September 2019 that the economics of charging were “relatively attractive” compared to selling fuel.
IBISWorld anticipates that the sector’s fightback will also centre on an expansion of convenience store offerings and diversification into alternative fuels like biodiesel and hydrogen.
And of course, petrol stations will continue to generate revenues through supplementary services such as oil and water and tyre-pressure checks, car-washing and valeting services, and selling auto consumables.
There are no petrol station franchises operating in the UK, but there are other retail franchises if you want to run your own business with the reassurance of a proven brand, training and support, and the bulk-buying power of a large chain.
These specialise in niches that include groceries, auto parts, mobility aids and pet food.
Interestingly, Mr. Electric, an electrical services franchise, is now a government-approved installer of electric vehicle charging points.