Forecourt sector full speed ahead

Jet forecourt

The pace of innovation and change within the forecourt sector in recent years has been phenomenal, with the recent £1.2bn acquisition of MRH the latest signal that the sector is in the midst of rapid evolution.

If proof was needed that the forecourt sector is in a transformational period, then the recent £1.2bn monster takeover of MRH by Motor Fuel Group (MFG) should provide it. MRH was, up until that point, the UK’s largest petrol station and convenience retail operator and the move saw MFG leapfrog into top spot (by number of sites) and second spot in terms of fuel volumes sold.

Combined, the enlarged company will run over 900 sites, predominantly company-owned and franchisee-operated, and manage third-party fuel, convenience, and foodservice brands. These include household name fuel brands like BP, Esso, JET, Murco, Shell and Texaco as well as retail brands such as Budgens, Costa Coffee, Greggs, Spar and Subway, as well as the MRH-owned brand, Hursts.

On a combined basis, MFG and MRH sold approximately 3.6 billion litres of fuel in 2017. The deal is expected to be finalised in the second quarter of 2018, subject to customary regulatory approvals.

The acquisition is potentially more good news too for Booker, the company who currently can do no wrong, as it signed a wholesale supply agreement to supply 370 MRH outlets in December.

Alasdair Locke, Chairman of MFG, will remain Chairman of the combined business while former Tesco boss Sir Terry Leahy will continue to serve on the board of directors and chair the Executive Committee of the Board.

Locke comments: “This is a transformational milestone for both companies that we believe will make us an even stronger partner for fuel brands and retail customers seeking convenient foodservice options.

“We are excited to welcome the MRH team, who share a commitment to growth and innovation, as we work together to consolidate a highly-fragmented market and continue our expansion of retail offerings across the combined estate.”

MFG had perhaps been signalling its future intentions over recent months with a number of high level appointments to bolster its retail and food-to-go offers, with Head of Food Services Paul Deary and MD for Business Development Michael O’Loughlin both joining from rival operator Applegreen.

New Retail Director Paul Dennis was also brought on board, after stints with Sainsbury’s, Asda and Conviviality Retail.

One thing that was made clear during the acquisition was an acceptance that the keys to success in the forecourt sector today are, firstly, providing customer-focused convenience and, secondly but not less importantly, creating food-to-go hubs for local communities. MRH had made a habit of getting both of these areas of their business right which clearly made them an attractive target.

Indeed, Locke explicitly referred to his desire to create “a unified offering from both estates that will offer customers the best forecourt, shop and ‘food to go’ experience in the market today”. Whether or not MFG achieves those aims, only time will tell, but the acquisition reflects a new dynamism and energy that is evident throughout the forecourt sector in Scotland and across the UK.

And MFG is not the only company showing itself keen to grow the market. A guaranteed footfall driver, fuel sales are now viewed more as a way of bringing shoppers into the store than as the core revenue maker of the business. Shoppers are increasingly expectant of finding a full convenience offering when they visit a forecourt.

Managed well, a good forecourt offers the best of both worlds, as indeed Locke alludes to above. In today’s market, the goal is no longer simply to meet modern shopper expectations – it is to exceed them through creativity, innovation, technology, great service, world class convenience and a deep understanding of consumers’ needs.

In good health

In another indication of the health of the forecourt sector, Christie & Co’s annual overview of the marketplace reported in upbeat fashion that the forecourt market “continues to evolve and bloom”. The report states that of the 8,459 UK petrol stations, 68% are now in the hands of independent dealers and the top five groups own 28% between them.

Steve Rodell, Christie’s Managing Director for Retail, comments: “Forecourt and convenience retail deals did not waver in the slightest during 2017, despite so much uncertainty being peddled in the press. In fact our Retail team sold 29% more businesses than the previous year.

“The forecourt market continues to evolve and bloom, delivering consistent growth over the past three years. In one of the most active periods we have seen, we transacted or valued almost a quarter of UK independently owned and operated petrol stations in 2017 – more than ever before.”

Rodell says that for some owners, the value of their forecourt is the highest they’ve seen. Some took advantage of increased demand from a wide pool of buyers and this meant prices achieved last year were consistently strong, and he believes this is likely to continue through 2018.

This is largely the result of strong trading fundamentals supported by year-on-year growth shown in trading records. Good quality on-site property, healthy fuel margins and burgeoning convenience operations all combine to make forecourts an attractive proposition, especially in the current low interest rate environment.

While the supermarkets remain the largest operators, there hasn’t been much change in the number of supermarket sites as the major grocers halted their plans to open large stores with fuel in the face of the expanding portfolios of discounters Aldi and Lidl. This has been good news for independents who in general no longer have to fear the arrival of supermarket fuel prices and the prospect of lost business.

Rodell again: “Independent retailers have considerably more sites but average just two to three million litres a year and are focussed on improving non-fuel sales. The oil companies, of which only BP and Shell remain in any size, sell around four to five million litres a year per site.

“Private equity houses have invested in three of the five biggest groups in recent years and they have grown further by acquiring other independents which has fuelled group deal activity. High volume single site deals were also a significant feature of 2017 as those owners that tested the water were pleasantly surprised by the prices achieved, usually after competitive bidding.”

Rodell also predicted that “there will undoubtedly be further consolidation going forward” and was proven correct by the MFG deal shortly afterwards, although his prediction that “the next step for MRH appears to be flotation” proved slightly less accurate.

Cause for concern

Christie & Co believes the announcement last July that the Government is committed to banning the sale of all new diesel and petrol cars by 2040 is unlikely to have any short-term impact on forecourts, although it may cause those 24% of landlords who have a long-term lease in place to look more closely at the future of their investment.

The report does end however on the observation that “independent operators are more than likely to adapt and evolve”.

Rodell concludes: “With comparatively low margins on fuel, many operators are focussed on expanding their retail business to attract more customers into the shop. Last year the total value of forecourt convenience sales was around £4bn. Around 3,500 petrol stations now have a symbol-branded or national chain convenience store and many now also have branded food to go operations such as Subway, Greggs and various well-known coffee brands.

“This is very much seen as the long-term solution to the inevitable decline in fuel sales that will come on the back of alternative fuelled vehicles. On the technology side, we expect to see a growing number of apps, such as those recently introduced by Shell and BP that allow customers to pay for fuel in advance, as well as a rollout of wi-fi and more electric charging points.

“Getting the forecourt mix right and offering a better experience will bring more customers who are likely to dwell longer and spend more.”

All of which dovetails nicely with the experience of the major forecourt operators in Scotland and across the UK: an improved convenience offer, more focus on food to go, better innovation and increased use of technology.

More than just fuel

Sean Russell, Director of Marketing at Costcutter Supermarkets Group, agrees on these key tenets of modern forecourt retailing: “Forecourt retailing is much more than just fuel. A large percentage of customers shopping in forecourt stores arrive on foot, so they need to be leading convenience providers combining impulse, food-to-go and a wider grocery offer.

“As one of the largest forecourt retailers in the UK, we have a dedicated forecourt team who work with retailers to develop stores that meet the varying needs of the diverse forecourt store customer base. All our retailers benefit from expert advice and support and pioneering technology systems to help them run their business more efficiently and effectively.”

Russell cites the successful rollout of the company’s Shopper First programme as an important development of Costcutter’s strategy of combining local shopper insights with an engaging brand programme to drive significant sales growth for retailers.

He says: “We have also embarked on a new supply relationship with the Co-op, which goes live shortly, and will see us combine our in-depth understanding of the independent convenience sector with the wholesale scale and expertise of the Co-op to create the best possible offer for forecourt and independent retailers.

“The rollout of the Shopper First Programme is gathering pace with dozens of stores now being transformed with the new Costcutter brand. Our shopper persona dashboards are providing valuable insights to help retailers make the right investments to meet local shopper demand and drive increased footfall.”

One of the company’s most recent stores in Scotland to be transformed was Ord Filling Station in Muir of Ord which underwent a £100k-plus refit in December. As well as a complete store re-design, in-depth research was also carried out amongst the shopper base to truly understand habits and needs.

Russell comments: “The store now boasts an extensive range of convenience products and services including more chilled and hot food-to-go, an extended beer, wine and spirits offer including specialist craft ales, local malts and gin, along with a comprehensive range of Scottish-sourced produce, including fresh meat, dairy and bread.

“As a direct result of the changes and invaluable shopper insights, sales have increased by 40% and footfall figures have grown from 1,700 to 2,700 per week.”

Vital insights

Shopper insight is also where research agency HIM makes its living and a recent forecourt report from the company highlighted some vital insights into the transformation of forecourts in very recent times and, critically, picked out some of the similarities and some of the differences between forecourt and “standard” convenience shoppers.

The report says: “Long gone are the days of forecourts simply being a place to fill up on fuel, but rather now position themselves as for some being the most convenient shop in direct competition with traditional convenience stores.

“With the majority of shoppers visiting a forecourt by car, forecourts have the opportunity to tap into a customer base that convenience stores often can’t due to being located in city centres or main roads with no parking available.”

The report highlights 2005 as the “revolution” year for shoppers’ perceptions on the very purpose of a forecourt. Following M&S partnering with BP, shoppers began to treat a forecourt as a “normal” convenience store, and as a result were more prepared to do a “normal” shop, says the report.

However, one major realisation the industry has had recently is how differently a shopper behaves in a forecourt compared to a standalone convenience store. The report cites Booker’s 2015 acquisition of 300 Costcutter forecourts for the Londis brand as a watershed moment which led Booker to create a dedicated forecourt retailing team.

“It is important,” says the report, “not only for retailers, but also for suppliers to understand that forecourts are now not seen as petrol stations, but rather as a convenience store that also sells petrol. As a result, this has vastly opened up the opportunity for food suppliers to have a better offering in forecourts that appeals specifically to convenience forecourt shoppers compared to the standalone convenience shopper.”

The rush of convenience multiples to jump into bed with other forecourt partners is evidence of this with food to go being the standout opportunity. According to HIM research, the main mission/reason for many shoppers visiting a forecourt is no longer to buy fuel, but rather to purchase food to go.

But that doesn’t mean that the basics of convenience retail can be ignored. Before retailers and suppliers even begin to consider their ranging, pricing, promotions and so on, says the report, ensuring shoppers are being drawn to visit their forecourt in the first place is essential.

The latest HIM research shows that “friendly and helpful staff” is the main factor in driving shoppers to store. Therefore, although shoppers inevitably are going to want a good range of products and good prices, what is really important to them is the in-store experience.

Understanding the customer

And it’s all well and good getting a shopper to visit a particular forecourt once. But driving that shopper to repeatedly return is what makes a successful store. By understanding what is important to a shopper and ensuring that shopper is satisfied, retailers can aim to prevent a customer choosing to shop elsewhere by meeting their expectations on what a forecourt should offer and provide.

HIM’s research revealed that forecourt shoppers rate product availability the fourth most important factor, with the top three all relating to in-store experience. This again emphasises that shoppers are ever demanding, no longer simply wanting products but rather seeking an overall experience in-store.

But it won’t pay to forget about those fuel sales, says Paul Yates, Regional Accounts Manager Scotland at JET: “Yes, current market conditions are creating an environment where ambitious independent forecourt dealers can thrive – as long as they understand the changing needs of the consumer and deliver on those expectations.

“And while there is a huge emphasis at the moment on brand partnerships and forecourts becoming convenience destinations – and many are – our research nonetheless shows that 70% of consumers simply want to fuel quickly and efficiently.

“Offering consumers a bright and welcoming image, high quality pumps and well-maintained forecourt facilities is vital. Being able to consistently offer a first-class consumer experience is also key to developing customer loyalty – regardless of store size. Our research suggests that as long as consumers can fill up with high quality fuel and grab a coffee and a decent snack in a clean and friendly environment, then a forecourt will meet most expectations. So, rather than feeling dispirited, those Scottish dealers who have small sites and shops on small plots of land should feel heartened that not every site can be a convenience destination and not every consumer wants or expects this from their local filling station.”

One size fits all?

All of which means that the previously dominant “one size fits all” approach is no longer an option for forecourts. Tailored activity for every site is an absolute must, as is a modern approach to customer engagement and promotional activity that goes way beyond the blunt tools that have historically been employed in the forecourt sector.

“We know that a ‘one size fits all’ approach simply doesn’t work for dealers and that’s certainly the case with promotions,” says Anne Day, Brand Communications Manager at JET. “Our aim is to give our dealers choices as they are much closer to their customers than we are and know what will and won’t appeal to their customer demographic.

“By taking a different approach to consumer engagement and getting closer to consumers, we’ve been able to address the challenge that fuel companies and forecourt owners face in driving brand awareness and highlighting promotions or campaigns beyond the forecourt. Using digital channels and novel advertising outlets has enabled us to reach new audiences.”

That fresh approach was born out of independent research commissioned by JET which “unveiled a clear opportunity to change perceptions of the brand, build brand awareness and tap in to the potential under-45s market by getting closer to them”.

Off the back of these findings, JET spent over a year rolling out a raft of consumer engagement activities with the main emphasis on off-site activities to capture new consumers.

The results have been extremely positive. During a promotion for Amazon, for example, volumes across JET’s network rose by an average 2% compared to the preceding period and the top 10% of sites had a volume increase of 4%.

When JET ran an advertising campaign on Waze (the world’s largest community-based traffic and navigation app), it reached over 800,000 Waze users in the UK, with 26,000 of those proactively engaging with the JET advert and 6,000 clicking through to the final element of the app where they were given directions to their nearest JET forecourt. The adverts on Waze resulted in £61k worth of fuel purchases and one JET site saw a 22.5% increase in fuel sales during the three-month trial period.

JET has since continued to advertise through Waze and the results are proving even more encouraging, with over 23 million impressions, 43,057 advert clicks and 15,281 direct navigations to a JET site in the period from June to the end of September 2017.

“I think the key to the success of our consumer engagement has been making it very highly targeted,” adds Day.

By capturing consumer data through a number of elements in its integrated consumer engagement initiative, JET can now deliver highly-targeted consumer marketing and communications in the future.”

CJ Lang – Christie