Marketing of petroleum products: An overview - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Marketing of petroleum products: An overview

Oct 9, 2006

Marketing of petroleum products is set to witness a paradigm shift. Post deregulation of the sector, private players are entitled to open new outlets provided they fulfill certain investment condition. Ever increasing need and expectations of the customer is changing the operational economics of the retail outlet. Consumers are demanding more convenience in the form of comfort, product options and fleet-monitoring services. While retail outlets are heeding to them and revamping their operations by offering better visual identity, fuel branding, value added services offering to the vehicles moving into the outlet, issuing petro cards, fleet monitoring services and providing one-stop shop for consumers. In this write up we analyse the operational economics of a retail outlet and different marketing models. Classification of retail outlets

Type 'A' sites

  • 'A' sites are outlets where the land is owned or leased by the OMCs (Oil Marketing Companies).

  • Building and equipment are also owned or leased by OMCs

  • Usually these outlets are COCO (company owned company operated outlets).

  • These have significantly increased over the past few years

  • These outlets offer the largest degree of control over the retail operations.

  • Offer best facilities and are at premium areas.

  • Average cost of building a new outlet is Rs 45 m; cost is on the higher side due to favorable location and premium offerings at the outlets.

  • These sites are situated at places where throughput is expected to be higher.

Type 'B' sites

  • Dealers at these sites own or lease the land and building, however they leaseback the same to the OMCs.

  • Equipment is owned by the OMCs.

Type 'C' sites

  • Dealers own or lease the land and building

  • OMCs own the equipment

  • Cost ranges up to Rs 1 m

Type 'C1' sites

  • Dealers own or lease the land, building and equipments.

Market segment analysis
The marketing segment can be segregated into four major categories classified based on the throughput per outlet and the offering needs at the location.

Rural segment This segment has a lower throughput per outlet. The major demand at these outlets is for diesel, as the same is required for running pump sets for agricultural purposes. The sale of petrol is lower at these outlets due to lower number of vehicles in the rural areas, combined with the problem of adulteration. An added advantage from rural sales is potential revenue being generated from non-fuel businesses (in the form of seeds, fertilizers and tractor parts). The cost of establishing such outlets ranges between 0.5m to 1 m. The penetration in segment is very low. Sensing the opportunity, major OMCs like IOC, HPCL and BPCL are venturing into the segment on a large scale. Companies also use mobile moving vans in the rural areas so as to cover a wider geographical area. Dealer Owned Dealer Operated (DODO) model seems to be the best fit here as it reduces the overhead cost and the chance of significant penetration in these areas by private players is fairly limited for next few years.

Semi-Urban segment: The major demand at these outlets exists for petrol and diesel. The throughput per outlet in the segment is on the higher side compared to that of rural outlets. The services required are also on the lower side, as the customers in the segment are less savvy compared to urban customers. The suitable marketing model for the segment is Dealer Owned Dealer Operated outlets (DOCO) or the Company Owned Dealer Operated outlets. The choice here is based on case-to-case basis for every outlet.

Metro segment The segment is characterized by high thruput per outlet for petrol and diesel. The value added services needs in the segment are in the form of car wash, air checks, premium and branded fuel in addition to better visual identity. COCO model is best suited for the urban segment so as to prevent the dealer poaching coupled with fulfilling the requirements of the savvy customer. However, with pre-existing dealers operating in the urban areas, the scope for establishment of new outlets is fairly limited. Thus the possibility of having Dealer Owned Company Operated (DOCO) outlets exists in the segment it at all an opportunity is sensed.

Highway Segment: Fleet operators and transporters are the major users of the highway segment. The throughput per outlet at these outlets is on the higher end (particularly for the diesel). The throughput to the extent of 4-5 times the average industry throughput makes up for the higher capital required to open such outlets. The non-fuel revenues at these outlets are comparative on the higher side as these outlets provide one-stop shop along with fleet management services in the form of single billing, repair facilities and other conveniences to the drivers. Also, offerings such as ATMs and food courts augment non-fuel revenues from the segment. The COCO (Company Owned Company Operated) model is most suitable here due to increased value added services required along with complexities of operation in the form of synergies with other outlets for single billing facility.

Conclusion The determination of the marketing model depends on a number of factors including geographical location, local tax rates, throughput and proximity of competitors in addition to offerings needed by the customers. During the pre-liberalization period, OMCs had exclusivity in sales of retail fuel, thus the Dealer Owned Dealer Operated (DODO) model worked well. However, with deregulation and changing customer needs, COCO model has its inherent benefits. Thus, the whole process of model determination is to increase the throughput per outlet and thereby sales and reducing the overhead cost of maintenance and running of the outlets.

Equitymaster requests your view! Post a comment on "Marketing of petroleum products: An overview". Click here!

  

More Views on News

5 Green Energy Stocks to Watch as India Readies for a Revolution (Views On News)

Oct 13, 2021

The excitement around green energy stocks has opened up a huge contrarian opportunity in the traditional energy space.

Top Performing PSU Stocks over the Past One Year (Views On News)

Oct 1, 2021

After a decade of underperformance, PSU stocks have woken up. Here are the best performing PSUs of past twelve months.

Linde India Shares Hits New High. Up 230%+ in One Year (Views On News)

Aug 26, 2021

Linde India shares have surged sharply in the past few trading sessions. What's causing the rally?

ONGC Logs Massive Jump in Net Profit as Crude Oil Prices Double (Views On News)

Aug 16, 2021

Rising crude oil prices compensate ONGC's fall in production.

HPCL Shares Under Pressure After Profit Declines in June Quarter (Views On News)

Aug 5, 2021

Rising crude oil prices and forex woes weigh on HPCL's quarterly numbers.

More Views on News

Most Popular

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

How to Hit Rs 100 Crore Wealth in Your Lifetime (Equitymaster Wealth)

Nov 15, 2021

This is how you can achieve the ambitious goal of a net worth of Rs 100 crore.

Don't Sell these Stocks if the Market Falls (Profit Hunter)

Nov 17, 2021

These are the 3 types of stocks that you should not sell in a market crash.

MobiKwik IPO Opens for Subscription Soon. Key Things to Know Before Subscribing. (Views On News)

Nov 20, 2021

The Rs 19 bn issue is set to hit the market soon.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE OIL & GAS


Nov 26, 2021 (Close)

S&P BSE OIL & GAS 5-YR ANALYSIS

COMPARE COMPANY

MARKET STATS