Customer Satisfaction in the Indian Petroleum Industry
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Determination of elements of customer satisfaction in delivering fuel through retail outlets on highways and in suburban areas
The Indian Petroleum Industry
The Indian petroleum Industry started way back in the end of the 19th century, with the discovery of petroleum in Digboi Assam .The industry was initially opened for international players and global oil majors such as Caltex, Esso and Burmah Shell. However after 1970s, the Indian division of the international companies was nationalized by government of India and the industry became strictly regulate din the country. The government nationalized the refining and marketing sectors and subsequently introduced regulatory controls on the production, import and distribution and pricing of crude oil and petroleum products by establishing the Oil coordination Committee (OCC).
Through the OCC, the government administered the prices of petroleum products after establishing a complex oil pool account system. Producers, refiners and marketers were compensated for operating cost and were also assured of a fair return on their assets through the Administered Price Mechanism (APM). During this period, government controlled entities accounted for 90% of the market share.
Major players like IOC, BPCL and HPCL dominated the market in the downstream sector, while the upstream sector was dominated by Oil and Natural Gas Corporation and Oil India claiming approximately 84% of the share of the total market. After the liberalization of the Indian economy, the industry witnessed some fundamental changes. The policy makers realized that APM will no longer be working successfully as it had in the past and the sector will have to be opened completely. Thus the government initiated the process of deregulation in 1995, whereas APM was replaced by Market Determined Price Mechanism (MDPM).With the introduction of MDMP and deregulation of the marketing and refining sectors, the industry was opened completely for private and foreign participation. The government allowed four companies Reliance Petroleum, ONGC, Essar and Numaligarh Refineries to market petroleum products through their retail outlets. During the APM regime, public sector companies ‘owned' the market and hence they never felt the need to pay attention towards brand building and customer loyalty. Branding initiatives were limited to lubricant market only.
With the entry of these new players, competition intensified and posed a serious threat for the existing players. This lead to change in the way oil marketing companies looked at the fuel retail business. This was the time when all players started understanding the fact that fuel products has to be moved from commodity-convenience purchase behaviour to service-customer loyalty quadrant. This will initiate cross selling and thus leading to increase in per square feet revenue from retail space. This increased the players' effort towards branding and Non Fuel Revenue initiatives.
Fuel Retailing in Indian Petroleum Industry
Fuel retail business in India has undergone a huge change from a fully regulated market to semi regulated market. Till 2002 the sector was completely under government control. During all these years, the marketing function of organisations received the least importance. Distribution was the only marketing function. The market was seller's market. The customers had no option other than to buy products from public sector oil companies. The entry private players in the market have brought in options for customers and the concept of customer service has evolved in fuel retail business. At present there are nearly 34000 PSU fuel retail outlets spread across India. There are around 3000 fuel retail outlets by private players. The brand war is spreading to petrol pump stations.
The players are becoming more customers centric and once the market becomes fully deregulated in coming years with number of players becoming double of present, the competition on price will die and the competition will be to gain customer loyalty by providing different services to customer.
Thus it becomes important to know the hierarchical level of services which need to be provided to achieve customer satisfaction and gain customer loyalty. The study by Kumar & Sahay(2004) says that the behaviour of customer at fuel retail outlets on highways is to park the vehicle and relax, which is very different from behaviour on outlets within urban limits. Thus it becomes evident from the above that fuel retail business in India can divided into two types, which are “Fuel Retail Business with in Urban Limits” and “Fuel Retail Business on Highways and Suburbs”. The hierarchical level discussed above is dependent upon type of fuel retail business the player is operating in. This demarcation into two businesses happens due to the difference in the customer behaviour while travelling with in urban limits and on highways.
There are many researches done on highway travellers and their expectation and preferences of services on fuel stations, but these are geography specific and nothing has been done in the Indian context. The determination of hierarchical level of services at fuel stations till date is confined to urban limits only. The customer behaviour and expectations on outlets situated on highways and suburbs are different from customer segments visiting outlets with in urban limits. This research aims at finding different services at fuel retail outlets on highways and in suburban areas other than refuelling which will help in creating loyal customers. Also there can be number of services, but which are more important for particular outlet always remains a question. The research also aims to find relationship between the location of outlets to the kind of services required in order to build a decision making process model to select important added services with an objective of increasing per square feet revenue from the real state space and development of customer loyalty.
“Retailing is the set of activities that markets products or services to final consumers for their own personal or household use whereas Retailer is someone who cuts off or sheds a small piece from something”
Before moving to Indian context it is important to create a parallel with western markets where fuel or gasoline retailing is in more developed stage in comparison to Indian fuel retailing. The fuel retailing in India has started to move from commodity to service from 2002 after the emergence of private and global players. But this phenomenon happened far before in US, European and Asia Pacific markets.
Since 1960 there have been substantial changes in the structure of the petrol retailing industry of Europe and North America (Lowe J. , 1976)There was influx of new companies in UK market which were either independent or wholly owned subsidiaries of foreign giants. Lowe (1976) analyzed that after the influx of new firms in UK, the price competition became fierce and all the new companies tried different things to differentiate and gain customer loyalty.
The fuel or gasoline retail structure in US had full service gasoline stations. The full service gasoline station was the one that offered minor services and repairs, where wind shield was cleaned, where credit was offered and where rest rooms were available (Mitchell 1980). Mitchell(1980) also stated that these services were sold as a part of a package along with the gasoline itself and was done entirely with the objective of building a long term relationship between the service station and the customer.
The companies in the western countries started looking for various services which can supplement their gasoline sales in the event of increased competition. One of the most popular additions of service was car wash, which proved to be a successful strategy in selling tremendous volumes of gasoline. This made customers to come for car wash and also get their vehicles refuelled. ‘A dealer in Dallas, estimated that more than half of his anticipated $ 700,000 sales would come from an automated car wash. What more he claimed that the presence of car wash boosted his gasoline sales to an annual rate more than 1,000,00 gallons from 680,000 gallons three before that'.( Steele 1966)
Steele (1966) also predicted that as time passes by more and more gasoline stations will turn into large service centres offering a combination of gasoline, car wash, tire and battery service, restaurant and so on. Thus the future will be a complete one stop solution.
This can hold true in Indian context also, but the bouquet of services will be definitely very different from outlets in developed markets. The bouquet will be entirely different depending upon the different customer requirements and purchasing power.
Mitchell (1980) also predicted the movement of gasoline stations from independent full service stations to company owned self service gasoline stations. The reason stated was the pressure of margins and aim to drive customer loyalty by providing customers with a large service bouquet at gasoline station with in the same margin. This can also be seen happening in Indian context with Indian Oil Corporation being the first among all PSUs moving towards company owned outlets to increase service standards at their pumps and recently Shell entering into Indian market with company owned outlets.
The conceptual model (Brown & Ingene 1987) on fuel or gasoline retail structure in US explains the influence of demographic & environmental characteristics on marketing mix offerings. The model also explained the influence of location of the outlet on demographic, environmental, and marketing mix characteristics.
The research by Brown and Ingene (1987) demonstrated that while defining marketing mix elements for fuel and gasoline retailing it becomes important to consider the impact of demographic and environmental characteristics.
The major changes started to happen in fuel retailing and fuel stations started to move towards differentiating themselves due to increase in competition. This was the development of forecourt retailing phenomenon at gasoline stations in western markets. The major changes occurred with petrol forecourt retailing where transition of fuel stations within a contextual framework happened. They had sought differentiation in the face of increased competition. One strategy undertaken was to develop a convenience store format to supplement fuel sales (Denning & Freathy 1996).
A clear analogy can be drawn for Indian fuel retail also, where with emergence of many private players to tap the biggest consumer market, the players or fuel companies will have to try and do something to differentiate themselves.
As the competition grew the fuel retailers faced more and more pressure on profits and it became important for them to generate loyal customers and increase the ticket sales value of loyal customers at the fuel outlet. They move to others forms of revenue generation. The objective was to compensate for erosion with alternative forms of profit generation.
The issue for the petrol retailers has been to identify ways of adding value to their operation in the face of these competitive threats. One of the main methods of achieving this has been through forecourt shop. Many petrol retailers have attempted to reduce the risk posed by petrol price fluctuation by expanding the facilities at their outlets. (Keynote, 1993)
Denning and Freathy (1996) established that different customer segments depending upon their income levels and profession purchased different products from convenience stores at petrol stations. This indicates that determination major visiting customer segment becomes important at any fuel retail outlet. The product mix at any fuel retail outlet is also dependent upon purchasing power of the customer segments at that outlet.
The exact form that the formats have taken has varied by operator location and site type. This is a reflection of the fact that the convenience store does not necessarily follow a single set pattern. The limited space available within each unit, it is possible that services take priority over other categories of goods.(Denning & Freathy 1996)
An important feature to note here is that, the development of fuel stations did not happen only in areas with in urban limits. The development of interstate highways and urban express ways had made many fuel stations obsolete in western world. This made many oil companies to build new facilities to meet the changing traffic patterns. More and more oil companies began to realize that former gas outlets of the conventional style were no longer getting customer visits.
The primary objective of service bouquet is to add to the convenience of the customer visiting the outlet. Convenience is especially important in attracting repeat customers. It becomes fairly important to understand what adds to customer convenience and what not. Convenience results from various factors such as site size, site plan, traffic impacts and parking (Smalley 1996). The factors are not limited to the ones stated above; the factors vary with different geographies and markets.
Fuel retail business is of two types one with retail outlets with in urban limits and other with retail outlets on highways and suburbs. The behaviour of the customer is very different at these two different types of business. The marketer likewise faces a distinct business environment to which marketing strategy must be adapted. The Highway market is not necessarily different from traditional markets because objectives remain the same. It is unique, however, because new approaches are needed to achieve the objectives.(Beaton 2001)
Interstate or highway motorists seek five basic services: gasoline, rest rooms, food, relaxation and lodging. Aside from the need for gasoline as the prime factor, marketers differ somewhat in their opinions as to the exact ordering of these needs as stopping power factors. (Beaton 2001) The development of new factors is prompting rapid growth of different services at fuel retail outlets at highways. Competition and changing travel patterns mean that to remain competitive the oil companies must meet the overall needs of the motorist at one stop. (Beaton & Hall, 1968)
For a fuel retail outlet on highways, petroleum companies apply the same criteria for building service bouquet as that of the outlets with in urban limits. This happens due to the profit criteria only as the main objective of existence of outlet instead of customer satisfaction. A good station site does not guarantee a good service station. Site and location factor analysis indicates what a particular fuel outlet should do. (Beaton & Hall 1968)
Fuel Retailing India
Fuel retail business on highways is geography dependent; the above researchers have kept their study confined to more developed and liberalised markets than India. All those factors may be or may not be applied to Indian conditions. As the Indian fuel retail business becomes more deregulation, the customer expectations will start to rise. The variables like competitive market, promotional effort to attract customers by competitors, etc. raise the customer expectations and create customer gap. (Kumar & Sahay 2004)
In India the study by Kumar & Sahay, to find out the elements that determine customer satisfaction in delivering petrol/diesel through retail outlets is confined to fuel retail with in urban limits. The market survey was carried out in Delhi. Stratified non-probability sampling method was used for sample collection. The target population has been defined as: The people who drive ‘Cars / jeeps' or ‘Motorcycles/scooters' or ‘Buses' or ‘Goods vehicles' on the roads of Delhi (state)”. (Kumar & Sahay 2004)
Through cluster analysis the initially found segments reduced to three segments and customer expectations level for various services determined.
This has lead to development of hierarchical levels of services for different segments and a conclusion that a player offering all the six levels of services will be able to bridge gap between customer expectations and services offered. These levels of expectations, if met successfully, create “wow” effect and customer would indulge in word-of-mouth communication. Word-of-mouth communication is the most powerful tool for creating customer base. Not only the existing customers are retained but also they bring-in new customers to outlets. Prospects with continued satisfaction with the products and services become advocates. Such customers start singing marketer's song and begin to praise. (Kumar & Sahay 2004)
Fuel and Non Fuel retailing Initiatives by Indian Oil Marketing Companies
The three major players in the domain of oil marketing companies in India are PSUs namely BPCL, HPCL and IOC enjoying majority share. Rest of the pie is served by private players like Reliance, Essar and Shell. All the three PSUs have taken initiatives to add non fuel revenues and build customer loyalty. These initiatives had been taken on outlets both within urban limits and also on outlets on highways and suburbs. The reason behind all the initiatives had been to gain customer loyalty and thus increase customer satisfaction. http://www.icmrindia.org/free%20resources/casestudies/BPCL.htm
Bharat Petroleum Corporation Limited (BPCL)
Bharat Petroleum Corp Ltd (BPCL) is one of the largest public sector undertakings in India, with the Government of India having a more than 50% shareholding in the company as of 31 March 2008 (Euromonitor International, April 2009).
BPCL is engaged in the refining and retailing of petroleum and petroleum products, with around 8,251 retail outlets. By December 2008, around 400 of these outlets had an organised convenience store attached, branded as In & Out, with an aggregate retailing space of 18,600 sq m. BPCL's key strategy to increase revenues from the In & Out outlets has been to expand the basket of products and services offered through the outlets. Apart from offering packaged food, soft and hot drinks, cosmetics and toiletries, household care items and consumer foodservice, BPCL has also tried to add other additional services at the outlets over the years to add to the customer satisfaction levels.
Bharat Petroleum Corporation Ltd (BPCL) is planning to grow its non-fuel retail business by expanding its fuel retail network, with sufficient size to emphasise non-fuel offerings, and enlarge the portfolio of non-fuel offerings in its outlets located at highways and urban locations, with a focus on food, shopping and entertainment in these outlets. It will also increase consumer services - for example, through its recent tie-up with an agency for international money transfer services - at its existing urban outlets.
During the forecast period, BPCL proposes to invest Rs 6 billion to expand its retail network. The outlets will be built mainly on national highways and at urban locations, and will offer mobile consumers high quality food, and also provide them with access to entertainment through an on-site multiplex screen. BPCL has tied up with Cinemata, a film distribution unit of Sony Entertainment Television, to establish cinema halls at its fuel outlets on highways across the country by 2010.
In order to expand its range of services, In & Out launched an e-traveller facility at its forecourt retail outlets. The facility enables consumers to book rail, airline and bus tickets, as well as hotel accommodation, and is available in 37 stores. BPCL is working on Phase II of the deployment of this service, when it will make it available in an additional 100 stores. Revenues from the e-traveller facility were around Rs15 million in 2007/2008; its first full year of operation, with sales of 7,782 tickets (Euromonitor International, April 2009).
To provide added convenience services to its customers close to their homes, BPCL has signed a memorandum of understanding with Money Gram International's agent Airwings Services, to offer international money transfer service in India from its selected In & Out outlets. Meanwhile, its alliance initiative with Western Union Money Transfer saw the In & Out network record 36,677 transactions in the year ending March 2008, with a turnover of Rs 699 million, an increase of 26% over the previous year. (Euromonitor International, April 2009)
BPCL's quick service restaurant sales through its alliance network partners - McDonald's, Pizza Hut, Café Coffee Day, Subway, Nirula's and other foodservice brands - grew by 40% to Rs 249 million in the year ending March 2008.
BPCL's outlets on highways are branded as Ghar Dhaba, and represent the company's foray into food. BPCL has developed a concept covering theme design, kitchen layout and menu planning, and established the standard operating processes for the outlets in-house. As of March 2008, it had 21 Ghar Dhaba outlets in operation, with total sales of Rs23 million. Developed on a large area of three to five acres (12,000-20,000sq m), these outlets provide the requisite space to allow BPCL to experiment with a multiplex cinema for stop-over entertainment (Business Standard, Sep 2007).
If the concept is successful, the company will roll this out in more Ghar Dhaba outlets. The multiplex screens, especially in outlets located on highways, will also serve a social purpose for nearby rural consumers. BPCL plans to screen social awareness, health and literacy content in these multiplexes for rural audiences.
The majority of the products through the In & Out outlets are manufactured by third parties. However, BPCL proposes to offer its own brand of bottled water at the outlets, where the water will be a by-product of its captive power plant, based on hydrogen fuel cell technology.
Bharat Petroleum Corp Ltd (BPCL) was the leading forecourt retailer in India in 2008, with 400 outlets. The company added 17 outlets to the total in that year. Rather than expanding rapidly, BPCL has focused on ensuring that its outlets are profitable, and also on adding additional services to its existing outlets. In 2008, sales revenues of BPCL's non-fuel retail arm, Allied Retail Business (ARB), grew by 32%, to Rs2,089 million, making it the largest non-fuel revenue generator in the oil industry. During the year, In & Out's sales revenues grew by 41%, to Rs 1092 million. 15 of the In & Out outlets achieved average sales of Rs1 million per month, compared to eight in the previous year.
This is clear indication of the fact that now oil marketing companies are understanding the importance of non fuel retail revenue initiatives and also working over it not only for outlets with in urban limits but also for outlets on highways. But as discussed the scientific framework to decide what to offer still remains a mystery, as all the efforts for highway fuel retail outlets have been o trial and error basis.
Source: Euromonitor International from trade press
Hindustan Petroleum Corporation Limited (HPCL)
HPCL is a Fortune 500 Company, with an annual turnover of over Rs 74044 Crores, a 20% refining and marketing share in India and a strong market infrastructure. (Euromonitor International, July 2007)
The corporation operates two major refineries, producing a wide variety of petroleum fuels and specialities, one in Mumbai (West Coast) with a 5.5 MMTPA capacity and the other in Vishakapatnam (East Coast) with a capacity of 7.5 MMTPA (Oil & Gas, IBEF Report Sep 2009) HPCL holds an equity stake of 16.95% in Mangalore Refinery & Petrochemicals Limited, a state-of-the-art refinery at Mangalore with a capacity of 9 MMTPA. In addition, HPCL is progressing towards the setting up of a refinery in the state of Punjab.
HPCL also owns and operates the largest lube refinery in the country, producing lube base oils to international standards. With a capacity of 335,000 metric tonnes this lube refinery accounts for over 40% of the country's total lube base oil production. The vast marketing network of the corporation consists of zonal offices in the four metro cities and 85 regional offices facilitated by a supply and distribution infrastructure comprising terminals, aviation service stations, bottling plants, and inland relay depots and retail outlets.
The Hindustan Petroleum (HPCL) focus is on providing broader services to its customers with an experience that is unmatched. Through its retail channels, HPCL offers a nationwide chain of convenience stores, has forged tie-ups with leading fast food and refreshment companies to set up food counters, a special arrangement with FedEx to provide a world class courier service, vehicle insurance and international money faster counters. The focus is on complete customer satisfaction and an experience that will make a customer drive in again and again to HPCL forecourt retailing and convenience stores. In 2006, the chain developed its forecourt operations substantially through a series of agreements with a number of prominent foodservice and retail players.
HPCL is increasingly adopting a focus on loyalty, it has put in extra efforts and an aggressive marketing campaign to retain customer loyalty. It runs India's largest loyalty programme and has products such as the HPCL credit card, HPCL debit card and I-mint loyalty programme.
Another focus is on brand equity; HP has been investing in increasing its brand presence and has taken on brand ambassadors such as Sania Mirza and Narayan Karthikeyan to promote its different products. Hindustan Petroleum Corporation Ltd (HPCL) is a central government commercial enterprise engaged in the refinement and sale of crude oil. It also manufactures other petroleum products like LPG, lubricants, greases, petrochemicals and aviation turbine fuel.
HPCL launched its Club HP forecourt retailing chain in 2001. From the beginning, the chain sought to offer other facilities besides selling petrol, diesel and other products. These include free vehicle checks, vehicle finance and insurance related services, bill payment services, HPCL-ICICI credit cards and loyalty programmes. (Euromonitor International, July 2007)
Club HP outlets are classified as Standard, Mega and Max, depending on the services and amenities available. In its first phase of expansion, HPCL set up 85 Club HP outlets in Delhi, Mumbai, Kolkata and Chennai. Each of these outlets was converted at an estimated cost of between Rs1 and Rs3 million. It subsequently introduced its supermarket sub brand HP Speed mart, and developed its foodservice operations through an agreement with US Pizza.
The success of this deal prompted HPCL to enter into similar agreements with players such as Café Coffee Day (vending and foodservice), Dairy Den (ice cream parlours), Western Union (money transfer points) and Tata Motors (car care services) (Business Standard, Jan 2007).
In order to improve its image among Indian consumers in terms of the quality of its fuel, during the review period the company launched the PCL Quality Assurance initiative under the "Good Fuel Promise" slogan. This involved the pioneering concept of mobile laboratories to carry out regular checks on fuel sold at Club HP outlets. It also entered into an agreement with the international agency Bureau Veritas to conduct a surveillance audit of Club HP Outlets. After having a market share of around 20-22% for a long time, recently it has improved its market position to number two, with a market share of close to 25% of the total service station market in India (Business Standard, April 2005).
For most of the review period, Club HP played second fiddle to BPCL's In & Out chain in terms of revenues from forecourt operations, although it garnered considerable brand awareness among consumers. A deal with US Pizza was expected to witness the opening of over 500 pizza and fast food delivery units at Club HP service station outlets across India between 2005 and 2007. Apna Bazaar Co-operative (a supermarket chain) is involved in a pilot project with HPCL to establish Apna Bazaar outlets at three Club HP outlets in Mumbai. If successful, the alliance will be extended to other Club HP outlets nationwide. This agreement will also enable Apna Bazaar to upgrade its image by targeting more upper and middle class consumers.
While neither of these deals on their own are likely to have any major impact on constant value sales of impulse food and drink products through Club HP outlets, they will almost certainly benefit from the rise in consumer traffic that these foodservice and supermarket operations will entail. A loyalty card deal with low-cost airline Air Deccan should also ensure a higher volume of consumer traffic in Club HP outlets over the forecast period. Similarly, an agreement with Federal Express (FedEx) during the review period to open cargo collection centres at various Club HP outlets should continue to attract consumers between 2005 and 2010. FedEx is slowly gaining a reputation in India as a reliable cargo delivery agent; in 2005, there were FedEx cargo collection centres at HP outlets in eight major Indian cities.
Source: Euromonitor International from trade press
Reliance Petroleum is aggressively targeting the service station channel, planning a pan-Indian presence over the next couple of years in cities as well as on main roads. The biggest challenge it faces is in terms of return on investment and whether it is a wise move to invest so heavily in forecourt retailing in India, which is still relatively underdeveloped.
With Reliance's strong presence across India, food and beverage manufacturers can aim to push major volumes through Reliance service stations. Reliance Petroleum Limited (RPL) is a subsidiary of India's largest private group Reliance Industries Ltd. RPL was set up to harness an emerging value creation opportunity in the global refining sector and currently RPL is a 75% owned subsidiary of RIL. RPL also benefits from a strategic alliance with Chevron India Holdings Pte Limited, Singapore, a wholly-owned subsidiary of Chevron Corporation USA (Chevron), which currently holds a 5% equity stake in the company.
RPL was formed to set up a Greenfield petroleum refinery and polypropylene plant in the Special Economic Zone (SEZ) at Jamnagar in Gujarat. This global sized, highly complex refinery is being located adjacent to RIL's existing refinery and petrochemicals complex, which is amongst the largest and most efficient in the world, thus offering significant synergies. With an annual crude processing capacity of 580,000 barrels per stream day (BPSD), RPL will be the sixth largest refinery in the world. It will have a complexity of 14.0, using the Nelson Complexity Index, ranking it among the highest in the sector. The polypropylene plant will have a capacity to produce 0.9 million metric tonnes per annum. (Euromonitor International, July 2008)
With its Reliance A1 Plaza chain, Reliance aims to provide consumers with a wide choice of products in convenient locations. The company had planned to open more than a 1,000 service stations in the next 2-3 years, so it was clearly targeting leadership in the petroleum retailing segment. But during economic crisis and with high crude rates, Reliance had shut their outlets as serving fuel at comparative prices was becoming non-profit making business for them.
Shell India Marketing Private Limited
Shell India Marketing Private Limited (SIMPL) is a subsidiary of Royal Dutch Shell and the first multinational corporation to obtain government approval to open 2,000 service stations across the country. SIMPL launched its operations in India in Bangalore in 2004, and subsequently in Chennai and Hyderabad, and is looking at a pan-Indian presence. However, the minimum size requirement coupled with high land prices virtually ruled out large metropolitan areas, especially Mumbai, from the company's plans.
Currently, Bangalore has more than 12 stations. A pilot study to introduce a fuel card is under way at three stations. Shell is so far the only international oil company to enter the Indian retail channel. The company's development of a liquefied natural gas terminal and degasification facility at Hazira allowed it to meet the government's call for investment. In 2005, after an absence of nearly three decades, Shell opened a new petrol station in India. Run by a former Pizza Hut manager with a track record of good customer service, the station on Dr Rajkumar Road in Bangalore , quickly became a landmark thanks to its team of efficient attendants directing traffic, cleaning windscreens and pumping petrol. Today Shell operates 35 stations in southern India.
Shell's presence in India goes back about 75 years as a pioneering oil distribution company by the name of Burmah Shell which was set up in 1928. It returned to India in 1993 and established Bharat Shell Limited. For Shell, India is a large potentially profitable market with strong growth prospects. Factors for success are clear and consistent strategy, best practices from Shell worldwide, marketing and distribution and adaptation to the Indian business environment. Shell businesses in India today are:
Shell India Marketing Pvt Ltd (SIMPL) aspires to create a niche in customer service through its chain of Shell Shop convenience stores in India. As it is a new entrant in India it faces heavy competition from local players such as BPCL and HPCL, which already have a widespread presence across the country. SIMPL, a subsidiary of Shell, is the first multinational corporation to obtain government approval to open 2,000 such stations across the country.
SIMPL is looking to provide branded packaged food and beverages through its convenience stores targeted initially at urban consumers. With its high-quality fuel and well-designed petrol stations Shell India has been able thus far to create a bit of a niche for itself in petroleum retailing. Royal Dutch Shell has made the largest foreign direct investment in India of all integrated oil companies (around US$1 billion) and is the only global major to have a retail licence in India. (Euromonitor International Sep 2008)
With its limited number of stores mostly present in India's metropolitan areas, Shell is catering primarily for the urban upper-middle class population at present. It is the biggest innovator in terms of convenience store design and providing customers with additive enriched fuel, which is more cost efficient. Shell does not have national coverage at present but has a licence to open more than 2,000 petroleum retailing stores. Shell convenience stores are well-equipped with refrigeration facilities and therefore can further expand in the unpackaged food and beverages segment. At present, stores mostly sells snacks, chocolate, carbonates, fruit-based and milk-based beverages.
Essar Oil Limited
Essar Oil is a subsidiary of Essar Energy with assets including developmental rights in exploration blocks, a 10.5 million tonnes per annum (mtpa) refinery on the west coast of India and around 1,300 Essar branded fuel retail outlets across India. Essar Oil is planning to increase its exploration venture in various parts of the globe and also expanding its refinery capacity to 34 million tonnes per annum (mtpa), and open 3,000 outlets countrywide.
The company has global portfolio of onshore and offshore oil and gas blocks and with about 70,000 sq km is available for exploration. Essar has 280,000 bpd (barrels per day) of crude refining capacity which also in the process of expansion to 680,000 bpd and company is aiming to reach the goal of global refining capacity of 1 million bpd. Company has a 50 per cent stake in Kenya Petroleum Refineries Ltd, which has a refinery in Mombasa, Kenya, with a capacity of 80,000 bpd.This gives company a global presence as well as a support for fulfilling its demand coming through their fuel retail outlets.
The Exploration and Production (E&P) business of the company has participating interests in several hydrocarbon blocks for exploration and production of oil and gas. This includes the Ratna and R-Series blocks on Bombay High, and an E&P block in Mehsana, Gujarat, which has currently started commercial production. Essar has a coal bed Methane (CBM) block at Raniganj in West Bengal, and two Exploration and Production (E&P) blocks in Assam, India. There are overseas Exploration and Production (E&P) assets also which include three onshore oil and gas blocks in Madagascar, Africa, and one offshore block each in Vietnam and Nigeria.
The company have a 10.5 mtpa refinery at Vadinar in Gujarat, which started commercial production on May 1, 2008. The refinery has been built with state-of-the-art technology, and has the capability to produce various products such as petrol and diesel which are appropriate for use in India as well as in different international markets.
Essar Oil serves its retail customers through its modern, nationwide network of over 1300 retail outlets. They offer a wide range of products to mass customers in the industrial and transport sectors.
The business model of Essar oil is based on franchising format where the prospective franchisee leases his land to Essar for 30 years and invests in setting up the infrastructure for the outlet. Essar provides all the guidance, instruction in construction of the outlet.
Type of Retail Outlet
The company has divided outlets into three types depending upon their size, estimated sale in kilolitre per month and Truck stops.
Process of selection of franchisee:
The company follows a step by step process in finalising the agreement with franchisee from expression of interest to signing the deal.
The franchisee selection is done keeping in mind his knowledge about the local area and market.
What a Franchisee gets:
- Slab based margin on the sale of fuel.
- Franchise lease rent
- Product supply at door step
- Creation of awareness about the Retail outlet through advertisement and promotions.
- Return on Investment on site and infrastructure development.
- Long term relationship
- Other Non Fuel Revenues.
Source: Based on the discussions with Deepak Asrani, Deputy Divisional Manager, Essar Energy, Ahmedabad
The above red marked strength, weaknesses, opportunity and threat are interrelated and lead to common factor of Non Fuel Revenues.
Essar Oil is in a process of giving a makeover to its fuel retail operations by enhancing additional facilities through tie-ups at its outlets with the objective of increasing non fuel revenues. The company has already tied up with Tata group for Rallis, National Seeds Corporation and Amul for reinforcement of the added facilities at rural outlets. At the highway outlets, the company is trying multiple options to catch the attention of consumers. Development dhabas for food, cleaner toilets and other added facilities are part of a major plan. In the cities, it is looking to set up food courts and shopping facilities. The company has already tied with State Bank of India (SBI) for opening ATMs. (Business Standard July 2009)
Essar Oil has tied up with some companies from Agro, Beverages, Banking, Money transfer, Steel Expressmarts etc
- Rallis India Ltd ( Pesticides & Seeds)
- National Seeds Corporation Ltd( Agricultural Seeds)
- Coca Cola
- Banking and ATMs
- HDFC-card swap machines
- Money Transfer
- Western Union
- Steel and other utilities
- Essar steel Expressmart
- Currency Exchange
- Weizmann Forex
Research Gap and Rational
As the study by Kumar & Sahay says that the added facility will be different in case of highways and suburbs outlet will be at different level. On highway,the purchase behaviour is different where customers wish to park their vehicle and relax. This is a clear indication of the fact that service hierarchy levels will not have similar order for fuel retail outlets on highways and suburbs as that of fuel retail outlets within urban limits. All the oil marketing companies in India have taken various initiatives to gain customer loyalty. This will help them in developing a platform for cross-selling in future and thus increasing their overall revenue per square feet from the retail space. This includes revenues from sale of both fuel and non fuel products.
Although all the companies are trying to gain customer loyalty by increasing service levels at fuel retail outlets but what to sell to whom still remains a question. Researchers through their studies have developed models and decision processes to decide on the product mix for outlets with in urban limits. But to find such a decision process model and hierarchical level services still remains a question for outlets on highways and in suburban areas.
The presence of various new segments at the outlet on highways and suburbs will require determination service level to add to customer convenience at these outlets. These service levels will help decision makers to decide on the right product mix. The correct combination of fuel products, on fuel products and added facilities will help oil marketing companies to develop customer loyalties and increase non fuel revenues.
The study by Kumar & Sahay (2004) indicates that the hierarchical level of services developed for fuel retail outlets within urban limits cannot be scaled to fuel retail outlets at highways because of different customer expectations and different customer segments. There is no knowledge available at present which can help company or franchisee to create a combination of product and services which will help in creating repeat purchases and differentiate them from their competitors. So there is a requirement for development new hierarchical level of services for fuel retail outlets at highways and suburbs in order to understand the correct combination of product and services that can be offered to create loyal customers.
- To find out the elements that determines customer satisfaction in delivering petrol/diesel through retail outlets on highways and in suburban areas.
- To find the hierarchical level of the elements that determines customer satisfaction in delivering petrol/diesel through retail outlets on highways and in suburban areas
- To understand how the customer satisfaction elements can be used to develop a model in order to determine product mix at fuel retail outlets on highways & suburban areas in order to generate and increase non fuel revenue ,thus leading to higher customer satisfaction and loyalty.
The methodology for the research has been both qualitative and quantitative. The qualitative research was done to determine exhaustive list of services expectations of travellers at highway fuel retail outlet .It included
1. Observational study
2. In-depth interviews with industry experts in fuel retail business and interviews with franchisee owners.
This exhaustive list and the insights from qualitative study were used to develop questionnaire which was administered in the quantitative study.
The quantitative research included administering of questionnaire to customers at fuel retail outlets on highways and suburbs and further data analysis was used to determine hierarchical level of services in context of highway fuel retail. The survey was carried out at fuel retail outlets. The sampling technique used was stratified non-probability sampling.
The following set of vehicle segments were included in the study
- Agriculture Based
- Owner driven cars and jeeps
- Taxies and chauffeur driven cars and jeeps
- Motorcycles and scooter
- Light commercial vehicles
The choice of outlets on highways and suburbs, has been classified into following three groups
- National or State Highway passing through town/city
- National or State Highway passing through suburbs of town/city
- National or State Highway 8 -10 Km from town/city on the industrial belt and villages around it.
The collection of customer data was done at selected outlets from each location classification. 3-4 outlets were selected for each location classification. In all total 12 fuel retail outlets were reached to study the consumer behaviour around Ahmedabad.
Gujarat Districts Map
The research process followed in this study is depicted by following process diagram.
The qualitative research was consisted of three basic parts as shown by the above diagram. The qualitative research finding led to the fulfilment of the following research objective.
“To find out the elements that determines customer satisfaction in delivering petrol/diesel through retail outlets on highways and in suburban areas.”
Industry Experts Opinions
The interaction with industry experts were done get an insights and develop an exhaustive list of facilities and services that can be provided at fuel retail outlets to increase customer satisfaction levels. The industry experts interacted were people with vast experience in the field of oil marketing. The interactions also helped to build a more concrete rationale for requirement of non fuel retail activities in present scenario.
All industry experts are of the point of view that oil companies globally are giving emphasis on non fuel retail and they have moved from fuel & vehicle related retail to destination retail where non fuel retail considerably adds to the revenue.
Based on discussions with Arjun Hira, General Manager Retail , BPCL
There are many factors that need to be taken into account for satisfying the customer visiting the fuel retail outlets. Location, quality, quantity and added facilities along with service facilities were the factors which came out through interactions. The discussions led to the collection of various services and added facilities that a highway consumer and a rural consumer expects at a fuel retail outlet and the presence of these facilities will help in increasing their satisfaction level. The behavior and expected facilities required by the two sets of customers (Highway and Rural) which came out from discussion are collated in the two tables below.
The above tables are developed by the insights gathered from interaction with industry experts
Preeti Reddy -Advisor Technopak , Deepak Asrani- Dy Divisional Manager Essar
Interview with Franchisee
The interviews with franchisee were done with the objective of finding their point of view about non fuel retail activities. The interaction with franchisee also gave insights about the different facilities and services offered at their outlet will bring more customers and create customer loyalty.
All the franchisee accepted that with rising competition, it becomes important to have initiatives to develop customer loyalty. But they were apprehensive of the fact that they have invested a good sum of money after investing in the outlet. Secondly if they have franchise of a private company, the fluctuation in crude prices can make them sell fuel at higher prices (Very high difference, a difference of say Rs 4-5 for petrol) which deters customer to buy fuel from them.
Most of the franchisees were of the view that if company takes a initiative and supports them in running the non fuel retail activities, it will become more profitable to them. The interactions also helped to generate an idea about the customer distribution, purchase ticket value (purchasing power) for different location classification.
Observational study was done by visiting to nine fuel retail outlets selected as a sample and their nearby towns. This was done to understand the demographics, purchase behaviour and purchasing power of the customer visiting or might be visiting those fuel retail outlets. The observational study outputs from outlets are clubbed as per location classification to get a better insight from the study.
a) Fuel Retail Outlets situated on National and State Highway passing through suburbs of town or city.
The fuel retail outlet was located on National Highway-14 connecting to Kandla port but passing through suburbs of the town Deesa. Itis amunicipalityinBanaskantha districtin the state ofGujarat with a population of 83400 (Census 2001). The outlet catered to local bike owners which constituted a considerable share in the total number of customers served by the outlet apart from highway travelers. The customers at fuel retail outlet refueled with an amount more than Rs 50. The market of town was well developed with modern retail stores like RCM Bazar, consumer durable franchises and bank ATMs other than other traditional retail outlets.
The outlet is located on the suburbs of Gandhinagar, 6-7 kms from Akshardham Mandir situated on Ahmedabad to Udaipur National Highway 8. A very busy highway with high and medium end segment and considerable numbers 4-wheelers visiting the outlet .There are people travelling from Ahmedabad or Gandhinagar forms a part of the customer distribution but still majority distribution is tilted towards Farmers and people in the nearby villages. At a distance of 40-50 m , there is restaurant come stop over place and most of the travelers get their vehicles refueled during their stop over to this restaurants for meals. Although the outlet is close to state capital limits but its location on suburbs devoid it from the urban customers.
The outlet is located in town limits of Nadiad but is situated on the expressway to Ahmedabad 5-6 kms from the center of the town. The city of Nadiad houses a large number of NRI population and the presence of high to medium end retail outlets reflected a good lifestyle and purchasing power. But the location of outlet being on suburbs makes very few customers from Nadiad town turn up there. The customers are mostly farmers, short distance truckers, and highway travelers mostly NRI who travel to and from the Airport
The observational study for the outlets which are in the location classification (National and State Highway passing through suburbs of town or city) suggest that they get majority of customers from the segment like farmers, highway travellers and local bike and car owners who travel through that highway for work, business or any other purpose. Since the location of the outlet is on suburbs of a developed town or city instead of a village, there are opportunities for providing services and added facility at fuel retail outlets. The rationale behind this is that the people who are visiting these outlets are satisfying their demand for other facilities from the shops and retail outlets in the town. The presence of various added facilities in the town also gives the picture of purchase power that can be exploited if those added facilities are used or purchased by customers visiting the fuel retail outlets.
b) Fuel Retail Outlets situated on National and State Highway passing through town or city.
The outlet is situated on National Highway-8 which passes through the city of Mehsana. It is the most modern and posh area of Mehsana This is a 3-4 km stretch which has Multiplex (Wide angle), V Mart Retail Store, Apparel Shops like Liverpool and TQS. The outlet is very near to ONGC colony. The area has the most high end customers visiting for their shopping's. Wide angle has outlets like Reebok etc. This clearly shows that location of the outlet is well placed to serve the upper end strata of the town apart from highway travelers and local village farmers who visit outlet. The presence of market place around the area gives the indication of the fact that customer visiting this area have high purchase potential. The conversation with nnearby shopkeepers revealed that the place is center for the upper class people in Mehsana.
The outlet is situated on the highway connecting Nadiad to Ahmedabad. The location of the outlet is near to college road which is the most up-market place of the town. There is a multiplex (Rajhans) in the vicinity of the outlet on the college road apart from dental college, degree college and some good quality restaurants .Nadiad seems to be pretty well-off town with college road area being developed very well in terms of shopping habits with stores like 9 to 9 dollar shop This college road is on the Nadiad-Vadodra highway connecting to Anand. Nearby shops and facilities in that area is probably due to NRI population residing out there.
The outlet situated within town limits of Patan.It serves a good number of local 2 wheelers and 4 wheelers. In evening the road serves as hanging out spot for city people. Retail outlets like grocery chain More is located nearby. Franchisee had implemented promotional schemes on purchase of fuel through printed coupons. The market place is again well developed with medium to high end retail stores for apparel and consumer goods.
The observational study for the outlets which are in the location classification (National and State Highway passing through town or city) reveals the outlets are located in the new areas of the town or city. These are the areas where modern market place are developing and they are becoming shopping and visit centres for higher income strata level population with good purchasing power. The distribution of customers at these outlets is more tilted towards local vehicle owners and highway travellers. The proportion village based customer becomes less at theses outlets. Since the location of the outlet serves higher income population of the town for their shopping and recreational requirements. It gives a indication that the presence of facilities at the outlet will give outlet an opportunity to serve customer better but also develop loyalty.
c) Fuel Retail Outlets situated on National and State Highway passing through 8 -10 Km from town/city with industrial belt and villages around it.
The fuel retail outlet is situated on highway connecting Ahmedabad to Viramgham. It is located in an industrial area with Saraswati Construction and Tata Motors-Nano factory nearby. It serves to farmers from 25-30 nearby villages. People driving 2 wheelers and 4-wheelers are also not in hurry as they are on outlets with in urban limits. Bus and Taxi drivers when stop for refueling, goes to drink water, stop of around 10-15 minutes. The majority of the customers coming to the outlet are local village farmers who come in groups for purchase of oil for their agriculture equipments. They come with tractors and most of them were carrying other agricultural products. All of them seem to be well acquainted with the place which appeared with the way they communicated with attendants at the outlet.
Jai Shree Umiya Petroleum
The fuel retail outlet is located in Malvan village (Surrendranagar) . It is situated on highway connecting Ahmedabad to Bhuj . Being situated in Malvan village and on the highway, the outlet attracts mostly village farmers and highway travelers. In front of the outlet there is a hotel where most of the highway travelers stop and take food. As outlet serves to large number of people with agricultural background, so building product mix keeping them into account will be beneficial.
The fuel retail outlet is situated on the National Highway-8 connecting Ahmedabad to Udaipur, 8-10 km from Himatnagar railway station. Most of the customers are farmers and local bike owners. The purchase habit is to buy fuel for Rs 20-50.Area around it getting developed and has “Grow more Institute for MBA and MCA opposite to it. Himmatnagar does not have up-market shopping places.
The observational study for the outlets which are in the location classification (National and State Highway passing through 8 -10 Km from town/city with industrial belt and villages around it) reveals that the outlets under this classification have village based customer as majority in total customer distribution. The purchase behaviour of rural customer is based on trust and purchases are always done in groups. The purchase for fuel is always planned with their visit to nearest town or market for agricultural inputs and other household requirements. The customer segment looks for one stop solution serving to his needs. This opens a huge opportunity to tap into rural market and satisfy the needs of rural customer at one stop. This will not only help in increasing revenue but building long term customer relationships.
Exhaustive List of Services developed from Qualitative Study
The insights from interaction & discussion with industry experts, interview with franchisee and observational study were collated to develop an exhaustive list of services that can be offered at a fuel retail outlet. The quantitative study will determine which the most expected services by different customer segments are. The order in this list is not representative of the preferences of any customer segment. The order will evolve differently for every homogeneous customer segments. Reliability, Responsiveness, Ambience, Value for time Supporting Facilities and Added Facilities (A, B, C, D) are the services which have evolved from qualitative study.
Case study showing economic viability for Non Fuel Services at an outlet
The case study is developed after taking the inputs from the discussions done with industry experts and franchisee. The purpose of this case is to show the economic viability of using the retail space for non fuel retail activities.
Financials which are considered for building the case are as follows
Land area for fuel retail outlet
Fuel operations (includes space for dispensers, tanks, office buildings, electricity and generator rooms, etc)
Retail operations (vacant space or unutilized space which can be used for non fuel operations such as ATM , convenience store or restaurants, etc)
Data is based on inputs from industry experts and franchisees
Assuming FSI (Fuel Space Index) for retail development is 1. The purpose is to indicate that total plot area is being used.
Fuel space index is the ratio of total floor space to total plot size
Conversion of 1 acre = 43560 sq ft
Thus the built-up area for retail development corresponding to 0.35 acres will be 15246 sq ft. As the built up area will be used for retail operations and construction cost is taken to calculate total cost to be incurred for preparing the built up area for retail operations.
Data is based on inputs from industry experts and franchisees
When this retail space is given on rent, there are earnings in the form of rent on a yearly basis.
Data is based on inputs from industry experts and franchisees
The above analysis proves the economic viability of using fuel retail outlet space for non fuel retail activities. The earnings will eventually increase the revenue per sq.ft from retail space thus satisfying business objectives.
The quantitative study was done to fulfill the following objective
“To find the hierarchical level of the elements that determines customer satisfaction in delivering petrol/diesel through retail outlets on highways and in suburban areas”
The elements that determine the customer satisfaction while delivering petrol/diesel through retail outlets on highways and in suburban areas came from qualitative study. The quantitative study constituted of administering questionnaire to customers visiting the nine outlets taken as sample. The respondent groups considered in the study are shown below
- Bikes and Scooters
- Highway Travellers
- Buses & Taxis
Light Commercial Vehicles
The respondents were asked to rate the exhaustive list of services (which if present will add to their convenience and make them come to the fuel retail outlet again) on a scale of 1 to 5 where 1 represents very low and 5 represents very high.
Analysis and Insights
Decision Process Model
The research results will give elements that determine customer satisfaction in delivering petrol/diesel through retail outlets on highways and on suburban areas. The research will also determine the hierarchical level of the elements of customer satisfaction. Both of the above two research result will lead to development of a model which be able to converge on the correct combination of product and services at fuel retail outlets on highways and suburbs will help petroleum company to design their offerings in such a way that they can add to convenience of the customer. This will help in gaining customer loyalty as well as increased non-fuel revenue.
As the competition will grow in market and if expected complete deregulation of fuel retailing business happens, the research findings and model will enable companies to create differentiation and tap a large growing customer base.
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