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Strategy & Consulting

Boosting profitability of non-fuel retail in India

February 23, 2023 5-MINUTE READ

RESEARCH REPORT

In brief

  • Recent market trends have exposed oil marketing companies (OMCs) dependent on conventional fuels to sustainability risks.
  • OMCs have diversified towards non-fuel retail (NFR) channels to generate additional income and sustain traditional revenue streams.
  • OMCs can succeed in NFR by expanding click-and-collect options, offering frictionless customer experience, developing own brands, and engaging with local communities.

Indian oil marketing companies (OMCs) have been riding on rising fuel demand predicated on vehicle ownership and mobility trends. The high dependence on conventional fuel and the evolving market trends have exposed OMCs and their channel partners to sustainability risks. For example, the high cost of EV charge installation and low margins have continued to suppress the profitability of OMCs in the downstream sector. This scenario has driven OMCs to diversify towards non-fuel retail (NFR) channels. However, this diversification has not heightened the profitability of OMCs. The reasons OMCs have experienced low-levels of success in NFR can be attributed to their lack of core competency in consumer goods retailing, inefficient supply chain network, and a non-strategic approach.

A strategy revamp can help pave the way for OMCs to address shortcomings and prepare themselves for the current times.

Among the various strategies, the use of lifestyle segmentation data can help OMCs decide whether to opt for non-fuel offerings, which offerings are to be made available, and what kind of assortment meets the customer needs. Another strategy that contributes towards customer experience is store design. OMCs that record high store footfalls are usually the ones that revamp store designs and format based on the wide variation between the dynamics across the different market segments (e.g., highways, urban, and rural). OMCs can use a focused market research survey or source micro-market data to understand the catchment profile across these segments. Besides store design, storekeeping is key to smooth store operations. Establishing partnerships can help OMCs handle multiple stock-keeping units and stores. Strong warehouse operations also play a crucial role in ensuring quick inventory replenishment and, eventually, in enhancing in-store efficiency.

OMCs can also develop partnerships with multi-brand aggregators to secure a robust supply chain network, completely outsourcing backend logistics and inventory management.

OMCs must take a well-planned, data-based approach to network planning, assortment mix, and store format selection in place of gut-based decision-making.

Increase in-store footfall by offering click-and-collect options. Also, leverage on the extensive network for LPG cylinder delivery at the customer’s doorstep.

Use technology while designing the forecourt by using 3D models of the outlets to simulate the movement of different vehicle segments.

Engage with the local communities and quickly adapt to their changing tastes, by leveraging micro-market data and engaging on social media.

Launch own non-fuel brands (e.g., food-on-the-go) to control prices and earn higher shares or margins. Also synergize their lubricant brands with the vehicle care proposition.

The anticipated roadmap for the fuel retailing industry for the next ten years has been summarized as follows:

0-5 years

  • Expansion of fuel station network with both public and private companies
  • Limited players with fuel retail license
  • Stagnant average outlet sales
  • Conventional fuel as the main source of income
  • NFR at nascent stage with OMCs experimenting with various operating and business models

5-10 years

  • Beginning of fuel network consolidation with less prof­itable dealers exiting the business
  • More intense competition with smaller and non-Oil & Gas companies entering the market
  • Declining average outlet sales
  • Gas and bio-fuels as signi­ficant portion of the income
  • NFR with success stories but continues to evolve

The onset of alternate mobility solutions has started to transform the oil marketing industry. The winners and losers will be decided by their ability to adapt to the changing environment and successfully diversify the value streams.

Accenture has helped fuel retailing clients in India and globally, from building a non-fuel retail strategy from ground zero to enabling them with cutting-edge solutions for implementation. We have deep expertise in advanced analytics, helping various clients with customer analytics, location analytics, pricing analytics, and several other use cases relevant to consumer goods retailing. We also have a plethora of partnerships in a wide range of domains, such as new-age technology, third-party data, disruptive innovations, and so on.

References:

Hari Shankaranarayanan

Managing Director, Lead – Energy, Accenture in India

Tarun Jain

Managing Director – Energy, Accenture in India

Ashok Gopinath

Managing Director, Lead – Technology – Resources, Accenture in India

Divyansh Raghuvanshi

Business Strategy Manager – Energy, Accenture in India

Contributor

Vishal Reddy

Business Strategy Consultant – Energy, Accenture in India

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