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The future of the service station

The humble petrol station has evolved over the years. Peter Ratatics, Executive Vice President for Consumer Services at MOL Group, talks about how the company is growing both… View Article

GENERAL MERCHANDISE

The future of the service station

The humble petrol station has evolved over the years. Peter Ratatics, Executive Vice President for Consumer Services at MOL Group, talks about how the company is growing both its station network and retail business, and its plans for digitalisation and mobility of the future.

Businesses need to constantly adapt to changing market needs. For fuel retailers, high fuel prices, stressed margins, and a need for global reduction in carbon emissions are sounding the bells of change. Over the past few years, MOL has been adapting its retail business with a stronger focus on non-fuel transactions. The change has been an enormous success and given us a deeper understanding of customer needs and behaviours. However, we are not standing still. There is much work to be done to adapt our business for a future where the whole concept of mobility is changing.

Not everything is in our control

COVID-19 tested the resilience of businesses worldwide. It impacted travel, but our shops have remained open throughout. To end of September, we had our strongest quarter ever as customers hit the road once again over the summer to visit relatives and tourist areas they could not go to in the previous months. The economy too has started to bounce back, with an average GDP of around 5% in the region and several countries achieving 7%. This increase has a positive correlation with fuel consumption. Indeed, transactions and fuel consumption has surpassed the last pre-pandemic period in 2019; a reflection of our commitment to invest and continue to grow our retail business.

Strength through diversity

Currently, margins for MOL’s retail business are split between two thirds for fuel and one third for non-fuel goods but we are seeing higher growth in the non-fuel business, with both transaction numbers and basket size increasing. Many fuel retailers have chosen to outsource the non-fuel part of their business for quicker and easier growth. For example, Shell have partnered with Tesco, BP with Marks and Spencer, and OMV with Spar. This makes for a much easier win as this business requires a new set of competencies in areas such as product sourcing, product selection, and promotion. We took the decision to keep our non-fuel offering in-house and launched our “Fresh Corner” brand back in 2015. Although this strategy had its challenges, unlike partnering with a third party, it gives us direct access to our customers and opportunity for higher margins.

We hired managers with experience in the convenience sector and have grown our in-house understanding of this market. Success has followed, and, despite the pandemic, we continued to invest and construct new Fresh Corner stores and recently opened our 1000th outlet, representing around 50% of our fuel station network. Site locations may mean they are not suitable for Fresh Corner, but our target is for 80% coverage.

So, why is Fresh Corner proving to be such a success? We aim to meet the widest possible range of consumer needs, with ever higher quality. We started transforming our filling stations almost seven years ago with the Fresh Corner concept, and today we offer fresh food and high quality coffee in thousands of locations across the region, with menus that reflect the specialities of each national cuisine. We have been learning since its inception, subtly adapting store design, floor layout, gondola heights, and gaps between shelves based on customer feedback and by monitoring business performance. We have even taken time to understand the impact of lighting and how different levels of brightness and colours can make customers feel. In addition, the pandemic of the last two years has confirmed that consumer habits can change very quickly, which has encouraged us to focus more and more on online shopping and e-commerce. Combining physical and online shopping – where the service station would be the common point, a kind of collection point.

With the acquisition of Marche, the Hungarian restaurant chain, we will strengthen our Fresh Corner’s gastronomy line. In the frame of this deal, we didn’t buy the brand, it was the competence and knowledge that was the real value for us: Marché can produce quality food relatively quickly, within a minute or two – we acquired the processes, recipes and way of doing it. Our plan is to take this knowledge to other countries and put it to good use.Not to mention that this has had an immediate positive impact on cash generation, with 25% increase in supplier contribution through our improved expertise in buying and selling FMCG.

Marche expands the fresh component of our business and our proficiency in offering goods such as sandwiches and hot dogs. We have now reached remarkable levels of sales of 26 million hot dogs and 53 million cups of coffee per year, making us one of the largest coffee houses in the region, surpassing major brands such as Starbucks and Costa.

Our customer loyalty scheme has been another success story. Initially launched in Croatia in September 2020, and then we introduced it in Slovenia and now in Hungary as well. In Croatia we have over 300,000 members and by the end of 2022 we expect to have 1.3 million customers in our loyalty program who will be able to move up tiers within the app based on their purchases, giving them increasing benefits. This approach will increase customer loyalty, the frequency of visits to our stations, and start to create behaviours that will benefit our business.

The future of the filling station

Of course, fuel in whatever form remains a major focus for our business, but this too will need to change with the dawn of e-mobility and other modes of transport designed to reduce carbon footprint. We need a different approach to service electric vehicles and must think differently as internal combustion engines start to disappear. We do not, however, expect customer mileage to reduce, so the ultimate question is how to provide the energy these vehicles will require. We are assuming that 50% of cars will be charged at home but the rest will still need charging opportunities at the roadside.

Based on current calculations, physical locations of our service stations will need to be three times larger to accommodate enough electric charging points. As fuelling times move from just a couple of minutes to 20-30 minutes, we will also need to provide facilities for customers while they wait. The value of our real estate, located in strategically important road locations will increase.

Market consolidations have created acquisition opportunities and our target is to grow the MOL network by 2% per year. Through acquisitions and new locations, 1 year ago, when we updated our strategy, we targeted  2,200 service stations by 2025 from the recent 1941. We also added that MOL is open for good opportunities in the region, and those arrived earlier than expected so with the recent acquisitions MOL will reach almost 2400 service stations this year: we managed to sign an agreement for OMV’s 120 service stations in Slovenia and  an agreement for Lotos’s 417 service stations in Poland. We enter the 10th country with our Consumer Services division with the Polish acquisition.

The concepts for the future

Of course, we cannot stand still. Our plans for the future include having a combination of physical and online services. This will require further expertise in areas such as supplier management, negotiation, inventory management, supply chain management, warehousing, and fast secondary logistics and distribution. These are essential capabilities for sophisticated e-commerce. Other pillars for success are direct, mass access to customers and a sophisticated CRM and loyalty system. Having already invested $35 million in a sophisticated digital platform which employs artificial intelligence, machine learning algorithms and advanced analytics, we have a strong start in this area. By the end of this tax year our investment in this platform will reach $50 million and our target is to be competitive with other major modern trade retailers in this market space.

An e-commerce business is different to the convenience offering within our service stations, where higher shelf prices can be sustained for chocolate, snacks and drinks. Our online offering will need to be price competitive but, with 2,400 service stations located throughout Central and Eastern Europe with inherently easy car access, we have the ideal real estate for ‘click & collect’. This will also increase footfall within our stores and present good cross-selling opportunities. Although items such as furniture and clothing will not be practical offerings, we expect much higher transactions from non-food goods.

In 2022, we will continue standardisation, IT system development and building our capabilities in the FMCG sector. We have a strong digitalisation strategy that will optimise the bottom line and improve the top line and, by the end of the year hope to open up our e-commerce offering.

In just a few years’ time, no one will care about fuel. It will simply be a question of getting from A to B. Payment will be for kilometres travelled and consumables. I can see a future where we simply order a self-driving vehicle to take us where and when we need to go.

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