FUEL retailers are appealing to the government to support their sector citing that the lack of its assistance hindered all attempts to transform the sector.
The fuel retail business management services partner PetroConnect's co-founder and director, Mark Harper, said this week that new retailers had to go through too much already, and on top of it all, had to deal with other challenges exacerbated by the Covid-19 pandemic.
“We offer mentorship to the retailers and we experience this pressure from them in the light of these challenges,“ Harper said.
He told Business Report that fuel retailers were still suffering with the effects of dropped fuel sales due to the pandemic, coupled with the effects and the after effects of the July unrest that hit KwaZulu-Natal and Gauteng.
Sales had flatlined for 85 percent of service stations across the country, he said.
“Customers have not increased their spend or could not increase their spend to afford the fuel price as many customers tended to still spend that R100 they always spent before the price increases as their income had remained the same, dropped or disappeared due to retrenchment or the business they were working for being burnt down or damaged and ceasing operation. This has led to a drop in volumes for the retailer, which erodes the ultimate profit margin.
“Customers choose to drive less, do less joy rides on the weekend, carpool where possible or they are not moving around at all,” Harper said.
To provide a practical example, Harper said petrol for R100 at R16 per litre bought 6.25 litres. On the other hand, petrol for R100 at around R19 per litre bought 5.26 litres translating to a drop of almost 1 litre per customer. A site that was pumping 300 000 litres could see a drop of more than 45 000 litres (obviously assuming all customers continued to fill up their R100).
The same rand value was being received, but less volumes were sold, impacting the retailers.
Harper said for retailers, the costs would remain the same on that R100 spend as credit card fees, debit card fees, cash deposit fees lifted the costs of capital as the value of the fuel they held had increased.
He said this often then led to an increase in overdraft costs where a retailer was financed or forced them to take money from investments to pay for working capital, which had risen from R450 000 to R650 000 in the space of a few months.
Harper said it was not only the banks and financial service companies that benefited when fuel prices increased, but also the other service providers that took cash because cash deposit fees also increased.
The Fuel Retailers’ Association (FRA) chief executive Reggie Sibiya said in December 2014, the pump price of 95 octane fuel (inland) was R12.47/litre. The transaction value of 50 litres at R12.47/litre amounted to R623.50. The Gross Retail Operating Expense (OPEX) Margin (fixed) at R0.84/litre amounted to R42.00. Merchant Service Fee (Credit Card interchange Plus “Bank commission”) at 1.75 percent amounted to R10.91 then.
However, with last month's price hikes which saw the pump price of 95 octane fuel (inland) reaching R19.54/litre, the transaction value of 50 litres at R19.54/litre reached R977.00. Gross Retail Operating Expense (Opex) Margin (fixed) at R1.339/litre were at R66.95. Merchant Service Fee (Credit Card interchange + “Bank commission”) at 1.75 percent was R17.10.
Sibiya said on this long term example, credit card transaction costs had increased by R6.19 (R17.10 -R10.91) on a 50L transaction, which was a 12.38 cpl increase. “This is close to 12cpl under recovery discovered by the KPMG study as this 12 cpl increase was not compensated for the margin by the DMRE," Sibiya said.
He said that assuming a retailer had 300 000 litre a month pumper, this amounted to being worse off with R37 140 for the month selling the same volume in 2014. This year, Sibiya said the retailer was R445 680 worse off for the year.
BUSINESS REPORT