Write an essay on Development in Oil and Gas Retail Industries?
The UK downstream oil sector consists of over 200 companies that are involved in refining, distribution and marketing of petroleum products. The range of oil companies is members of UKPIA, other supermarket groups and independent retailer groups. There has been quite a growth and development in this sector as the market is split among power generates, industrial and transport, agricultural, government agencies, public services and military. There has been growth cited in the jet fuels and other transport fuels due to the rising demands. Thus, petrol covers 38 % of the road transport demand, and diesel represents 62% of the total demand. Hence, the following paragraphs discuss and uncover the factors that have lead to the development and have led to the growth of this sector (Steinberg, 2012).
1. Consumer needs as a business driver
The consumers are essential factors of any business. The retailers use the consumer needs and want to market their products. Hence, consumer needs are not always inherently present but are also made. This consumer needs should be understood and catered to by the retailers to drive their business. According to the Deloitte report, the ultimate consumer needs for fuel and petroleum is the ease and convenience as well as the price. It is seen that consumers want better performance and service together. They feel that the (Petrol Filling Stations) PFS should be situated in 10miles interval. Also, due to the rising price of petroleum and other fuel, the availability of cheaper fuel, the customers are ready to drive an extra mile (Deloitte Study of the UK Petroleum Retail market, 2012).
Market assessments done by forecourt retailing, finds the consumers paying more attention to price over distance. Thus, the availability of PFS is given second priority due to the price hike. Surveys show that consumers are ready to hunt for cheaper fuels across greater distance for finding conveniently priced fuel. Thus, the convenience of the availability was failing to get the right attention and success. A need was cited to use this behaviour to direct effective sales. A range of deals were introduced, and it has been seen that attractive fuels deals are the need of the hour. Apart from these factors, there are a few other features that attract the customers to the forecourts (UKPIA Statistical Review 2014 Statistical Review 2014, 2014). These are the grocery shops, loyalty card schemes, cash point and ATM services and also car wash features. Availability of this value added services will make sure people drive up to the PFS stations. The recent studies conducted by the Palmer and Harvey shows that forecourts should be a more secure and safer place for nights and parcel pick-up services, or post offices could be a better way to get customers (Lode & Napier, 2014).
As already said and discussed that the majority of demand is for jet fuels but as these are not produced enough, the surplus fuel oil are converted to petroleum and diesel for export cases. The downward demand in transport fuel due to the economic crisis has affected the consumption. However the efficiency of the cars and the high performance has gained raise the demand for transport fuels, especially of diesel.
It is also judged by some call centre programs and customer relationship programs. It is found that customers like the idea of a loyalty scheme and when prompted offered great insights into their needs and demands regarding the filling stations. Other recent customer needs are the efficiency of fuels and less impact on the environment. The biofuels are heavily in demand, and lead-free petroleum is the recent trend that is widely being adopted. Hence, to gain customer trust and foster sales, the companies and refineries must invest in providing cleaner fuels that will burn less. It's a huge demand, but the popularity of the idea has gained much access in the market, thus driving changes and newer growths into the market.
2. Relationship with fuel suppliers
The major oil terminals are supplied by the pipeline, rail and sea from UK refineries. Around 3000 miles of pipeline are used in delivering the oil. These pipelines are owned either privately or by the government and provide various kinds of oil product, and thus the distribution system is far and wide. It takes several days for the fuel to reach the destination and hence the pipelines and tanks should be regularly maintained (Rahmoun and Debabi, 2012).
The filling station retailers make their purchase of fuels from the supply division of the oil companies and the independent fuel suppliers. Thus, a contract, or supply agreement is formed between the two parties that are maintained by the relationship. The contract refers to the price that is needed to be paid by the PFS retailers. It is a Platts Plus charge where, Platts is the international benchmark, whereas the plus is the extra that the supplier charges. Thus to enhance this relationship and the framework of business other elements are also added to the contract. This is the credit card system, fuel cards and loyalty cards, pump maintenance and stock management services (Collins, 2014).
This relationship is affected by the availability and the types of fuels that are available with the supplier. The nature and form of the contract also define the stability of the relationship. The payment terms are often revised and thus can change the balance of the relationship. Finally, the logistic arrangement and delivery also matters in maintaining the relationship (WU, ZHANG and WANG, 2010).
The independent dealers have a different approach in maintaining the relationships with fuel suppliers. These approaches are, the payment terms are shorter, the choice is much reduced, the contract terms are different and the delivery site is included in the contract (Ogj.com, 2015).
In a lot of markets, the oil companies have tried to ease out and reduce the cost of trading through channels and putting more focus on the implementation or operation models on multiple sites. However, the focus should also be on the sustainability of the channel of trade and efficiency in the service. Thus, there is a need to engage in building a stable relationship with the suppliers so as the cost reduced and value is maintained at all level. This will ensure that better product is delivered to the customers. A range of activities like supplier management and monitoring could be taken up to foster the relationship with suppliers. It is a key segment of driving business growth and marketing as well as organisational communication activities will achieve the target ('UK oil and gas development potential assessed', 2000).
3. Level of competition
There are already many fuels available in the market with different features and attributes and of different use. It is already sighted that there is greater demand for jet fuels, but the other major fuel segments are LPG, petrol, diesel, etc. Also, there are quite many refiners in the UK market raising the level of competition (Economicsonline.co.uk, 2015).
The Deloitte report suggests that there is certain brand loyalty to the public. But owing to the recent fuel hike, the consumers are becoming largely price sensitive and thus the ones with the best offers are gaining the market shares. Other factors that led to competition are distance and the time was taken to arrive at a PFS or the number and size and geographical condition of the place where the PFS is situated. Another important factor is the type of company operating in the PFS area. The growth of hypermarkets is another factor that has lead to the PFS owners compete with the retail price. This reduces the gross margins. The hypermarkets offer more discounts to the customers and thus, the PFS owners have to upgrade themselves to face the completion. The entry of large supermarkets like Tesco and Sainsbury in the retail petrol scenario has upped the competition in the market by reducing the retail price.
Another most crucial factor that has driven the business is the growth of non-fuel sales that attracts the customers. The forecourt that offers better shopping opportunities to the customers are more appreciated, and thus a competition has arisen out of the urge to deliver better options to the customers. The intense completion has led to many PFS and petrol pumps shutting down and the ones at the hypermarket staying back. But those who are sustaining had to integrate a wide range of new attributes and marketing activities to thrust the business (Macalister, 2014).
On the other hand, it is reported that the UK oil companies are lagging behind in the international scenario, and this is due to the rising cost of exploration and recovery of oil. Thus, the completion regarding resources, including human and other physical resources is also significant in driving the competition. The UK government department and agencies have helped the industry sustain its competitiveness. Competitiveness leads to an urge to fight and excel and thus would ensure business growth. Hence, the competitive ground must be maintained at all levels. Another strategy that is being adopted recently to foster the completion is the merger and the acquisition, and it has to be proven that the merger would not degrade the level of competition (Promoting Competition in the Natural Gas Industry, 2002).
The competition had also been beneficial in driving employment, as attaining human resource was one of the factors of competition. Also, these means great values are being provided to the customers. Increased satisfaction means growth in demand and thus in a way, completion will also have a huge impact on driving the business growth in the particular sector.
4. Government and regulatory policy
The oil industry and more particularly the PFS system of UK are affected but the government policies and regulations. The regulatory policies like environment and safety standards, along with the Fuel duty, VAT, business rates and corporation tax are the drivers of government policies that have quite an impact on the oil industry of UK (Rutledge, Wright and Boardman, 2010).
The increase in the business rates or the rateable value will lead to forecourts closing down after 2015. Thus, the impact on the industry will be huge. Also, currently the fuel duty and VAT consists 60% of the ultimate retail price. Thus, the increase in the VAT and fuel duty will be different for different PFS owners as they have different contract terms. Thus, the rising costs will impact the retailers and the PFS owners in a different manner (Simpson, 2011).
The environmental and safety policy is another factor that is paid more attention recently. The biofuels, air pollution and vapour recovery are important factors that are essential to kept in check. Biofuel are more or less renewable energy sources and is the answer to the future energy use. The E10 and E5 petrol with a proportionate mixture of ethanol and petrol have increased the share of the renewable energy sources in the transport sector. Thus, the supermarkets and PFS owners must keep sufficient stock of these fuels to receive the good eye of the government fuel emission and service standards. Inability to do so will lead to closing down of many companies (Managi, 2007).
Another feature is vapour recovery that prevents and reduces the emission of volatile gases and other organic compounds. Thus, the PFS owners and other companies must integrate vapour recovery to their systems to attain the Petrol stage II. This will raise the standard and efficiency of the system and will suffice the government. Another key driver is the government's urge to reduce the emission of greenhouse gases by 80%. This means engineering of efficient cars to get cleaner fuels. A rise in the cost of fuels is cited due to this reason and the competition in the industry to provide and distribute cleaner fuels to the mass. It means a reinvigorated competitive scenario, this tome with serious and different implications (Ambituuni, Amezaga and Emeseh, 2014).
Finally, the last factor that is paid attention is the safety process in retrieving and distribution of oil to different stations and pumps. Occupational health and safety must also be held by the PFS, hypermarkets and the refineries so that quality is maintained and at the same time, the government regulation is followed and appeased. The refining and the marketing industry have already maintained a high standard in this sector, thus gaining complete support from government agencies when it comes to human control and management. Injuries reported are very low as the high level of attention is paid to safe practices. Thus, the workplace situation is healthy and less environmental implications. The government supports the industry in context to these features, and there is a wide scope of business growth for the industry owing to this attributes and futures that are followed strictly.
The business in the UK petroleum retail market is a combined discussion of the hypermarkets, refineries and the PFS ownership. There are many factors that have driven the business growth, and these include the high fuel prices owing to the fewer resources and costly recovery methods and unavailability of upgraded features. Thus measuring all the factors four specific points are highlighted which impacts the business growth. These factors like consumer demand, relationship with suppliers, the level of competition and the governmental policies and regulations have had a quite impact on the business growth and thus are discussed elaborately. Finally the opportunities and the future market trends are also guessed at.
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