Page 2: Changes in the market place
Through developing neighbourhood service stations, relationships are built with local residents who become regular customers for the service station shop as well as for petrol. Despite reasonable prices, petrol volume at such outlets is generally lower than at large trunk road stations or supermarket sites. Cash operating costs, however, are much the same irrespective of the volume of petrol sold. The net result is that unit costs at neighbourhood stations are higher than at trunk road locations, unless relatively high non-fuel sales are achieved.
Consequently, Murco had developed its stations to cater for the local market with small convenience stores operated by self-employed proprietors recruited from the local area. They offered confectionery, crisps, bread, milk and a small range of grocery lines. Until the 1990s this proved to be a success. The higher than average shop sales compensated for the lower than average petrol volume and a competitive unit cost structure was thus achieved.
Since 1991, the supermarkets increased their share of the retail fuels market at the expense of the major oil companies by operating a low-price strategy. When the majors (Shell, Esso etc.) fought back by matching the supermarkets’ prices, Murco’s traditional positioning was lost. Instead of a three tier pricing scenario with the major oil companies at the top, the supermarkets at the bottom and Murco in the middle, uniform pricing became the norm.
Forced to lower petrol prices, Murco was faced with three problems:
- reduced petrol margins
- reduced petrol volumes
- reduced shop sales.
Income had fallen and unit costs had increased.