Why opening a fuel station in South Africa might be a good idea
Fuel franchising in South Africa continues to be resilient as economic indicators remain subdued, says James Noble, business development manager: fuel industry at Absa Business Banking.
According to Noble, the South African fuel retail industry has grown considerably in recent years. It is one of the few sectors to weather the downgrading, rand volatility and negative growth rates recently experienced, according to a report on businesstech.co.za this morning.
Noble was speaking at the Fuel Retailers Association’s (FRA) 2017 Conference at the Nasrec Expo Centre, said the report.
He said that fuel retail specifically is a highly specialised sector, with operating margins that are affected by a multitude of factors such as oil prices, labour costs, exchange rates and regulations, to mention a few.
But a report on engineeringnews.co.za “focused on a different perspective of the South African fuel market (which accounts for a fifth of the whole continent’s fuel consumption), looking at the future with the imminent increase in alternative fuel sources for vehicles. Absa franchise Africa head Dumisani Bengu was quoted as saying “an innovative response to the changing dynamics of the passenger and commercial transport and mobility systems was required to ‘ensure the sustainability to the retail fuel sector’.
“Global phenomena, such as the emergence and growth of electric vehicle technology; the proliferation and adoption of artificial intelligence ce giving rise to vehicle autonomy and self-driving cars; the Internet of Things giving rise to real-time connectivity; and the rise of the shared economy, are but a few new concepts that demand a much more intense level of engagement among stakeholders,” Bengu told delegates at the same Fuel Retailers Association Conference in Johannesburg on Wednesday according to Engineering News.
Meanwhile Noble was robust in his belief that few businesses matched the recession-proof nature of fuel stations: “In the current economy, only a small number of industries can claim to be recession proof. The fuel retail sector has proven to be just that; showing healthy profits in times of slow growth cycles,” the business unit manager said.
Absa noted that service stations in South Africa have a combined annual turnover in excess of R200 billion ($14.7bn), while South Africa remains the biggest consumer of fuel on the continent, claiming more than 20 per cent of the market share.
Satellite sectors create multi-channels of employment that generate economic opportunities for approximately 90,000 people locally, the bank said.
There are around 4,600 service stations in South Africa, averaging 300,000 litres sold each month, with the outlook for the South African fuel industry ‘looking strong’. ‘The ratio of convenience store turnover to fuel volumes pumped is about R1.20 to R1.50 depending on the brand and location,” Noble said. The average working capital required for stock and operational expenses can vary between R1.2 to R1.5 million.
“Given a growing middle-class population that owns more vehicles, we see fuel retail remaining healthy and profitable in the foreseeable future. However, fuel retailers will still have to closely manage their budgets,” Noble said.