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May 15, 2017

Fuel Retailing: Intensifying competition to reshape the fuel retailing sector

Intensifying competition to reshape the fuel retailing sector

Both PSU OMC & private players to feel margin pinch as competition intensifies; however the margin decline to be relatively lower for PSU OMCs

India’s fuel retailing landscape is undergoing a structural shift with the re-entry of private players. In fact, private fuel retailers are expected to rapidly corner 12-15% of the market by 2020-21, in terms of retail outlet share, from a mere 1% in 2009-10. The share in volume terms is projected to be higher at 13-16% by 2020-21, with the addition of 6,000-8,000 outlets by private players, from 4-5% in FY16. This will inevitably impact the throughput per outlet. To better compete, existing players are being forced to reinvent their business models. The one divergent trend between private and public players will be the targeted customer base. While private players are expected to target high throughput regions and expand particularly in highways segment, public sector fuel retailers are expected to focus on underpenetrated rural areas, apart from defending their share on highway business.

Margins will experience stress amid this rapidly expansionary phase. For private players, margins are expected to get impacted as they open outlets at greater distances from existing depots/ refineries, thus increasing the cost of logistics. The marketing margins for public sector fuel retailers are expected to decline as well, but to a relatively lower extent as compared to private players, as they will expand in rural areas and adopt dynamic pricing strategies to prevent erosion of profits.

Despite the challenges, the industry is projected to be on a strong footing in the medium term because of growing car and two-wheeler penetration and growth in road freight movement.