By Sarah McFarlane
LONDON -- Coffee and groceries are becoming a bigger part of BP
PLC and Royal Dutch Shell PLC's bottom line.
Gas stations have emerged as one of the most profitable parts of
the major oil companies' sprawling operations during the pandemic,
with higher spending on food and drink offsetting weaker demand for
fuel. That is encouraging both companies to push ahead with plans
to expand their retail businesses, which they are betting can help
offset declining oil income longer term.
Shell plans to add 10,000 branded retail sites to its
45,000-strong network world-wide -- larger than Starbucks Corp. or
McDonald's Corp -- in the next five years. BP, which currently has
19,000 locations, wants to add 6,700 sites in growth markets by
"We believe we can more than offset the impact of fuel volume
declines in established markets to 2030 through growth in
convenience," Emma Delaney, BP's head of customers and products,
told investors at its strategy event last year.
Selling coffee, food and other household items at gas stations
is an attractive business, executives and consultants say, because
profit margins are typically higher than the oil business and
returns are more stable because they aren't linked to volatile
Exxon Mobil Corp. and Chevron Corp haven't benefited to the same
extent as their European counterparts as they have fewer sites
after selling them off in the past.
Both Shell and BP say they make a return on investment of more
than 20% in their marketing divisions, which includes gas stations,
as well as lubricants and premium fuels, compared with a typical
15% return on oil projects and 10% return on renewable-energy
Shell's marketing business reported record adjusted earnings of
$1.6 billion in the third quarter, up from $1.5 billion in the
previous year's period. The division generated more than half the
company's overall earnings in the quarter, compared with around
20%-30% in recent years, although the proportion could fall as oil
Huibert Vigeveno, downstream director at Shell, said the
company's gas stations were able to adjust to weaker demand for
fuel and capitalize on changing shopping habits by offering more
groceries and bakery goods.
"Even with less customers, you're selling a higher basket size,"
Mr. Vigeveno said in an interview. Customers purchased 15% more
when visiting Shell stores in the first nine months of 2020,
compared with the same prior-year period.
Mr. Vigeveno said Shell sells 450 million snacks, 350 million
cold beverages and 250 million cups of coffee each year, and had
accelerated the rollout of new services at gas stations like parcel
collection and home delivery. In the U.K., for instance, drinks and
snacks can be ordered from Shell sites via Uber Eats and
"Before Covid, we were doing home delivery from our retail
sites, maybe a couple of hundred world-wide, now we're actually in
the thousands and growing," Mr. Vigeveno said.
BP's marketing business has also seen opportunities in the
pandemic, with the third quarter its best for nearly two years, as
strong retail sales offset a 15% fall in fuel volumes.
It also turned to home delivery to boost sales, signing
partnerships with delivery app Glovo in Spain and Deliveroo in the
U.K. to dispatch items from gas stations.
BP, which also owns Amoco and ampm stores in the U.S., says it
plans to invest in proprietary food brands and seek further retail
partnerships to boost the profitability of its gas stations and
offset a forecast fall in earnings related to fossil fuels.
Overall, both companies say they plan to offer more services at
existing sites in established markets like the U.S. and Germany,
while adding new locations in developing markets like China, India
The profit is in the stores rather than fuel sales, and
additional services don't need to be profitable if they make
customers visit more frequently, said Sabine Benoit, a professor of
marketing at the U.K.'s University of Surrey.
"They're moving away from Cokes and smokes, and it's about the
on-the-go consumption and fresh food," she said. "A lot of the
sales volume comes from fuel, but the profit is in the shop."
Hot food sold at U.S. gas stations has a gross profit margin of
around 54%, while candy is 50% and groceries are over 40%,
according to 2019 data from the U.S. National Association of
Convenience Stores. In comparison, the gross margin on a gallon of
gasoline was 9% based on the average 2019 price, according to data
provider IHS Markit Ltd.
Still, some analysts are skeptical about how long oil companies'
spotlight on retail will last. Retail is only in focus because it
is one of the few parts of the business that is making money, said
Scott Annan, an independent retail consultant.
During the late 2000s, when oil prices traded over $100 a
barrel, major oil companies sold gas stations because they weren't
viewed as strategic, he noted. "The money they were making was much
less than the money they could make prospecting for oil," Mr. Annan
Electric vehicles also present a new conundrum for gas stations,
because charging isn't as lucrative as liquid fuel and it can be
done at home or work. France's Total SE estimates that in Europe
only 5% of electric vehicles will charge at gas stations. Still,
both Shell and BP plan to add thousands of charging points at
existing gas stations and other sites.
BP is also trialing gas stations with no gas. The company has
opened several of what it is calling mobility hubs, including in
London and Berlin, which feature services found at filling stations
as well as electric vehicles and bikes for hire, charging points
and a cafe. The London site doesn't sell liquid fuel.
Some think the pandemic has helped the oil companies prepare for
"Covid-19 was effectively a dress rehearsal," said Frank Beard,
a retail consultant. "We already knew there were likely some
headwinds coming at fuel demand in future, combustion engines are
becoming more efficient and electric vehicles are coming."
Write to Sarah McFarlane at email@example.com
(END) Dow Jones Newswires
January 16, 2021 05:44 ET (10:44 GMT)
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