Fuel for thought

Fuel for thought

Total Property - Issue 4 2019

Revenue may have dropped over the past five years due to global volatility in crude oil prices, but this has only put a slight dent in the enthusiasm of service station buyers in the provinces.

Bayleys commercial salesperson Tony Chaudhary, who has sold stations from Kaitaia to Tauranga, mainly to investors, says while there would have been 55 people wanting to buy a service station in the past, there are now 45, but “it is still huge”.

Relatively few BP and Mobil provincial stations come on to the market, though portfolios of stations come up from time to time. Most provincial outlets are either company-owned, independently-owned and operated, or franchised.

Gasoline Alley chief executive Tim Ellis wonders how much more capacity there is for new stations. “Over recent years there has been a proliferation of stations going into all sorts of areas and some of this is highly successful and will remain so, but I do wonder where the high water mark is and whether we have more or less reached it,” he says.

Seven years ago there were just four petrol station brands with national reach – now there are 21 brands.

“Service stations are pure commercial real estate,” says Bayleys’ Chaudhary. “The land is expensive whatever part of New Zealand it is in, purely because it has to be on a main highway with high traffic flows, and preferably a corner site.”

Chaudhary says service stations outside the main cities can be bought for lower prices at higher returns. “The same site, tenant and income will sell in Auckland, for example, at a yield of 5.5 percent but at 6 percent in the provinces.”

MTA (Motor Trade Association) energy and environment sector manager Ian Baggott says market trends have seen the growth of unmanned stations in provincial and rural areas.

Smaller operators – Gull, Waitomo and Allied – specialise in unmanned pumps and have established successful business models by cutting overheads to offer cheaper petrol.

Most of the smaller groups are owner-operated.

Buyer enthusiasm shows no signs of waning with the rise of electric or hydrogen-fueled vehicles.

The government wants 64,000 electric vehicles on the road by 2023 as it pursues a zero-carbon economy, but pundits say this wouldn’t threaten the existing industry’s viability for at least 20 years.

“In the meantime, fossil fuel station owners and investors will adapt and look at alternative fuels or other uses,” Ellis says.

New Zealand has about 1,265 service stations and, if unmanned sites are included, the figure rises to about 1,300.

An IBISWorld Industry New Zealand report shows the fuel sector turned over $8.2 billion in revenue, generating a profit of $271.8 million, in 2017/2018.

Annual fuel sales at each service station have dropped by 1.2 million litres in the past few years to an average of 3.8 million litres, an MTA survey shows.

The average margin on petrol sales per site has dropped back to 2012 levels, at 6.3 cents a litre.

These falls are being offset by alternative activities. Convenience retailing has taken on more significance, with the MTA survey showing average retail sales at each site of $2.6 million last year – up from $1.1 million three years earlier.

BP New Zealand has 104 company-owned, company-operated BP Connect retail sites as well as 105 dealer-owned and operated retail sites nationwide.

The average size of a BP Connect retail site is about 3,000m2 including the shop, car wash and other onsite infrastructure. It is open to new retailers joining the network if they have the land and want to build a service station.

“Our sites are located in places that fit into our customers’ routines, which is as true for fuel as it is for food,” company spokesperson Leigh Taylor says. BP's food sales have doubled in 10 years.

Taylor says the company is doing work around electric vehicle partnerships and premium fuels with lower emissions. It uses solar energy at 10 percent of its sites and is investigating further expansion.

BP is partnering with Vector to install rapid electric vehicle chargers at some stations.

Privately-owned Gasoline Alley, the biggest New Zealand operator of independently-owned service stations under the G.A.S. brand, supplies the fuel only to sites. It has about 11 unmanned sites that are company-owned but the rest are independently-owned.

Gasoline Alley’s Tim Ellis says taking on a new owner-operator depends on the ability and financial means of the would-be operator.

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