Food for thought: Oil majors see money in food retailing

MUMBAI: For India’s oil marketing companies, any business other than petroleum retailing looks like good business. First they set up retail outlets at their gasoline stations to sell packaged foods, music cassettes and accessories. Now the oil majors want restaurants around.

State-owned Hindustan Petroleum (HPCL), the second  largest integrated oil company, has tied up with burger king McDonald’s and the Kamat group of hotels for operating eateries and restaurants at HPCL’s retail outlets across the country.

Indian Oil Corporation (IOC) is setting up a separate division for this. Says Sarthak Behuria, IOC chairman, “We are looking for tie-ups with major retail chains and open co-branded petrol pumps-cum-retail plazas to enhance our non-fuel revenues. We are also setting up petrol pumps at multiplexes.”

Sources say that IOC is negotiating with real estate developers like the Rahejas, Ansals and DLF to set up fuel retail stations in their mall complexes. It is also talking to Kishore Biyani’s Pantaloon, to boost fuel sales by cashing in on consumers who visit malls. At least five such mall-related retail outlets are expected to be in place within this year.

At HPCL, chairman and managing director MB Lal reveals that his company had conducted a survey which revealed that a foray into eateries was a potential business area. “We want to provide food outlets on the highways and metros where people want to avoid parking problems and rush,” he said. 

The food outlets will initially be set up at 15 HPCL pumps, including one in Mumbai, IT hub Hinjewadi near Pune and Ring Road in Bangalore. McDonald’s will invest  Rs 50 crore in the venture with HPCL as a strategic partner. HPCL has also tied up with the Kamat group of hotels for 13 food outlets in western and southern India.

SR Choudhury, director, marketing, HPCL, said: “We have developed a customer-centric retail value proposition as part of our retail strategy. We want to create customer pull by providing differentiated offers at the outlets.”

Even Bharat Petroleum (BPCL), which has around 200 In & Out outlets at its petrol pumps, wants to increase it to 500 by this fiscal-end. Apart from soft drinks and other grocery items, it has tie ups with Café Coffee Day and Coffee Day Express to serve snacks at its outlets on the highways.

Why are the oil majors looking at alternate revenue streams? Oil companies have been unable to increase prices of diesel, petrol and petroleum prices in line with rising global crude oil prices. Oil prices have risen from $23 three years ago to well over $74 a barrel now.

Moreover, with increasing competition, both the state-owned oil companies and private players like Reliance Industries have been opening retail outlets in every possible nook and cranny. This has seen the players undercut prices to wean customers, particularly on the highways, which has been impacting their bottomline.

IOC made a net loss (before extraordinary income) of Rs 1.444 crore in the April-June quarter of 2006-07, thanks to under-recoveries of nearly Rs 4,898 crore on sales of petrol, diesel, LPG and kerosene. In the quarter ending June 30, HPCL losses were Rs 607 crore compared to a Rs 508 crore loss in the same quarter last year.

That’s why, they are all chasing alternate revenue streams. According to industry sources, in the US, non-fuel revenues for petroleum retailers is about 38.6% compared to 28% in France. They also account for 65.8% of gross profits in the US and 40% in France.

For Indian players though, barely 5-10% of their topline comes from non-fuel business. Says an analyst, “The only way they can reduce their losses is by concentrating on this aspect of the business.”