What can the fuels industry expect in 2021?
Mark Truman, Chief Revenue Officer at EdgePetrol, provides a difficult prediction on some of the trends that we will see in 2021.
It is a question we ask every year; “what will the new year bring?” More often than not, what we believe to be the case doesn’t come to fruition.
Based on how we thought 2020 was going to go versus where it ended up, it may seem unwise to bother forecasting what to expect from 2021, we can make some predictions that can help us prepare for both the best and worst case scenarios.
Market consolidation in developed markets to accelerate
Whilst it is unlikely we will see deals on the scale of the 7&i deal for Speedway, investors will seek convenience assets to add to their portfolio where EBITDA can be increased to show strong returns.
Depending on how each country responds to its unique economic crisis, interest rates across the board are likely to remain low, so the return needed to make loan-based investments is also lower. This makes investing in resilient markets like fuel an attractive proposition.
Smaller retailers may also be more keen to sell. It is becoming increasingly harder to compete with multi-acre sites with fantastic convenience offerings and for they will not be short of offers.
Margins will probably remain strong
With oil prices more stable (more on that later) and the need from bigger groups to maintain margins in a reduced volume market, it is likely that margin will remain at a respectable level for most of 2021.
In a depressed market reaching for volume is going to be tough, so many retailers will might try to hold margins higher to keep their level of fuel profit necessary to continue business as usual. This will also be on the minds of the big retailers, especially ones that have made large acquisitions through demanding investors who expect to see returns.
Oil prices shouldn’t be moving that much (famous last words)
If 2020 has taught us anything it’s that oil price is not only driven by demand. It’s driven by supply, and firmly in that driving seat is OPEC. Whilst the US is no longer heavily reliant on oil from the Middle East, the expectation of the EIA is that production agreements will hold and oil (both Brent & WTI) will sit between $40-$50 a barrel throughout 2021 with single figure percentage increases likely.
This should mean more consistent prices in 2021 and we are unlikely to see a repeat of March 2020’s oil price madness. This is good news for retailers and provides support for stable and profitable margins.
Pricing habits will likely change
As COVID levels rise and fall, regulation changes, habits evolve and volumes are unpredictable. This makes setting automatic pricing strategies more difficult than ever. For the bigger groups using automated tools, these will need to be tweaked more regularly or require more manual intervention.
Before COVID pricing was becoming more automated and you’ll be hard-pressed to find a large group that did not have software to perform the majority of their strategy implementation. These tools will continue to have a huge role in setting market pricing, but the way they are used could change as retailers react to changes around individual sites or geographical locations out of their control.
The NACS Consumer Survey (a US based study) continues to tell us that whilst price remains the dominating factor as to why retailers visit stations, this is on a downward trend from 72% in 2015 to 58% in 2020.
Expect innovation to continue
There is no reason to believe that the innovation seen by the fuel retail markets in 2020 (and before) will dwindle in 2021. If anything, retailers will be looking for alternatives to fuel to create profit lines, but what these are will be determined by how COVID plays out.
Anything that can move people in and out of the store faster whilst maximising basket spend will be desired by retailers, so expect technology that encourages this to be invested in during 2021. Equally, consumers are likely to favour pay-at-pump and mobile-app options. Unmanned sites could be big winners in 2021 and there are some very well positioned companies who have already seen this as a winning formula before the pandemic.
Conclusion
Retailers will be hoping for more stability in 2021 and the development of vaccines seems to give some hope that this global crisis can be brought under control. In many ways we can count ourselves lucky that we have been impacted less than other industries and be confident that it has been proved just how essential (and resilient) an industry convenience is.
Surely 2021 can’t be anymore chaotic than 2020? Or could that be more famous last words?
