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Mar 10, 2022

The oil brands’ dominance in South Africa

The oil industry in South Africa is dominated by a few top players, however, there are opportunities for dealers and interested parties to partner with alternative, emerging oil brands. Read more to discover what do you need to know when you choose an oil brand partner.

Financial risk vs. financial control of the partnership

As with any partnership agreement, risks must always be assessed before signing on the dotted line. Fuel retail is no different, as dealers must choose which oil brand they will partner with in business. Partnering with larger oil brands typically means that you will be at a lower (mitigated) financial risk. This is because these brands are operating at a much larger scale, both locally and internationally, so their risk is spread more broadly. They also have depth and breadth of experience in the industry, which can be a reassuring factor as a new entrant into fuel retail. Furthermore, it is crucial to always consider the oil brand’s ability to supply during a crisis. Storage (reserves) and transportation remain one of the top considerations for any dealer wishing to enter into this agreement.

However, a lower risk profile comes with the trade-off of large returns. It is likely you will get a smaller return on your partnership investment, so this is certainly the more conservative approach from both a financial risk perspective and a financial return perspective.

If you are considering partnering with an emergent oil brand, a more appealing returns margin is on offer but these come with a greater risk of external elements impacting these companies. We’ve seen how real this can be in the years 2020-2021 alone between COVID-19 lockdowns and the July unrest in KwaZulu-Natal. Loyalty programmes are also proving to have a huge impact in driving customer behaviour, and emerging oil brands are finding it quite a mammoth task to compete with top oil brands, who have already bedded down most of these strategic influential partners in the financial and retail sectors. 

Ethical implications of the oil brands

Some of the larger, more internationally recognised companies have positive and negative ethical tags associated with them and these are well documented. Motorists are becoming more informed and more conscious of their second-hand environmental and social impact and as such, it would be wise to consider the ethical tags that will be associated with you or your business by partnering with one of these oil brands. Likewise, it is important to consider the implications that working with a ‘perceived’ unethical company could have. Partnering with transparent and ethical oil brands can stand you in good stead, both in the immediate and long term.

For dealers, it is also important to consider the ethical standing of these emerging brands and to ensure that they are on a growth path while maintaining transparent and ethical business practices. This also ties in with the “risk” consideration mentioned previously. A business that operates sustainably is a better consideration for a partnership.

The reputation of the oil brands

Finally, it is important to ask around. Existing oil brands, large and emergent, will have a reputation in the industry. Asking other dealers or companies who have worked with these oil brands will give you a good understanding of their business dealings, ethical conduct and customer service. Leaning on others’ experiences can help you make the right decision or help you avoid making a wrong call. 

Choosing the right oil brand to partner with is not a one-size-fits-all approach. It depends on your personal appetite for risk, your experience and business confidence, and what opportunities are available when you are ready to enter this industry. PetroCONNECT has the know-how and the connections to pair entrants with opportunities ensuring that the two are a good fit from a holistic perspective.

The legal implications of your partnerships

The South African fuel retail industry is highly regulated with complex administrative processes that need to be completed before partnerships with oil brands can take place. Navigating the commercial legal landscape with oil brands can be a daunting experience for even the most astute business owner, especially one that is highly regulated, as is the case within the energy sector.

There is a lot of work that goes into setting up partnerships - from ensuring that the correct legal structures are put in place at the outset, to structuring your partnership agreement, to negotiating and drafting everyday commercial agreements (such as suretyships and loan, sale and lease agreements) and much more. It is vital that every business owner fully understands the legal implications of these agreements and has access to industry specialists who can help guide them through these agreements and give them sound practical, commercial legal advice.

PetroCONNECT has partnered with commercial and corporate law specialists who understand the industry and the specific issues relevant to business owners in the energy sector. PetroCONNECT Legal together with these specialists have developed tailor-made solutions for business owners, that are a first for the industry and one-of-a-kind.

Interested in learning more about PetroCONNECT legal for your partnership decisions and legal structures? Reach out to us on our CONNECT page so we can guide you through this complicated legal process.

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