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Jun 25, 2018

Top 5 myths about owning a petrol or filling station

There are many benefits that come with owning a petrol or filling station. However, there are some incorrect perceptions out there about the realities of being a service station owner. We have identified a number of myths about owning a filling or petrol station.

1. It is easy to start the business, anyone can successfully operate a filling station.

Oil companies do their due diligence when it comes to choosing the right people to run a petrol or filling station. Over the years, oil companies have dealt with filling station owners having to bow out every 2-3 years due to the challenges they face along this territory. The fuel retail industry has evolved over the years, and the pressure on the business owners means they now have to be well versed in all aspects of running a business. The owner is required to have knowledge of financial management, HR knowledge and customer service skills. Unlike a more formal corporate operation with departments assigned to each of these roles, the petrol station owner constantly finds himself fulfilling many of these roles on a daily basis.

2. It is easy to buy a petrol or filling station

There is a lot of ‘red tape’ associated with buying this type of a business. Firstly, if it’s franchised, the oil company makes a decision on who qualifies to buy and not necessarily the seller as many people might believe. This makes it even more difficult because the oil company ensures that all qualifying boxes are ticked before giving any green light for the transaction to proceed.

3. When I see a gap, I can just build a filling station.

This is a highly regulated industry with cumbersome administrative processes to be followed before a site and retail licenses can be issued. According to the South African Petroleum Retailers Association (SAPRA), who represents all the stakeholders in the petroleum industry, before a new filling station can be opened, three sets of approvals, authorizations and licenses are needed:

  • Land use rights for purposes of a filling station;
  • An environmental authorization; and
  • Site and retail licenses

And then you must consider things like proximity of your closest competition, how will the building of the new proposed service station affect the existing one, how many litres the business is projected to sell per month? Will it make the minimum service station litres as per RAS Benchmark service station etc.

4. Filling station owners determine the petrol price

There's a general misconception that filling station owners play a role in the fuel price hikes and this is not the case. The petrol retail price is regulated by government and the calculation of the new price is done by Central Energy Fund (CEF) on behalf of the Department of Minerals and Energy (DME). The profit earned by the business owner is regulated and is not linked to the pump price but the litre of petrol sold. Due to this, whether the price of petrol is R10/lt or its R20/lt the business makes a fixed profit per litre.

Read more about what determines the price of fuel

5. It is a money printing business

Many people have no idea that the owner of a service station doesn’t make any more profit with each fuel price increase. As a matter of fact, the business owner’s profits have to absorb cash handling fees, insurance and many other unforeseen costs and risks. As a result, we see convenience shopping in the form of Alternative Profit Opportunities or APO’s becoming another revenue stream that is key to growing the fuel retail sector. Convenience stores have become increasingly popular as South Africans find themselves working longer hours with less time to prepare meals. Being able to buy bread and milk or stopping for a quick meal while filling up with fuel allows service stations to play on convenience more than conventional retailers.

The filling/petrol station industry is one that requires an extremely hands on owner. As an owner you must know how to do fuel recons, cash ups, set up systems to run the office, bank recons, staff roasters etc. You cannot delegate from day one. You need to set up systems in place upon which every other staff management build.

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