Fuel outlet spread throws up viability issue

The rapid expansion of retail outlets (ROs) by public sector oil marketing companies (OMC) led to a sharp drop in pump throughput last year.

The industry recorded a 12.3 per cent drop in pump throughput in the year ending March 2004 even as diesel sales turned positive after three successive years of decline. Diesel constitutes bulk of retail sales by pumps.

Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), Hindustan Petroleum Corporation (HPCL) and IBP put up close to 3,000 new outlets last year taking the total number of ROs in the country to 22,000.

Pump throughput is a crucial indicator for the viability of retail outlets since non-fuel sales contribute very small amount of total sales.

In countries, where petrol pumps serve as a one-stop shop for various products, the revenue from non-fuel activities is over 40 per cent. But in India the concept is in a nascent stage.

"In India, we have not planned the growth of retail outlets properly. However, it is being streamlined now. Throughput went down as new outlets were added at a scorching pace. It will take some time for the new outlets to pick up sales," N G Kannan, director (marketing) of IOC, said.

IOC recorded 11 per cent drop in pump throughput, while that for group company IBP was 16 per cent last year. Kannan expressed hope it would take two years to arrest the decline in throughout.

The industry average for pump throughput of petrol and diesel was 44 and 131 kiloliter last year. Taken both fuel together, the below viable level for pump is around 150 kilolitres.

"Unless there is a robust growth in demand especially in diesel, the throughput is expected to fall even further. With the entry of private players like Reliance, Essar and Shell and PSUs ONGC, MRPL and Numaligarh Refinery, the number of ROs is expected to rise to 26,000," an oil industry expert said.

However, new generation pumps will operate in a different scale than the older one. For instance, Reliance pumps is said to have double the throughput than the pumps PSUs have. New generation pumps will also focus on automation and non-fuel business.

To seize this opportunity, state-run companies are also decking themselves up with convenience stores such as In & Out and Speedmart, to keep the ROs viable by increasing the non-fuel business.