Flip by Peter Sheahan Read Free Book Online

dramatic changes in automotive technology. Traditionally the petrol station was also a service station, which sought extra profit margin and brand loyalty by offering car maintenance and repairs as well as petrol. But today's cars are more reliable than older cars, and they're filled with computer chips for diagnostics and vehicle systems control that the average service station can't fix.
    In other words, the service station business is obsolete, or quickly becoming so. That has led to a new business model in which petrol stations are linked with convenience stores or other retail operations that sell drinks, snacks and basic grocery and impulse items. The profit margin on convenience store items is much greater than that on petrol. According to AC Nielsen, 25 per cent of household grocery purchases are 'convenience' purchases and are not price driven.
    In Australia, for example, Shell put franchised Circle K stores behind many of its petrol pumps, and the other major petrol brands made similar moves. The popularity of petrol stations in combination with convenience stores inevitably attracted the interest of Australian retailers that had never sold petrol. The 7-Eleven chain added petrol sales at some of its locations outside central business districts, for example. And Woolworths entered the new market competition in a big way. At sites usually established near existing Woolworths stores, they sold heavily discounted fuel, sourced from Chinese oil refineries rather than domestically, and then discounted this offering a further four cents per litre for those with a docket representing $30 or more purchased from either a Woolworths or BiLo store. In effect fuel sales, although modestly profitable in themselves, served as a 'loss leader' to drive higher margin retail sales. For the same reason, there are now petrol pumps at many Wal-Mart locations in the US and many Carrefours locations in France.
    Well-established retailers such as Woolworths, Wal-Mart and Carrefours can make low-priced fuel sales profitable both because the petrol-buying driver who stops to fill up at a Woolworths,Wal-Mart or Carrefours petrol station is likely to buy other things at their stores, and because they are big and powerful enough to negotiate favourable pricing from petrol wholesalers and refineries. For Woolworths in Australia, as for Wal-Mart in the US and Carrefours in France, discount petrol prices complement their existing reputation for delivering good value to customers.
    Woolworths pumped up its retail sales so impressively with the addition of petrol stations that it made a deal to set up Woolworths convenience stores at Caltex (the Australian subsidiary of Texaco) stations. Before that, Coles did its own deal to take over the lease on more than 580 Shell service stations. And not just the lease on the retail operation, but on the entire operation, fuel and all, leaving Shell as landlord, petrol wholesaler and – not insignificantly – responsible for the petrol brand. At these Coles-run Shell petrol stations, completely redesigned stores branded Coles Express are perfectly positioned to grab a share of a multi-billion dollar market, the 25 per cent of grocery purchases that – remember the AC Nielsen statistic above – are made on the basis of convenience rather than price.
    Another demonstration of the power of combining petrol stations with convenience stores came when Independent Grocers Australia rolled out a four cents per litre discount on petrol sales at 180-plus stores in Queensland. Going Woolworths one better, IGA discounted petrol prices another four cents per litre if the customer spent $30 or more on nonpetrol purchases in the IGA store.
    Let's see what sense 'Fast, Good, Cheap – Pick 3' can make of this. Filling up the tank takes the same amount of time wherever you do it.Maybe you save a little time by stopping at the first station you see, or maybe you lose a little time by looking for a favoured brand or a cheaper