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A STUDY XTRAMILE DIESEL IN INDIAN OIL CORPORATION LIMITED

Summer Training Project Report ;2010
Undertaken At :

Indian Oil Corporation Limited

Submitted in partial fulfillment of the requirements for the Award of the degree of

M. B. A
By

PRITHVIJNAN GHOSH
FUTURE BUSINESS SCHOOL, KOLKATA

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Under the guidance of

PROF. SUBRATA CHATERJEE

FUTURE BUSINESS SCHOOL, KOLKATA 2010

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ACKNOWLEDGEMENT

First and foremost, I would like to express gratitude to my Institution , Future business

School ; Kolkata for providing me a magnificent opportunity in the form of this summer
internship to work and learn.

I would like to acknowledge my sincere thanks to Mr. D.Bhattacharyya , Chief Manager (Training & Development) for providing me the opportunity to do my summer training in Indian Oil Corporation Limited (IOCL).

My heartfelt gratitude goes to Mr. Amitava Akhauri, CDRSM, Haldia Divisional Office, who initiated the midas touch to all the queries and actually made this project possible by edge.

I would also like to express gratitude to Mr. Sumanta Barua, Asst. Manager (Retail Sales) for sharing the journey of conceptualizing and developing all the ideas. He stood in times of difficulty and despite of his busy schedule & devoted a major chunk of his time towards this project. He has been a part of all the activities and duly guided the project to its destination. I am indebted for his endeavors in making this project a success.

I would also like to acknowledge the help and support extended by all my friends whose names could not be mentioned here. They all have been very co-operative and provided impetus to this project. Without their help this project would not have reached its destination. I express my gratitude for their suggestions and help they extended to this project.

I will not miss the opportunity of expressing thankfulness specially towards Prof. Subrata Chaterjee & all my faculties of Future business School ; Kolkata for sharing their knowledge, which provided necessary ingredients to this project.

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CONTENTS
EXECUTIVE SUMMARY 05 RESEARCH OBJECTIVES.. 06 RESEARCH METHODOLOGY.. 07 FINDINGS Chapter 1 : Background Of Indian Oil Corporation Limited....... 08
1.1 Historical Background of Indian Oil Corporation Limited 08 1.2 Vision and Mission of IOCL.. 08 1.3 Indian Oil as a Leader-Marketers Perspective...... 09

Chapter 2 : SWOT Analysis for IOCL.... 11 Chapter 3 : Importance of Non Fuel Retailing... 13 3.1 Winds of Change...... 13
3.1.1 Callous Competitive Environment.. 14 3.1.2 Mounting Expectations of Consumer..... 14 3.1.3 Call for Alternate Sources of Revenue... 14 3.1.4 Emergence of Non-Fuel Services As a Major Activity at Retail Outlets....... 15 3.1.5 Alternate sources of revenues......... 15

3.2 Key Issues and Imperatives for the Industry 15 3.3 Key Imperatives for Retailers. 17 Chapter 4 : Non Fuel Retailing Initiatives... 19 4.1 Retail in India... 19
4.1.1 What Is Retailing ?.................................................................................................. 19 4.1.2 Key Challenges... 19

4.2 Non Fuel Retailing... 20

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4.3 Options for Non-Fuel Offerings.. 21

4.3.1 ATM (Automated Teller Machine or Any Time Money)... 22 4.3.2 Quick Care Point..... 22 4.3.3 Windscreen Cleaning Facility/Automated Car Wash Facility.... 22 4.3.4 Free Health Check-Up 22 4.3.5 Inde-Pay.. 23 4.3.6 Vending Machine of Coffee & Coca-Cola. 26 4.3.7 Pay Phone 26 4.3.8 Other Necessary Amenities. 26

4.4 Non Fuel Initiatives of Indian PSUS. 27

4.4.1 Indian Oil Corporation Limited (IOCL) 27 4.4.2 Bharat Petroleum Corporation Limited (BPCL). 28 4.4.3 Hindustan Petroleum Corporation Limited (HPCL)... 29

Chapter 5 : Real Estate Utilization... 32 5.1 Real Estate Opportunities... 32 5.2 Transportation Network. 33 5.3 Emerging Retail Formats 33
5.3.1 Highway Stops 34 5.3.2 Sub Urban Stops. 35 5.3.3 Urban Stops. 35

5.4 A Hypothetical Case for offering Non Fuel Services at an Outlet... 35 CONCLUSION... 37 BIBLIOGRAPHY... 38

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EXECUTIVE SUMMARY

The Indian retail industry can be segmented in different segments viz.cosmetics , footwear, sanitary products, entertainment etc. The downstream petroleum retailing is one of the largest segments of the Indian retail industry and the petro-retail sector is one of the most organized sectors of the retail industry.

With a market determined pricing mechanism in place, prices will be lowered, which would reduce the margins from fuel products. In such circumstances, the petroleum retailers will need to have differentiated value propositions to improve revenues. It will require customer centric approach and building of a strong brand equity and identity. Non-fuel products tender higher margins as compared to petroleum products and enable companies to sustain themselves,especially during times when oil prices are high. However, it is to be kept in mind that petroleum retailing is a retailing of petroleum product and service, with differentiation possible in either or both areas.

Now, it is not all about offering fuel only at the petrol stations. The new look petrol pumps,apart from dispensing fuels; now offer the best of retail chains providing a value added service to busy consumers. This trend is in circulation in the international markets and the big petrol station convenience stores earn more than 30 to 40 per cent of their profits from the non-fuel activities. The range of value added services is all beneath one roof. The new-look petrol pumps are now the more advanced multi-purpose dispenser petrol-pumps. The petrol pumps are computerized, thus reducing waiting time which not only ensures accuracy, but also saves a lot of time for customers and avoids misconception and arguments.

The study gives a comprehensive overview of IOCL in India, the way it has evolved through shackles of time and its current status with respect to companies, regulations and customers. The study tracks the origin and the journey of industry till date. It has also focused on the kind of services expected by consumers, which are being provided on retail outlets and which can be provided on outlets. These services will cumulatively increase the revenue realization as well as optimal utilization of land available on an outlet.

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RESEARCH OBJECTIVES

To Study the Background of Indian Oil Corporation Limited

The first objective of this study is to study about Indian Oil Corporation in details. The objective would encompass the genesis of IOCL, the consumption and its contribution to the economy.

To Highlight the Importance of Branded diesel of IOCL

The second objective has led to reasons for increasing importance of branded diesel of IOCL.. It also focused on ways to enhance the market share and level of customer satisfaction.

To Highlight The Real Demands & customers satisfactions with

XTRAMILE DIESEL .
The third object of the study is to know the actuale demands and customers acceptance of the branded diesel of the IOCL.

To Higlights the customers review and approach to the product

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RESEARCH METHODOLOGY

Research Design :

The topic characterizes following things 1. Information needed is defined only loosely. 2. Research process is structured but flexible. 3. Sample is small and not completely representative. 4. Analysis of secondary data is qualitative. The major part of the research is an exploratory research design. Some portions follow the descriptive design criteria. This type of research design is generally followed by further exploratory or conclusive research.

Sources of Data :
Secondary Data : Research reports on Branded diesel of IOCL & Others. Performance and strategy reports of petroleum companies. Articles on Branded fuel. White papers on Branded diesel retailing. Online journals. Direct Market Research On XTRAMILE DIESEL.

Limitations
Limited samples taken for interview.

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FINDINGS
CHAPTER 1

Background of Indian Oil Corporation Limited

1.1 Historical Background of Indian Oil Corporation Limited

Beginning in 1959 as Indian Oil Company Ltd., Indian Oil Corporation Ltd. was formed in 1964 with the merger of Indian Refineries Ltd. (established 1958). Indian Oil and its subsidiaries account for 49% petroleum products market share, 40.4% refining capacity and 69% downstream sector pipelines capacity in India. Indian Oil Corporation Ltd. (Indian Oil) is India's largest commercial enterprise, with a sales turnover of Rs. 2, 47,479 crore (US $ 61.70 billion) and profits of Rs. 6,963 crore (US $ 1.74 billion) for the year 2007-08. Indian Oil is also the highest ranked Indian company in the prestigious Fortune 'Global 500' listing, having moved up 19 places to the 116 th position in 2008. It is also the 18 th largest petroleum company in the world.

Type Industry Founded Headquarters Key people

State-owned enterprise Public Oil and Gas 1964 New Delhi, India Brij Mohan Bansal Chairman

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Products

Oil Petroleum Natural gas Petrochemical Fuel Lubricant

Revenue

$54.287 billion (2009)[1]

Net income

$2.258 billion (2009)[1]

Total assets

$29.672 billion (2009)[1]

Total equity Employees

$11.686 billion (2009) [1]

36,307 (2009)

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BOARD OF DIRECTORS
Shri. B. M. Bansal Chairman

Shri. Serangulam Varadarajan Narasimhan Director of Finance

Shri. G. C. Daga ; Director marketing

Mr. Vishan Chandra Agrawal ; Director H.R.

Products Of IOCL

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INDANE GAS
NATURAL GAS

PETROL & GASOLIN

DIESEL & GAS OIL

SERVO LUBRICANTS & GREASES

KEROSENE

PETROCEMICALS

BITUMEN

CRUDE OIL

Indane Gas
Indane is today one of the largest packed-LPG brands in the world and has been conferred the coveted Consumer Superbrand status by the Superbrands Council of India.

NUTURAL GAS
The Corporation entered the Natural Gas business in March 2004. Since then, by leveraging its inherent strengths and countrywide reach, IndianOil has significantly enhanced its customer base. In the year 2009-10, it clocked sales of 2.25 MMTPA (million metric tonnes per annum) i.e. 7.89 MMSCMD (million standard cubic meters per day) of gas earning revenues of about Rs. 3000 crore

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Petrol/Gasoline
Gasoline is a complex mixture of relatively volatile hydrocarbons that vary widely in chemical & physical properties and are derived from fractional distillation of crude petroleum with a further treatment mainly in terms of improvement of its octane rating. The hundreds of individual hydrocarbons in gasoline range from c4 to c11.

XTRAPREMIUM
IndianOils XTRAPREMIUM is Indias leading branded petrol boosted with new-generation multifunctional additives known as friction busters that prevent deposition in the combustion chamber. XTRAPREMIUM is custom-designed to deliver higher mileage, more power, better pickup, faster acceleration, enhanced engine cleanliness and lower emissions. XTRAPREMIUM is a sought-after fuel among discerning motorists, and owners of new-generation, high-performance cars have endorsed its unmatched performance.

Diesel/Gas oil
Petroleum derived diesel (called as petrodiesel) is a mixture of straight run product (150 C and 350 C) with varying amount of selected cracked distillates and is composed of saturated hydrocarbons (primarily paraffins including n , iso , and cycloparaffins), and aromatic hydrocarbons (including napthalenes and alkylbenzenes). Diesel is used in diesel engines, a type of internal combustion engine. Rudolf Diesel originally designed the diesel engine to use coal dust as a fuel, but oil proved more effective. Diesel engines are used in cars, motorcycles, boats and locomotives. Automotive diesel fuel serves to power trains, buses, trucks, and automobiles, to run construction, petroleum drilling and other off-road equipment and to be the prime mover in a wide range of power generation & pumping applications. The diesel engine is high compression, self-ignition engine. Fuel is ignited by the heat of high compression and no spark plug is used. The Indian Standard governing the properties of diesel fuels is IS 1460:2005 (5th Rev). Important characteristics are ignition characteristics, handling at low temperature, flash point. Diesel fuel often contains higher quantities of sulphur. In India , emission standards (equivalent to Euro II, Euro III, Euro IV) have necessitated oil refineries to dramatically reduce the level of sulphur in diesel in view of the auto fuel policy brought in force by Govt of India. BIS has brought out specification for "Diesel with 5% Biodiesel" that may be marketed in near future.

XTRAMILE
IndianOils XTRAMILE Super Diesel, the leader in the branded diesel segment, is blended with world-class multi-functional fuel additives. Commercial vehicle owners choose XTRAMILE because they see a clear value benefit in terms of superior mileage, lower maintenance costs and improved engine protection. A growing section of customers who own diesel automobiles, both in the lifestyle and passenger category, prefer XTRAMILE as a fuel for its added and enhanced

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performance. XTRAMILE has brought in a huge savings in the high mileage commercial vehicles segment. Transport fleets that operate a large number of trucks crisscrossing the country are using XTRAMILE to benefit from higher mileage and reduced maintenance costs.

SERVO lubricants & greases

IndianOil's SERVO is the brand leader among lubricants and greases in India and has been conferred the Consumer Superbrand status by the Superbrands Council of India.

Kerosene
Kerosenes are distillate fractions of crude oil in the boiling range of 150-250C. They are treated mainly for reducing aromatic content to increase their smoke point (height of a smokeless flame) and hydrofining to reduce sulphur content and to improve odour, colour & burning qualities (char value).

Petrochemicals
Paraxylene/Purified Terephthalic Acid (PX/PTA), Panipat: Naphtha Cracker Plant, Panipat: The world-class Naphtha Cracker at Panipat, built at a cost of Rs 14,400 crore, is the largest operating cracker capacity in India.

Bitumen
Bitumen is a common binder used in road construction. It is principally obtained as a residual product in petroleum refineries after higher fractions like gas, petrol, kerosene and diesel, etc., are removed. Indian Standard Institution defines Bitumen as a black or dark brown non-crystalline soil or viscous material having adhesive properties derived from petroleum crude either by natural or by refinery processes.

Bulk/Industrial Fuels
In the large volume consumer segment, IndianOil's provides complete Fuel Management Solutions to customers who require fuels in bulk and have dedicated facilities for storage and handling. These customers benefit from IndianOil's efficient sourcing and supplies matched to their usage patterns and inventory. The ptimization on and ptimization of supplies is especially relevant in the light of high-energy input costs in the recent past, which is expected to continue in the future too. IndianOil's tankages are strategically located across the country and are customdesigned to maintain low-cost supplies that can be rapidly transported through a sophisticated supply-chain management system.

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Crude oil
Crude oil - as petroleum directly out of the ground is called - is a remarkably varied substance, both in its use and composition.

DIVISIONS
Marketing Pipelines R&D Refining Training

REFINERIES
Digboi Refinery, in Upper Assam, is India's oldest refinery and was commissioned in 1901.
Originally a part of Assam Oil Company, it became part of IndianOil in 1981. Its original refining capacity had been 0.5 MMTPA since 1901. Modernisation project of this refinery has been completed and the refinery now has an increased capacity of 0.65 MMTPA.

Guwahati Refinery, the first public sector refinery of the country, was built with Romanian
collaboration and was inaugurated by Late Pt. Jawaharlal Nehru, the first Prime Minister of India, on 1 January 1962.

Barauni Refinery, in Bihar, was built in collaboration with Russia and Romania. It was
commissioned in 1964 with a capacity of 1 MMTPA. Its capacity today is 6 MMTPA.

Gujarat Refinery, at Koyali in Gujarat in Western India, is IndianOils largest refinery. The
refinery was commissioned in 1965. It also houses the first hydrocracking unit of the country. Its present capacity is 13.70 MMTPA.

Haldia Refinery is the only coastal refinery of the Corporation, situated 136 km downstream of
Kolkata in the Purba Medinipur (East Midnapore) district. It was commissioned in 1975 with a capacity of 2.5 MMTPA, which has since been increased to 5.8 MMTPA

Mathura Refinery was commissioned in 1982 as the sixth refinery in the fold of IndianOil and
with an original capacity of 6.0 MMTPA. Located strategically between the historic cities of Delhi and Agra, the capacity of Mathura refinery was increased to 7.5 MMTPA

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.

Panipat Refinery is the seventh refinery of IndianOil. The original refinery with 6 MMTPA
capacity was built and commissioned in 1998. Panipat Refinery has doubled its refining capacity from 6 MMT/yr to 12 MMTPA with the commissioning of its Expansion Project.

Subsidiary refineries Bongaigaon Refinery (2.95 MMTPA), Chennai Petroleum (9.5

MMTPA)

1.2 Vision and Mission of IOCL

Vision A major diversified, trans-national, integrated energy company, with national leadership and a strong environment conscience , playing a national role in oil security & public distribution.

Mission To achieve international standards of excellence in all aspects of energy and diversified business with focus on customer delight through value of products and services, and cost reduction. To maximize creation of wealth, value and satisfaction for the stakeholders. To attain leadership in developing, adopting and assimilating state-of-the-art technology for competitive advantage. To provide technology and services through sustained Research & Development. To foster a culture of participation and innovation for employee growth and contribution. To cultivate high standards of business ethics and Total Quality Management for a strong corporate identity and brand equity. To help enrich the quality of life of the community and preserve ecological balance and heritage through a strong environment conscience.

1.3 Indian Oil as a Leader-Marketers Perspective

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Indian Oil follows the typical competitive strategies for a market leader by : I. Defending its market share

BPCL was the first to launch differentiated product.IOCL also launched similar product in order to defend its leadership position. It was a kind of Counteroffensive Defense. The Indian petroleum market was never the same again after 1991.The market was opened for the foreign players and the economy changed from closed to open. During the year 2007-08, every brand in Indian Oils portfolio further consolidated its leadership status. In fact, XTRAPREMIUM registered a whopping 89% growth in sales over the previous year to emerge as the country's leader in the branded petrol segment. Similarly XTRAMILE Diesel, the numero uno in the branded diesel segment, saw a sales growth of 65% over the last year. XTRAPOWER Fleet Card usage went up by 26% and earned the recognition as the largest Loyalty Programme on the basis of sales turnover at the recently concluded Loyalty Summit 2008. During the year around Rs 10,000 crore worth of fuels were transacted using the XTRAPOWER Fleet Card. India's largest lubricant brand, SERVO registered a 4.4% volume growth during the year and retained its No. 1 brand status. In Aviation Fuel Business too Indian Oil retained its market share of 62.3% during the year.

II.

Expansion of the total market

As the flagship national oil company in the downstream sector, Indian Oil reaches precious petroleum products to millions of people every day through a countrywide network of about 34,000 sales points. They are backed for supplies by 166 bulk storage terminals and depots, 101 aviation fuel stations and 89 Indane (LPG) bottling plants. About 7,100 bulk consumer pumps are also in operation for the convenience of large consumers, ensuring products and inventory. Indian Oil operates the largest and the widest network of petrol & diesel stations in the country, numbering over 17,600. It reaches Indane cooking gas to the doorsteps of over 50 million households in nearly 2,700 markets through a network of about 5,000 Indane distributors. Indian Oil's ISO-9002 certified Aviation Service commands over 62% market share in aviation fuel business, meeting the fuel needs of domestic and international flag carriers, private airlines and the Indian Defence Services. The Corporation also enjoys a dominant share of the bulk consumer business, including that of railways, state transport undertakings, and industrial, agricultural and marine sectors.

III.

Future Objectives of the Company

To enhance availability of domestic LPG cylinders, Indian Oil is also pioneering the launch of new generation composite LPG cylinders using materials like HDPE, PET and FRP. The composite cylinder will have 10.5 kg of LPG and nearly 2 lakhs such composite cylinders are proposed to be imported on an industry basis in the first phase and test marketing will be

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undertaken by Indian Oil in Bangalore this year. The company is also emphasizing in non-fuel retailing to maximize its revenues.

CHAPTER 2

SWOT Analysis for IOCL

External Environment

Opportunities
The IOCL has much opportunity in the present market conditions. This is because the petroleum products are become a need for everyone and still contains a lot of scope for customization. The various opportunities are listed below : Since the company has the maximum no. Of out lets and also the maximum no. Of refineries in India, it can very easily go for extension at any point of time, and can introduce any new products, which will get support from its huge market network. The company can make the buying process more easy for the customers, by implying many more schemes in the range of XTRA POWER & XTRA REWARD. The company can think over the issue to build its own pipelines, so that it will be a independent player and it will also support its aviation fuel supply. Company have a great scope in E&P. It is already involves in E&P but only in a very limited scale.

Threats
Since the company is the market leader in the field , so have maximum threats from the other players and many other issues. The lists of threats are given below : The foreign players with more advanced technology are the biggest treat for the company.

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The crude oil supply is also a big issue in front of the company, because the company cannot fix its price and so, some time had operate in loss also it is the biggest problem because the maximum part of their crude is been imported. In future the market will welcome more private players, which will eat up its market share. If the Govt. Policies allow the private players to set their own price, the private player can seriously harm the market share of IOCL.

Internal Environment

Strengths
IOC controls 10 refineries, by virtue of which it has a total share of around 40% of Indias overall refining capacity. IOC has also acquired equity stakes in CPCL and BRPL, and in 2001, these refineries became subsidiaries of IOC. 58% of IOCs refining capacity is located in the Northern and Western regions, which are high demand and high growth areas. Although its refineries are located the interior of the country, and not near the major ports IOC has a very strong distribution network by virtue of having a share of 48% in the countrys product pipelines. The total capacity of these product pipelines is 49.79 MMT. IOC also acquired management control of the marketing company IBP, thereby strengthening its position in these activities. It also has a dominant share in all segments in terms marketing infrastructure. Its network includes 19830 retail outlets, 8000 LPG distributors, and 6492 kerosene/LDO dealers. By virtue of entering into extensive joint venture agreements, and of its own initiative as well, the company has a presence in various other related activities such as petroleum storage, pipelines, lube additives, exploration, petrochemicals, gas, training and consultancy, etc. IOC has also started exploring the overseas markets for increasing its scope of operations. Its interests include downstream activities in Sri Lanka, Maldives, Oman, and Nepal; interest in the lubes business in Maldives, Dubai, Bangladesh, Sri Lanka, etc ; among others. Weaknesses The company is the market leader in the industry, but still it have many weaknesses.The list is given below :

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The major weakness for the company is the R & D. The company starts working on it. The petrochemical product development technology is another weakness for the company. The technological drawback, as compared to some major foreign & private player is another weakness for the company.

CHAPTER 3

Importance of Non Fuel Retailing

3.1 Winds of Change

India had deregulated the petroleum retail sector in 2002 by dismantling APM and enabling new players to enter the market. The entry of private players like Reliance, Essar, Shell, NRL, and many more have increased the number of retail outlets as well as the competition. On one hand it would foster competition but on the other hand it will also reduce the average throughput per station and total fuel volumes per player. With a market determined pricing mechanism in place, prices will have to be lowered, which would further reduce the margins from fuel products. With insufficient growth in the number of vehicles, the fuel volumes are expected to remain stagnant, offering little scope for further improvement of the overall revenues and margins. In such a scenario, the petroleum retailers will need to develop differentiated value propositions to improve revenues. It will require customer centric approach and building of a strong brand equity and identity. To impel revenues and margins, the retailers will have to attract new customers or increase share of their existing customers wallet. The second option of increasing share of customers wallet can be achieved by means of non-fuel products and services. Non-fuel products tender higher margins as compared to petroleum products and enable companies to sustain themselves, especially during times when oil prices are high. However, it is to be kept in mind that petroleum retailing is a retailing of petroleum product and service, with differentiation possible in either or both areas.

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3.1.1 Callous Competitive Environment The retail sector is destined to witness intense competition in future due to entry of the private players. In the competitive scenario, whosoever will have adequate infrastructure for transportation, storage and distribution will emerge as winner. With this game plan, the existing as well as private oil companies are strengthening their retail network continuously.

3.1.2 Mounting Expectations of Consumer With increasing competition in the retailing sector, todays consumers are becoming more and more demanding. The emergence of new psychographic segments in petro-retail market bears the testimony to this fact. A closer look at these segments tells us what exactly a consumer is looking for whenever he goes to a fuel station to purchase fuel. A consumer tries to find Quality & Quantity assurance Quick filling and efficient forecourt service Rewards for loyalty Premium fuels Cashless transactions Non-fuel services

3.1.3 Call for Alternate Sources of Revenue One major challenge that the oil marketing companies are facing today is the need for the alternate revenue sources. Many factors have prompted this new affair in todays petro-retailing environment. These factors are Increased pressures on margins Desire to leverage real estate and increase revenues Evolving customer segments like Value time saving propositions, Quality and Environment consciousness, Prestige seeker etc.

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Need to differentiate offerings

3.1.4 Emergence of Non-Fuel Services As a Major Activity at Retail Outlets The changing face of the Indian consumer is one of the main reasons for offering the non-fuel services at petro-retail outlets. Today, he is looking at a one stop solution to all his needs buying groceries, withdrawing cash from his bank, making utility payments, renewing his insurance cover, grabbing a quick bite, obtaining Pollution Under Control Certification and of course filling fuel in his car. On the other hand the driver on the highways is seeking a clean and hygienic place to relax and freshen-up, service his vehicle and have a good meal at the restaurant in the pump.

3.1.5 Alternate sources of revenues The growing competition will increase pressure on margins. Therefore, the retailers will have to seek for alternate sources of revenue. By taking examples of foreign experiences, to taste success in this ruthless competition, retailers need to develop a sustainable non-fuel model which should find synergies with core fuel business. However, strategic foresight is one thing, but what matters most is the superior execution of the strategies. This is the factor which shapes core competency for a company that is hard to replicate by the competitors.

3.2 Key Issues and Imperatives for the Industry

Given the opportunities and changing consumer needs, there are three key imperatives for retailers. Lets first have a look at the two important or key issues How to build a unique and sustainable competitive advantage ? How to attract new customers and capture a share of their wallet ? Let us discuss each of the issues one by one :

Building a unique and sustainable competitive advantage

Sustainable competitive advantage is the prolonged benefit of implementing some unique value creating strategy based on unique combination of internal organizational resources and capabilities that cannot be replicated by competitors.

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Attracting New Customers And Capturing Share Of Their Wallet

I.

An Open Evening

Providing refreshments and a free vehicle cleaning would attract customers. A local paper can be used to promote the event (such as free check up camps, etc). Both retailer and customer stand to gain, especially if a prize is there from supplier. Invite the paper people to participate in publicity. Liaison with the paper to measure response, and ensure they are in attendance with photographer for follow-up publicity.

II.

Make Outlet Look Inviting

Inviting outlet does not mean a total make-over , just rearranging furniture and creating an interesting shop window will make a difference. Few new posters or branded displays will also help.

III.

Community Spirit

Local charities or community organizations such as the Lions Club, and Round Table or school fetes or fairs - all will bring potential new customers. A shop or counter can be set. Setting up shop does not have to be expensive . It may be just a table with brochures and latest offers. Any sponsorship to any of these events can do wonders.

IV.

Use of Local Media

One should not forget local media . It can provide many PR opportunities. Local press generally support businesses in the area, and its surprising what can develop from a small advertisement. The trick is to not only consider the implications for the business, but also remember to find and highlight the benefits for the third party.

V.

Partnerships

All options should be kept open for potential partners, as they are also seeking to attract new customers. This may be a local retail outlet, restaurant or supermarket. All of these are excellent shop windows for joint promotion of events. Offer to provide a placement/staff member in their environment on a trial basis to see if this attracts new customers and simultaneously demonstrate that new customers can be attracted into their store in return.

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VI.

Motivate The Staff

Engage staff in new approach so they are motivated to sell and understand the importance of acquiring new customers. Inform them of what is being done, why it's important, and encourage ideas and suggestions - some of them may surprise. Their support is paramount for success.

3.3 Key Imperatives for Retailers

Develop in-depth consumer insight (Know the Consumer) and Building offerings around the target consumer Customer segmentation is an indispensable tool for performance improvement. Are we selling to the right customers? Which segments should be the primary target of our product development efforts, sales and marketing activities? In which regions and countries should we be competing? In which markets can we create differential value? How should we differentially allocate our sales and marketing resource to various segments? To answer such questions, a management team must understand which customer segments are most attractive in terms of size, profitability, and growth. They must also make an honest assessment of their companys capabilities to meet each segments needs relative to the competition. Some segments fit a company better than others that is, the company has greater ability to serve these segments in a way that is differentiated from competitors. Some segments are more profitable, either because they generate higher revenues, because they can be served at lower cost, or both. And some segments are growing faster. Segments with high growth, high profitability, and sufficiently large revenue potential are a companys natural focus. But the company may also be able to adjust its value proposition to serve high-growth customers that are not currently very profitable. Effective segmentation can also reveal underexploited opportunities within the customer base. By de-averaging customers and prospects, often a hidden pool of profit can be found which could be more fully exploited. A great starting point for this sort of analysis is to identify segments that are willing to choose our product over others, or pay more for the bundle of needs and wants that our product represents. Building a strong brand proposition

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Retailers will need to create offerings depending on the needs of the target segment, which differentiate them from competitor. Following are shown 8 parameters based on which differentiation can take place.

Price

Convenience

Image

Distribution

Basis Of Differentation

Breadth Of Offerings

Service

Store Apperance Food

Successful brand building strategies will evolve from product related features to service related features :

Product Related Features Quality Quantity Location

Service Related Features Personalized Consumer Experience Speed Of Service Attendent Disposition Station Ambience

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CHAPTER 4

Non Fuel Retailing Initiatives

4.1 Retail in India
Indian retail industry is in a transition phase. It is moving from an unorganized sector to becoming an organized sector. However, most of the retailing in our country is still unorganized. The retail spread out in US and India has a very wide gap. Although retailing in India is having an exponential growth, the road ahead is full of challenges.

4.1.1 What Is Retailing ? The word "Retail" has its origin from a French-Italian word. Retailing is the set of activities that markets products or services to final consumers for their own personal or household use whereas Retailer is someone who cuts off or sheds a small piece from something Retailers organize their availability on a relatively large scale and supply them to customers on a relatively small scale. Retailer can be a Person or Agent or Agency or Company or Organization, who is instrumental in supplying the Goods, Merchandise or Services to the End User or end Consumer.

4.1.2 Key Challenges : I. Location : "Right Place, Right choice"

Location is the most important and prime ingredient for any business that relies on customers.It is typically the most important deliberation in a customers store choice. Location decisions are inflexible because retailers have to either make sustainable investments to buy and develop real estate or commit to long term lease.When formulating decision about where to locate, the retailer must refer to the strategic plan :

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Investigate alternative trading areas. Determine the type of desirable store location. Evaluate alternative specific store sites.

II.

Merchandise :

The primary goal of the retailers should be to sell the right kind of merchandise. Nothing is more central to the strategic thrust of the retailing firm. It consists of activities of acquiring particular goods and services and making them available at a place, time and quantity so as to achieve the targets set by the retailer. Merchandising is perhaps, the most important function for any retail organization because it decides what finally goes on shelf of the store.

III.

Pricing :

Pricing is a crucial strategic variable due to its direct relationship with a firm's goal and its interaction with other retailing elements. The importance of pricing is increasing, because today customers want good value for money while buying merchandise and services. Also,price is the easiest and quickest variable for change.

IV.

Target Audience :

"Consumer is the prime mover" "Consumer Pull", however, seems to be the most vital driving force behind the sustenance of the industry. The purchasing power of the customers has increased significantly. It is influencing the retail industry to a great extent.

V.

Scale of Operations :

Scale of operations includes all the supply chain activities, which are carried out in the business. It is one of the challenges that the Indian retailers are facing. The cost of operations is very high in India as compared to global costs.

4.2 Non Fuel Retailing

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Till a few years ago, petroleum retailing in India was a staid and dreary business. Cars, buses and two wheelers drove in, got the vehicles fuelled, paid cash, and drove out. The environment started changing when Shell did a makeover of some petrol pumps as part of the economic reform process. Improved signage, use of credit cards, and car-washes soon became an integral part of the petroleum retail outlets. Earlier petrol stations were merely used for selling fuel; now they are quickly getting converted into multi-facility joints. The idea, common enough in countries like Singapore and Malaysia - is to buy fuel, and shop alongside. However, these pumps are either owned by state-owned petroleum product companies like Indian Oil, Bharat Petroleum and Hindustan Petroleum or are run as franchises by private entrepreneurs with limited capital. Indian Petroleum Industry has been witnessing a steady growth but the margin pressure has increased. There has been a steady growth of 2.8% in the last five years (2002-07). The desired impetus would be provided by enhanced economic activity. To overcome margin pressure, Indian PSU Oil companies have started their Non Fuel Effort, similar to their global counterparts. Even losses of over Rs 300 crore (Rs 3 billion) per day from selling automobile fuels have not stopped government owned oil marketing companies from expanding their retail network across the country. The three government-owned companies Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) - are together planning to expand their non fuel business on existing outlets and provide the same on existing outlets to boost profitability. The marketing businesses of oil retailers are suffering losses as they are forced to sell petrol, diesel, LPG and kerosene at subsidized prices. Demand for these products is growing at a healthy rate of about 8 percent per year. It is perhaps a blessing in disguise. In last few years, opportunities in petro retailing have risen in two key areas : Sale of Value Added Fuels Branded Fuels Value added products and services Non Fuel products and services

4.3 Options for Non-Fuel Offerings

To deliver the many conveniences and services, various oil marketing companies have associated with leading brands and companies like ICICI Bank, Coca Cola India, Fed Ex,Cafe Coffee Day, Western Union Money Transfer, US Pizza, Barista, Dominos Pizza, Skypak etc. The facilities on a particular outlet would depend upon the purchasing power of the people. The facilities like Cafe Coffee Day, Barista, Dominos Pizza, US pizza, Crossword, Skypak, etc and other expensive outlets may not work everywhere. Apart from them there are many other facilities which can be offered to draw more and more customers, thereby increasing profitability and level of customer satisfaction.

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Here, we will have a glimpse of some of the facilities which are expected by a customer and can be offered to them on an outlet :

4.3.1 ATM (Automated Teller Machine or Any Time Money) An ATM is the most expected facility at an outlet. Almost every customer now has a debit/ credit card and he/she expects an ATM at the outlet. Benefits from implementing an ATM : I. Customer will get an additional facility along will fuel and it will help to draw more customers. Increase in revenues due to the lease rent from the bank.

II.

A room 120 square feet is required to install an ATM which is a nominal expense. The company may get rent in the range of Rs 8000 to Rs 12,000 per month depending upon the location.

4.3.2 Quick Care Point A mechanic who can quickly give a service to the concern vehicle and also he can do the air check. In the quick care point, various lubricants and coolant can be displayed with the purpose of advertisements as well as enhancing customer awareness. The facility of total car wash & maintenance also may be offered. This will further enhance the revenue of company.

4.3.3 Windscreen Cleaning Facility/Automated Car Wash Facility A cleaning man can wipe the windscreen of four wheelers and front or body of the two wheelers while customer is getting his/her vehicle fuelled.This will augment the customers perception of brand as well as organization. An extra attendant can serve for the role of cleaner. Automated Car Wash Facility can be introduced which would be a very innovative venture.

4.3.4 Free Health Check-Up In the outlet some free health check up camps can be organized by the company doctor. This will illustrate the responsibility of the organization towards the society. Some of the campus which can be organized may include the Pulse-Polio Camp and AIDS Awareness Camps.

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A citizen reward program can be conducted during the same camp, which would cater to honoring of some local people who have made contributions to society. Auto/Taxi drivers segment can be recognized and honored for their outstanding service to society. On similar approach best employee award can be given to outstanding employee. It will boost the pump attendants to give perform best in their jobs. There performance can be monitored on the following parameters : I. II. III. IV. V. Punctuality : Time of arrival and departure. Discipline in the job. How well an individual is prompting for branded fuel and other allied services. Behavior with the customers. Neatness.

4.3.5 Inde-Pay It is e- recharge machine which will provide a recharge of six different telecommunications companies along with the railway reservations. The facilities offered by Inde-Pay machine are as follows : Recharge Vouchers (Mobile Top-Ups) Flight Tickets Rail Tickets Utility Bill-Pay Cinema Tickets Budget Hotels Contests

The benefits of Inde-Pay machine to the end user are : Alternate revenue stream

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High ROI Major Value added services under one single terminal With the purchase of the terminal in addition to the value added services, PCO and POS the retailer gets the following : IRCTC authorized e-ticketing agent certificate Airline ticketing (IATA sub-agent license)

Wireless POS working over IP saves per transaction dial out cost Wireless POS could be used in exhibitions/trade shows where merchants are deprived of a phone line to connect their traditional POS The end user will be able to accept payments in cash, credit card and cash card.

The current services available on Inde - Pay machine are as follows :

SERVICES

BRANDS

CURRENT SERVICES

FUTURE SERVICES

BSNL,Reliance,Tata Indicom,Vodaphone,Airtel Pre-Paid Mobile Top-Up Coming Soon : Idea,MTNL,Uninor,Tata Docomo Indian Railways (IRCTC ) All major Domestic Airlines : Indian Airways, Kingfisher, Deccan, Jet, Sahara etc Leading Banks ----Tata Indicom Bill Payment Leading Utility Companies

Railway Ticketing

Airline Ticketing

Non-Cash Bank Account Services PCO

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Card Acceptance Movie Tickets

All banks issuing Mastercard / VISA Leading Multiplexes

----*Source : www.indepay.com The revenue generated on the above mentioned value added services are as follows :

Around 3.5% of coupon (approx.) Reliance 2.5 to 3.5% Tata 3.15% Prepaid Recharge Mobile Idea 2.5% Vodafone 2.5% MTNL 4% BSNL 4% Prepaid Recharge ITZ Cash Card Prepaid Recharge Dish TV, Tata Sky

1.5%

5% , 3.5%

Airline Ticketing Railway Ticketing Non AC Railway Ticketing AC

3% of base fare

Rs. 6/- per ticket

Rs. 12/- per ticket

Bill payments

Rs. 3/- per bill

*Source : www.indepay.com

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This machine costs Rs 15,995. It requires an internet connection which can be given by the basic PNT phone at the outlet, at a monthly rental of Rs 250* with an allowable 1 GB data transfer. This can be housed in the existing (3ftx5ft) Kiosk. Charges may vary depending upon location and service provider.

4.3.6 Vending Machine of Coffee & Coca-Cola Vending machine of coffee & coca-cola will help in enhancing the revenues. It will also augment the customer satisfaction level. Along with them beverages items like mineral water bottles, snacks etc. can be displayed in a stand near the dispenser for sale.

4.3.7 Pay Phone This is another facility which can be provided to the customers. It requires very less space and has low initial investment as well as zero maintenance cost. The pay phone will help in drawing the customers.

4.3.8 Other Necessary Amenities Toilets : Neat and clean toilets facilities should be available for the customers. Drinking Water : Purified drinking water facilities should be available to the customers. Depending upon the climate hot or cold water can be provided. From the above suggested non-fuel product mix earning per square per month from the above suggested non-fuel product mix :

Serial Number

Product-Mix

Earnings per Sq ft per month in INR 100 485.71 161.96

1 2 3

ATM Quick Care Point Coffee Vending Machine

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4 5

Vegetable Shop Inde-Pay

100 287

*Source : Feasibility report on non fuel offerings of HPCL

4.4 Non Fuel Initiatives of Indian PSUS

4.4.1 Indian Oil Corporation Limited (IOCL) In 1996, Indian Oil Corporation (IOC) became the first Indian debutant in the Fortune 500 list. It is Indias single largest enterprise covering the entire petroleum value chain from exploration, refining, marketing, pipelines, petrochemicals, gas to global operations. It has announced plans to be a $60 billion entity by 2011-12. It has made a good beginning towards achieving that target by growing at the required CAGR (a little over 11 per cent). To power its growth strategy, the company is exploring new horizons. These include non-fuel initiatives in petroleum retail. As of now, it is setting up pure retail operations, quite on the lines of what the big retail players are doing across India. It also has, surprising yet innovative, plans to start fuel services at shopping malls. For this initiative, it has already had discussions with the Ansals and Kishore Biyanis Future Group. The third plan of IOCs retail initiative is to strengthen the Convenience stores (they sell a wide range of packaged foods, hot and cold drinks) that it had set up at select petrol pumps a few years ago. Some of these initiatives should happen over the next couple of months. Oil behemoth Indian Oil Corporation (IOC) is eyeing an annual turnover of Rs 2,000 crore from non-fuel retail in five years. The companys non-fuel retail turnover is currently a mere Rs 4 crore, out of its total sales of Rs 2 lakh crore. As a part of its strategy to push the non-fuel retail business, the company has tied up with major retailers and set up convenience stores, super markets and other formats, depending on the real estate it has at its outlets. It has been following a revenue sharing model. IOC has around 21, 000 fuel outlets in the country. IOCL is seriously looking at the non-fuel business in a big way. They have plans to unlock the real estate stock on their outlets and develop them as profitable business ventures. Besides, this will also give opportunities for the retailers to tap the market further. In urban areas, the stores are in two sizes, 300 to 700 sq feet and 700 to 1,000 sq feet. They are between 1,000 sq feet and 1,500 sq feet on highways. IOCL has 108 Kisan Seva Kendras (KSKs), its low-cost petrol pumps that sell agriculture inputs, equipment and daily essentials in rural areas. The company is planning to set up 2,500 - 3,000 new such pumps by the end of 2010.

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Indian Oil has already unveiled its XTRACARE retail outlets all over the country. The XTRACARE retail branding exercise was kick-started with a countrywide retail transformation project nicknamed 'Operation Everest' in mid-2003. Over 1,000 select retail outlets were included as part of the campaign. Indian Oil XTRACARE outlets are benchmarked to international standards of quality and quantity, housekeeping, maintenance and customer service certified by the globally renowned agency - Bureau Veritas (BV). While the industry standard is to take samples on a quarterly basis, Indian Oil has moved several steps ahead by introducing fortnightly, random sampling with specific importance given to RON (Research Octane Number) sampling which is truly the definitive test for quality and quantity. In another pioneering move, the third party certification, by BV, is also being done, for the first time, on a range of parameters that include hygiene, service, and efficiency of fore court, allied services and customer satisfaction. The scale and spread of the 1,000 retail outlets is also an industry record. The non-fuel services are being given a major fillip in the Indian Oil XTRACARE plan and the wide range of loyalty program with Xtra Rewards, Xtra Power and co-branded cards like Indian Oil Citibank Credit Cards. The automation project of XTRACARE is by far the most state-of the-art in the country.

4.4.2 Bharat Petroleum Corporation Limited (BPCL) Bharat Petroleum has its convenience non fuel retailing initiative in the form of In &Out brand. This initiative was launched after having a greater understanding of consumers needs and to show consistency to its core objective of continuously adding value by innovation. The In & Out chain of convenience stores has been set up in the urban market at strategically located retail outlets having high customer footfalls. The In & Out stores were launched in 2001. It offers a convenience proposition where a number of typical household necessities have been aggregated under one roof for the benefit of the customers. Presently, there are more than 240 In & Out stores across India. Strategic alliances have been formed with major brand owners and retailers in the country to further strengthen the convenience proposition. In & Out stores have a wide range of services which include ATMs of leading Banks, Music stores from Planet M and Music World, Beverages from Pepsi, Coffee and snacks from Caf Coffee Day and Coffee Day Xpress, and a variety of impulse buys including confectionery, snacks, convenience foods, toiletries and select range of branded groceries and other FMCG products through exclusive tie-ups with such FMCG majors like ITC, Cadbury and Frito-Lay. Customers can use their Petro-Card (Loyalty card) at In & Out stores and earn Petromiles (loyalty points). In & Out stores are the largest organized convenience store retailing chain in the country with a standardized (same with minor changes based on location) layout across the

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country. It maintains a high level of aesthetics and ambience to offer consumers a revolutionary solution for their daily needs. The In &Out stores offer Western Union Money Transfer facilities in Mumbai. They also offer prepaid mobile recharge cards and e-charging of mobiles. It also has music stores by the name of Satellites and Unplugged from Planet M and Music World respectively at select outlets for music cassettes and CDs. BPCL has pioneered the concept of Hood talkers in India. It is available at few select stores in Hyderabad, Mumbai, Delhi, Jaipur, Kolkata, Bhubaneswar, Chennai, Bangalore, Coimbatore, Ernakulum and Baroda. This concept has been widely implemented by global oil majors. For the convenience of customers who have very little time, these stores have mobile trolleys at the fuel outlet which will bring convenience to customer's car. All purchases in these stores are through computerized billing. The retail information network and the sales data helps in getting information about the products customer's want. Based on consistent customer feedback BPCL has made cell phone recharge cards available at the In & Out stores. BPCL has also launched E-Charge service. It is a complete system and service provider offering electronic delivery system for the prepaid product industry through electronic terminals. With introduction of the E-Charge service through the In & Out stores, the customer would have the convenience of purchasing recharge cards of the desired cellular company and denomination of his choice. The service optimizes customer convenience, ensures complete security of the prepaid PINs and is highly scalable. The technology can also be leverage to introduce other products like movie tickets, etc and services like Bill Payments etc. Currently, this service is available at stores in Mumbai, Delhi and Hyderabad.

4.4.3 Hindustan Petroleum Corporation Limited (HPCL) Club HP is an important part of HPCL's strategic non fuel retail marketing initiative. It assures high quality personalized vehicle and consumer care, as claimed by HPCL. The Club HP concept provides an assurance of "Expert and Personalized Service", "Consumer Conveniences" Quick Fills" and "Total Vehicle Management. Club HP outlets hold the assurance of Good Fuel Promise and deliver the right quality and quantity of the products. Fuel is delivered to these outlets in tank trucks fitted with tamper proof locks and a high degree of control is kept by to ensure that quality standards are strictly enforced. The bouquet of services at Club HP outlets have a distinct set of basic and value added offerings which include digital air towers, efficient & expert Service, vehicle finance and insurance related assistance, quick care points, bill payment facilities, eateries, refreshments etc.

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To deliver the many conveniences and services, HPCL has struck strategic alliances with leading brands like Fed Ex, Coca Cola India, Western Union Money Transfer, ICICI Bank, Cafe Coffee Day, Skypak, US Pizza, and many more. HPCL is also forging service specific alliances with several automobile companies and OEMs like Tata Motors to jointly recognize "Club HP" outlets, which will be authorized service centers for leading automobile brands. The roll out of "Club HP" began by initially targeting 85 outlets in the cities of Mumbai, Delhi, Bangalore and Kolkata. The Club HP brand is now available at around 1000 outlets in all major cities and towns across India. "Club HP" outlets have been cataloged as Standard, Mega and Max depending on the levels of services and amenities available. Each outlet offers a bunch of standardized services depending upon market requirements and logistical abilities. Let us review them :

Vehicle Care Each Club HP Mega and Max outlet is equipped with a service station. In addition, the outlets also provide vehicle consumable and accessories, all under one roof. More and more outlets will be progressively upgrade to authorized service stations as part of our association with various vehicle manufacturers. Digital Air Towers The performance and safety of new generation cars depend a lot on the correct air pressure maintained in the tyres. The specially designed digital air pressure equipment not only ensures accurate air pressure in the shortest time but also adds to the comfort and safety of travel. Quick Care Points Consumers are offered a free check up of vital elements such as engine oil, brake oil, battery water, coolant, fan belt, radiator hose etc. by the specially trained "Club HP" attendants. In addition, a quick inspection of the tyres is done and recommendations given in case any immediate action is required. Good Fuel Promise Towers Consumers are offered the facility to personally conduct simple tests with the help of specially designed standard apparatus. A simple procedure booklet is also provided to help anyone check the quality and quantity of fuel. The consumers are also invited to fill in the printed certificate booklet which will be available at all "Club HP" outlets in order to record their assessment. This feedback is regularly screened by the HPCL team to plan remedial actions or service upgrades in accordance. ATMs

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HPCL has taken the lead in providing ATM facilities at its outlets in association with leading banks and is targeting over 400 ATMs very soon. Select Club HP outlets have already been equipped with ATMs. Vehicle Finance and Insurance Related Counsel HPCL has tied up with leading vehicle insurance and finance service providers for these activities which include assistance towards issuance and renewal of policies as well as extension of loans for purchase of new or second hand vehicles. Communication Facilities Each Club HP outlet is equipped with a pay - phone for the convenience of consumers. In addition, select outlets will also provide high speed internet browsing and e - mail facility. Bills Payments HPCL has tied up with Skypak Financial Services which is providing drop boxes at all "Club HP" outlets. Consumers can utilize these drop boxes to pay bills relating to a variety of service providers. All one has to do is drop the bill and payment instrument (Cheque / Demand Draft) for the designated service provider and Skypak will route the same to the correct destination at no extra cost. Basic Amenities Each "Club HP" outlet will extend basic amenities such as "safe drinking water" through water purifiers, hygienic rest room facilities, food counters, basic medicines and first aid facility. HPCL has also tied up with Coca Cola India to provide beverages and bottled water as well as snacks at all "Club HP" outlets. HPCL & ICICI Co - branded Credit Cards and the Club HP Smart1 Cards Customers visiting the "Club HP" outlets will be able to use the HPCL - ICICI Credit Cards to reap the higher reward points offered by this unique product. The "Club HP Smart 1", a smart card based loyalty program launched for the cash paying customers, will also be available at select Club HP outlets to reward loyal Club HP customers. Strategic Alliances is the ideal way for introducing the Value added services at the petrol pumps. FedEx has opened FedEx Authorized Ship Centers across Club HP locations. Presently, these centers have been opened on 100 Club HP pumps in the cities of Delhi, Mumbai, Chennai, Bangalore, Kolkata, and Hyderabad. With this tie-up both the Companies have leveraged their strength which has resulted in value addition for the customer. Both the companies have derived advantages from this strategic alliance. Lets have a glance on their individual advantages. Advantage HPCL

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Association with one of Americas Top 10 recognized brands. New revenue stream for HPCL and its dealers at no additional cost. Their dealers are imparted world class training. Joint promotions to FedEx customer base. World Class Value Added Service and convenience for their Customers. Advantage FedEx

Access to HPCL extensive retail network. Association with a leading brand in the country. Helps FedEx get closer to its customers. Excellent Brand Coverage. Scope for Joint Promotions.

CHAPTER 5

Real Estate Utilization

5.1 Real Estate Opportunities

Indian retail sector is offering a bunch of magnificent opportunities for petro retail companies. The collaboration with the major food, beverage, textile, cosmetic, daily consumables gives oil companies a wonderful opportunity of leveraging their resources for higher revenues and

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margins. Also they can offset the lower and shrinking margins on the fuel business. Real estate is the most important component of non fuel business. A suitable land on a strategic location can contribute to approximately 30% to 40% rise in revenues.

5.2 Transportation Network

The existence of a growing transportation network is increasing the logistical support required for retail business. The rail, road networks and setting of cargo hubs is a major step towards simplifying and accelerating the growth and development of logistics infrastructure in India. Here is a highlight of the transportation infrastructure : India is observing speedy development of transportation infrastructure. Second largest Road network in the world (3.34 million kilometers). Projects like EW and NS corridors and Golden Quadrilateral are expected to boost movement of goods and people across country. Average annual growth rate of vehicle ownership estimated at 10.16% over the last 5 years. Urban local bodies are taking initiatives for road development. Strengthening of road networks have increased movement of people and goods. Increased movement along roads have opened retailing opportunities explicitly for road users.

5.3 Emerging Retail Formats

There are 3 formats which are being currently practiced and implemented by Indian petro marketing companies. The formats have been designed specific to category of location and the expected level of customer expectations. The three prominent formats have been shown with the help of the diagram below along with the facilities they offer.

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Destination stop - USP High levels of freight and passenger traffic volumes

Highway Stop

Multi-grade fuels, leisure and entertainment, restaurants, hospitality, complete range of maintenance services, Convenience stores, ATMs, Cyber cafes, Large format discount stores/factory outlets.

Convenient short stops

Suburban Stop

Proximity of major urban centers with higher levels of vehicular ownership. Fuel dispensers, Convenience stores, Discount stores, Factory outlets, ATMs.

Short stops within urban areas.

Urban Stop

Predominantly higher levels of passenger vehicle volumes. Fuel dispensers, Convenience stores, ATMs, entertainment zones, book and music stores, 24x7 chemists, eateries

5.3.1 Highway Stops These retail outlets have been designed specifically for national and state highways. These outlets cater specifically to the expectations of truck or transporters segment. They also cater to the needs of long driving passenger vehicles. Some of the examples of highway stops are: BPCLs Ghar, IOCLs Swagat, HPCLs Club HP, Reliances A-1 Plaza. All these outlets have facilities of eateries, ATMs, rest houses, factory outlets of apparels, cosmetics, confectionary shops, etc.

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These outlets have been developed to tap the heavy traffic which prevails on the highways. These outlets provide a one stop shop for all the commuters travelling on the highways. They are huge in size and have all the modern amenities at customers disposal.

5.3.2 Sub Urban Stops These outlets reside primarily on entry of cities and in particularly rural areas. They cater to the needs of passengers travelling in or out of city and the drivers of heavy vehicles segment who want to take a halt out of city. They act as a short stop or small halt places. These outlets are categorized by the presence of small factory outlets, lube stores, ATMs, service centers, etc. 5.3.3 Urban Stops These outlets are city outlets. They are smaller in size and cater to the needs of urban people. These outlets generally have ATMs, outlets of branded apparels, companys store of consumer goods. Depending upon the size and location of outlet, they can have eatery points such as Dominos pizza, Cafe Coffee Day or book stores such as Crossword. Some of the stores also have music stores of Planet M and Music World.

5.4 A Hypothetical Case for offering Non Fuel Services at an Outlet

This case has been taken from a presentation made by Trammel Crow Meghraj Property Consultants Private Limited (one of the leading international property consultants in India) to FICCI on the issue of opportunities for real estate in fuel retail. Following are the Financials considered for the hypothetical case : I. II. Land area for fuel retail outlet: 1.00 acres ( urban or sub urban stop) Fuel operations: 0.65 acres (includes space for dispensers, tanks, office buildings, electricity and generator rooms, etc) Retail operations: 0.35 acres (vacant space or unutilized space which can be used for non fuel operations such as ATM , convenience store or restaurants, etc) Assumed FSI for retail development: 1.0 (FSI stands for Floor Space Index- ratio of total floor space to total plot size. Here FSI indicates that total plot area is being used for retail operations) Built-up area for retail development: 15, 246 sq. ft. Land cost: NIL (included in cost of fuel outlet i.e. while setting up fuel operations)

III.

IV.

V. VI.

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VII. VIII.

Construction cost: INR 1,200 per sq. ft.(average cost ) Total Construction Cost: INR 18,295,200.

Achievable Pricing By Means Of Non Fuel Offerings :

Suggested Product Mix

Area (In Square Feet)

Rentals (INR per sq. ft. per month) 60

Annual (INR)

ATM

150

1,08, 000

Convenient Shopping

4000

35

16,80, 000

Fast Food

4000

30

14,40, 000

Entertainment Zone

4000

20

9,60, 000

Others (Factory Outlets, Book Stores, Kiosks, etc)

3096

35

13,00, 320

Total

15, 246

54,88, 320

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The above hypothetical case clearly shows the kind of revenues which this kind of product mix can contribute to the revenue stream of an outlet. Such product mix will not only increase the revenue but will also enhance the brand credibility, customer satisfaction and brand loyalty.

CONCLUSION
Since last six years, when retailing was first thrown open in the petroleum sector, oil companies are still struggling to grasp the changing dynamics of the retail sector. The launch of non-fuel retailing in India with much ordeal by petroleum majors has not impressed the Indian customers. The consumer off take of groceries, fast-food, medicines, and FMCG products at fuel stations has not met up the expectations of the oil marketing companies. Considering non-fuel retailing is a proven business model in many countries in the US, for instance, the petroleum sector sells the highest number of burgers why are non-fuel sales not even one per cent of total fuel sales? Have the Indian petro companies got it wrong or the Indian consumer rejected the concept? At first instance, it is about priority. The industry is still being designed. Mergers, entry of private players, issues on branding and consolidation in the upstream and downstream sectors have pushed non-fuel to the back seat. The key to success lies in identifying and meeting customer behavior patterns and changing demographics. Organized Retail means 'Big Stores' a common myth. Organized retailing is all about "Aggregating Value" and what shape, size and configuration the interface to customer takes is largely a function of offer and proposition. A growing population, a young workforce and zooming consumer confidence will fuel the expansion of this sector. Current majors like ITC, Godrej , Future Group & many more are expanding their retail operations by setting up more stores, entering new states and offering newer product categories, giving a magnificent opportunity to oil majors for increasing their revenues by means of strategic tie-ups. For a start, retailers need to invest heavily in capturing specific market. IOCL should also make substantial investments in acquiring some advanced expertise in developing more accurate demand forecasts pertaining to non fuel products and services. IOCL should closely examine the changes that are taking place in their immediate vicinity, and analyze whether their current market offers a potential development of the area into a more modern multi-option destination. IOCL should also keep investing in the interiors of their respective establishments to make shopping an enjoyable experience for the customer.

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As the petro-retail arena grows in size and competition increases, the possibility for improving retail productivity and cutting costs is likely to decrease. Thus, it would become important for retailers to create a unique position in the marketplace based on value, relationships or experience. At the same time, it is critical to understand the target customer's definition of value and make an offer, which not only delights the customers but also is also difficult for competitors to imitate. For now, the existing players are expanding cautiously. In a highly-competitive environment, it remains to be seen who will crack the consumer riddle.

BIBLIOGRAPHY

I. II.

Marketing Management By Philip Kotler Industry Petroleum Retail : A Battlefield www.managementparadise.com/projects/misc/petroleum.pdf Indian Retail Industry : Current Scenario www.indianmba.com/Occasional_Papers/OP95/op95.html Retailing Industry in India http://www.indiaonestop.com/retailing.htm Indian Oil eyes US$ 496.27 million from non-fuel retail www.ibef.in/artdisplay.aspx?cat_id=596&art_id=16713&arc=show IOC launches XTRACARE retail plan archives.chennaionline.com/events/Business/2004/12ioc.asp IOC to seek franchises at 2,000 fuel outlets http://www.livemint.com/articles/2007/07/12000705/IOC-to-seek-franchises-at-200.html Inside In & Out (Flash) http://www.speedfuels.com/in&out/Inside.htm THE In & Out CONCEPT http://www.bharatpetroleum.com/wheels/inOutStores.asp

III.

IV.

V.

VI.

VII.

VIII.

IX.

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X.

Club HP - High - quality personalized "Vehicle and Consumer Care" http://www.hindustanpetroleum.com/En/UI/RetailClubHP.aspx Real Estate Opportunities in Fuel Retailing www.ficci.com/mediaroom/speechespresentations/2007/jan07/petrotech/day2/SessionIV/ ManishKumar.pdf

XI.