The fuel retail industry, according to James Noble, a business development manager at Absa Business Banking, is one of the more resilient industries capable of producing substantial profits during times of poor national economic growth.
“The industry has shown to be recession-resistant.” As a result, the industry is worth considering for persons seeking financial independence and wealth development prospects, as well as established business owners looking to expand their portfolio,” Noble said.
There are around 4,600 service stations across the country that pump approximately 300,000 litres of fuel per month.
Individual owners own and run service stations, but the land and the assets on it is often controlled by the top six oil firms, according to Absa.
This relationship is managed through a franchise or retail agreement. A supply agreement oversees the connection with the gasoline supplier in some cases where the merchant owns the land and assets.
“You may expect setup costs for a local service station property development to range from R15 million for an average site and R100 million for a double-sided site on the highway, for example.”
“Depending on the cost of development, predicted volumes, and profitability, the average key money for a new service station operation payable to the oil firm ranges between R2.5 million and R15 million,” Noble added.
The financial demand for routine working capital requirements for stock and operational expenses might range from R1.2 million to R1.5 million.
Some of the locations now require infrastructure worth up to R2 million as a result of recent fuel price rises. According to him, a service station firm requires an additional R100,000 in operating capital for every R1 increase in fuel price.
Fuel retail is a highly specialized industry, with operating margins and financial performance influenced by a variety of macro and microeconomic factors such as oil prices, R/$ exchange rates, rising operating expenses, infrastructure development (such as roads and public transportation), consumer purchasing power, and regulatory impact, according to Noble.
“The gasoline price is one of the most critical influencers or elements that affects the bottom line of service station businesses. When fuel prices rise, most people assume that service station businesses profit more.
“However, this is not the case the business’ profit margin has shrunk as a result of an increase in operational expenses that are directly proportional to sales, such as cash management and merchant service fees.”
The RAS (short for Regulatory Accounting System) retailer margin, as estimated by the Department of Energy, is insufficient, and there is an under recovery of roughly seven cents per litre.
Absa emphasised that the business must recover the additional operational costs from the Entrepreneurial Compensation margin, which is currently at 26.3 cents per litre.
Furthermore, as the price of gasoline rises, motorists’ budgets may have little room to expand, prompting many customers to use public transportation, such as the Gautrain, carpool with coworkers, and fill up their vehicles less regularly, according to the report.
Because fuel prices vary and merchants have set margins, it is critical for the service station industry to increase fuel volumes and income.
“As a result, gasoline merchants are utilizing alternative profit opportunities (APOs) that contribute to the forecourt’s success by offering extra revenue streams,” Noble explained.
Convenience stores have long been the most typical APO option, especially as South Africans have begun to work longer hours and had less time to cook meals.
Because you can fill up your car and buy bread and milk, as well as quick lunches, service stations are able to capitalize on convenience more than traditional stores, according to the lender.
“These days, established merchants like Woolworths, Pick n Pay, OK, Freshstop, and Spar are teaming with oil firms and service station businesses to take advantage of that convenience and grow their market share.”
“We’re also seeing additional APOs, such as carwash services, fast service eateries like Wimpy, Debonairs, and Steers, as well as ice cream shops and coffee franchise brands like Mugg and Bean, Vida e Caffe, and Seattle Coffee, that have began to appear at service station companies,” Noble added.
He also mentioned loyalty programs as a way to increase foot traffic at service station businesses. More firms are cooperating with Sasol to provide customers up to 15% cash back on fuel purchases, such as Avios, SAA Voyager, and companies like Clicks, Dischem, and Absa Rewards.
This includes loyalty points, which they may earn and use for partner discounts and offers.
“Viability is probably the most critical concern,” Noble remarked. “There are three methods to get into the petroleum retail market in South Africa, the first of which is to invest in the establishment of a service station, which includes the physical facility, land, and associated assets” (property investment).
“Alternatively, you can buy just the business operation or the property and the operation together.”
If you wish to buy an existing service station, Absa advises that the profitability of the business will be the basis for the cost.
This normally ranges from R2.5 million to R35 million. The industry standard is to utilize a method that involves multiplying average monthly EBITDA before owners’ pay by 36.
“All of these requirements mean that you’ll need a well-thought-out business plan to offer to a bank or alternative lender.”
“A thorough understanding of the fuel retail sector is also required, as is a financial institution like Absa that understands the challenges of the industry and can partner with you on your journey to successfully owning and/or operating your own service station business through its financial solutions,” Noble said.
In South Africa, how much does it cost to open a fuel station?
Fuel provision is a necessary service (at least for the time being) that accounts for more than 6% of South Africa’s gross domestic product (GDP). It is also one of the most robust industries in South Africa, and with the right approach, it can enjoy solid earnings even during economic downturns.
How much does it cost to open a petrol station business?
The cost of establishing a local petrol station varies between R15 million and R100 million, depending on the size and location. Furthermore, depending on the cost of development, predicted volumes, and profitability, the operation payment to the oil business ranges between R2.5 million and R15 million. Then there’s the typical working capital requirements for stock and operating expenses, which might range from R1.2 million to R1.5 million. Contrary to popular assumption, when the price of gasoline rises, the petrol station does not benefit. In reality, every R1 increase in fuel price necessitates an additional R100,000 in operating capital for the average service station. The RAS (short for Regulatory Accounting System) retailer margin, as estimated by the Department of Energy, is insufficient, and there is an under recovery of roughly seven cents per litre. What this all boils down to is that while a petrol station’s massive start-up expenditures are one thing, a successful petrol store also requires constant access to fuel.
Is owning a fuel station viable in South Africa?
- South Africa consumes a lot of gasoline, and selling it is a profitable industry.
- But be aware that it is not for everyone, that there is a lot of red tape, and that it is not inexpensive.
- The most affordable stations cost roughly R1 million, but if you want a popular site with all the bells and whistles, you may pay up to R20 million.
- Here’s how to start your own independent gas station or buy an existing gas franchise, as well as the benefits and drawbacks of both.
How much does a petrol station make per month in South Africa?
The convenience store raises the station’s cost, but according to Engen, it earns R309,000 in average monthly turnover in this example. An Engen at the high end of the scale will set you back around R7 million.
What is the cost of acquiring an Engen franchise?
Buying an existing franchise from one of the major oil companies, even if it comes with some restrictions, is a more safer alternative for first-time owners. You’ll be utilizing existing players’ experience, workflow, and brand.
In South Africa, most major oil firms run their customer-facing activities through franchisees.
Engen, Shell, Caltex, BP, and Sasol are all open to new franchise locations, but with license and locations scarce, buying an existing franchise company may be your best option.
The cost of these franchises varies according on the location, the amount of fuel pumped, and other optional features such as convenience stores.
Engen is now offering a small franchise in Gauteng for R2.6 million, stock and assets excluded. It lacks a convenience store and pumps 267,000 gallons of gas each month on average.
Engen requires R1.2 million in working capital and 20% of the selling price in unencumbered cash.
A larger Engen petrol station in Johannesburg with a forecourt Quickshop, pumping close to 200,000 litres of fuel per month, is currently on the market for slightly over R4 million.
The convenience store raises the station’s cost, but according to Engen, it earns R309,000 in average monthly turnover in this example.
An Engen at the high end of the scale will set you back around R7 million. This is for a gas station with a Quickshop and Corner Bakery franchise that pumps 300,000 gallons of gas each month on average.
In order to establish a good match with the company, Engen also needs applicants to conduct a psychometric assessment at their own expense.
A huge Sasol filling station, on the other hand, can easily cost tens of millions of dollars. For R10 million, the company is offering a franchise in Gauteng that includes a convenience shop with a monthly fuel average of 315,000 litres.
A smaller Sasol franchise in Port Elizabeth is currently on the market for little under R6 million, with an average monthly volume of 203,300 litres.
Before they can proceed to the actual building or handover phase, most major petrol station franchisors demand new owners to go through an elaborate verification procedure and pass exams.
You can begin the onerous chore of pumping petrol to a continual stream of angry motorists after completing the examinations and psychometric evaluation and turning over the requisite percentage of unencumbered cash.
Is it profitable to own a gas station?
Yes, the petrol pump business is a hugely profitable sector in India. Your monthly revenues might easily reach 4 lakh rupees if you combine the commission per litre with the number of vehicles filled monthly.
In South Africa, how can I open a gas station?
According to Absa, there are three ways to open a fuel station in the country right now:
“A service station’s asking price might currently range from R1 million to R35 million. Furthermore, a service station’s typical working capital demand might range between R1.2 million and R1.5 million,” according to Absa.
If you want to build a service station from the ground up, however, your physical setup expenses might range from R10 million to R100 million, with highway sites commanding the highest capital outlay.
“The cost of these investments is determined by standard commercial property appraisal criteria, such as the operation’s profitability and an assessment of the actual real estate, including its assets and location.”
What does it cost to open a gas station?
As previously stated, opening a gas station entails a significant financial investment. To cover the following initial expenditures, you should budget at least $300,000: Purchasing the property.
What kind of profit do gas stations make?
For the past nine years, the ACCC estimates that the retail industry as a whole (fuel and nonfuel sales) has earned net profit at a rate of 2.1 cents per litre on average. According to ACCC reports, during the last nine years, the average net profit on petrol has been 1.3 cents per litre.