What's happening to our service stations

Things sure have changed in the 30-odd years that Bill, Caltex’s National Project Services Manager, has been in the business. The humble shop has morphed into a fully fledged convenience store selling everything from ladies’ stockings to fresh coffee, gifts and groceries. Forecourts bristle with high-tech pumps, and site equipment has the latest in safety and environmental features.

At the same time service stations are becoming fewer. While Caltex has been opening new sites, ongoing divestment of many others has seen the retail network shrink by over 180 outlets in the past five years.

Trends shaping the network

Plain economics and a changing world are behind this phenomenon. The main driver is that no service station can survive on fuel alone these days, says Caltex National Manager Retail Leo Pucar. The margins are just too small, which is why shop sales have become so important. Non-fuel income, what we refer to as income resulting from things other than fuels, which now contributes almost 40 per cent to the annual revenue of Caltex's Retail channel. A big part of the non-fuel income is convenience store sales, which grew by over seven per cent last year.

Demographics – people density – and the cost of land have had an equally big influence. Soaring land values in cities means that where Caltex once had three sites in an area, it can now often justify only one because of the return on capital the locations represent. In 2007, for example, Caltex divested 16 properties to the value of around $14.4 million.

This is particularly true closer to the CBD, says Leo Pucar. “In addition to the value of land, we look at where people are moving to. New, large sites in growth areas have economies of scale and are easier to justify. They often make more sense than investing in existing sites where you don’t expect much growth in customer numbers and revenue.”

The value of this thinking is evident in sales figures. Across the Caltex retail network as old sites close and new ones open average fuel throughput and shop sales have steadily increased. From 2004 to 2007, both average weekly fuel volumes and shop sales have increased by 25%.

The number of Caltex-operated Calstores in the network is growing fast in the meantime, expanding from 63 at the beginning of 2007 to 79 today. This has allowed Caltex to set up the “benchmark standards” for its franchise network which it was unable to do prior to the introduction of the industry Oilcode in 2007 which replaced legislation limiting the number of oil company operated sites within a network.

New sites going up

Several brand new Caltex-owned sites have recently opened or soon will. Locations that recently opened are Nicholls in the ACT and Secret Harbour in southern suburb of Perth. Others to come later this year are Sydenham in Melbourne, Taree on the Pacific Highway in regional New South Wales and Brookwater, a new city 28 kilometres southwest of Brisbane.

“They’re all in growth areas or highway locations where we have little or no representation,” says Caltex National Marketing Assets Manager Stephen Keniry.

Major rebuilds

This year Caltex Project Services has around $77 million worth of capital works to invest across the network, with work under way at dozens of sites around the country at any given time.

This includes some big knockdown and rebuild retail projects on Caltex owned or leased land, such as in Tempe, Sydney, Abbotsford in Melbourne and East Perth.

At the Tempe site which opened in April, adjoining properties were bought by the lessor to develop an expanded operation. The Abbotsford redevelopment is on a busy inner city site and will open later this year as an integrated Caltex Star Mart and McDonalds operation.

All of these developments are presenting Bill Dircks’ team with a number of fresh challenges. Caltex’s underground fuel storage systems and service stations pumps are being upgraded. There’s also a pump meter calibration and automatic tank gauging program being rolled out to sites to ensure Caltex’s 27,000 pump hoses and 3,000 underground tanks dispense and store product accurately and safely.

Red tape gets worse

In developing new to industry sites, one of the biggest hurdles for Caltex is negotiating the approvals minefield. It takes around 18 months on average but can take three years, says Steve Keniry.

First there are internal approvals including getting the site concept right. Then Caltex must get plans approved by the relevant local councils, and this is becoming harder and harder.

Councils have generally become slower in giving approvals, says Steve, but the to-ing and fro-ing resulting from council discussions is taking much longer as well. “A lot of it has to do with the public becoming better informed of their rights and more astute about objecting to developments,” he explains.

Naturally the whole procedure is becoming more expensive too, and not only as a result of delays. Stricter environmental regulations requiring additions like water containment structures at sites and underground storage tanks with double linings have added hugely to costs.

In the past the underground tanks’ price tag was between $300,000 and $400,000 per site. Nowadays it can cost more than double that, says Leo Pucar. This makes the cost of building a new site from scratch over $3 million.

Future focus

While all this work is taking place Caltex is maintaining its focus on revamping the retail offer itself. “Common practice among the most successful retailers around the world is to refurbish and rejuvenate every seven years,” Leo Pucar points out. Caltex’s current Star Mart offer was designed in 1995, so the Twenty-first Century Caltex (21CC) project to upgrade the convenience store fit outs and product ranges is long overdue. It will eventually be implemented in all the Star Marts around the country, says Leo.

The current trial of the concept at selected sites in New South Wales will finish at the end of this year. Caltex then expects to complete the roll out to the network over the next three years.

“It’s all about keeping us ahead of the competition,” says Leo. “We can never become complacent.”

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