THE WALL STREET JOURNAL/DOW JONES NEWSWIRES: Hypermarkets Pump Up the Volume: Retailers' Rock-Bottom Gasoline Prices Force Big Oil Companies to Shut Service Stations: “BP PLC, ExxonMobil Corp. and Royal Dutch/Shell have almost given up the fight against hypermarkets here, retaining just enough stations to serve European motorists who drive across France.” (ShellNews.net)
By DAVID GAUTHIER-VILLARS
DOW JONES NEWSWIRES
October 4, 2004
LAIGNES, France -- In this small village in Burgundy, a "Total" sign hangs over a car-repair shop. But the pumps are gone. French oil firm Total SA deserted the village last year.
Big oil companies have been shutting down gas stations at a frantic pace across Europe, as price competition from hypermarket chains put traditional fuel retailers under strain.
The trend, which began two decades ago, is gaining momentum. Settling for ultrathin profit margins to lure customers, hypermarket franchises such as E. Leclerc and Carrefour have grabbed a bigger share of the French gasoline market and pushed thousands of traditional dealers out of business.
A similar shake-up is taking place in other countries, where hypermarkets have added pumps to their sprawling parking lots. Hypermarkets' share of the gasoline-retailing market varies from next to nothing in Italy to 28% in the U.K.
In the U.S., hypermarkets are a growing force in the gas-retail industry but their share has only risen to 7.1% last year from 1% in 1995, according to market researcher Lundberg Survey. "In the U.S., the shift from old-style gas stations to convenience stores started in the late 1960s, early 1970s," says Thomas Osborne, spokesman for the Society of Independent Gasoline Marketers of America. "By the time hypermarkets came along, they had to compete with very efficient gas stations."
Nowhere has the confrontation between oil companies and retail giants reached such proportions as in France. The hypermarkets took more than 56% of the market last year, up from a marginal share 20 years ago.
In France, the market opening was gradual until 1985, when a European court ruled that hypermarkets could import cheaper gasoline from foreign refineries. Since then, E. Leclerc, Carrefour SA, Auchan SA and other retailers have bulldozed established players.
"We've shaken the market by applying our retail know-how to gasoline," says Noel Almagiacchi, director of Carrefour's highway gas stations. "Big volumes, small margins, that's how we work."
French law prohibits hypermarkets from selling gasoline below wholesale prices, but there is no minimum markup. Hypermarkets often offset the cost of gasoline sales with profits from their main retail operations, which sell everything from food to diapers, jeans and wine.
BP PLC, ExxonMobil Corp. and Royal Dutch/Shell have almost given up the fight against hypermarkets here, retaining just enough stations to serve European motorists who drive across France. ExxonMobil has removed staff in some outlets in favor of automated operations to minimize costs. Shell, Europe's second-biggest fuel retailer after Total, plans to close two-thirds of its 900 outlets in France by 2005. Thousands of "white pumps", gasoline retailers with no branded supplier, also have gone out of business.
As a result, the number of service stations in France has dropped by two-thirds, to 14,219 in 2003 from 41,900 in 1980, according to data compiled by oil industry lobby group Union Française des Industries Petrolieres.
Around 500 outlets are expected to close this year, and a dealers' association expects the number to fall below 10,000 in a few years.
Shell declined to provide an update on its restructuring in France, which is part of a multibillion-dollar exit from underperforming refining and retailing assets world-wide. ExxonMobil declined to comment. BP didn't return calls.
Total has responded to the competitive pressure by segmenting its huge network, sometimes emulating the hypermarkets' marketing tactics or joining forces with them. After its acquisitions of Belgium's Petrofina and French rival Elf Aquitaine, Total controls more than a third of French pumps, with 5,500 outlets.
About 300 Elf-branded stations compete with hypermarkets with low prices, while 2,000 Elf outlets are designed for rural areas and another 200 focus on servicing truck drivers. At its network of about 3,000 Total branded stations, gasoline is more expensive, but Total has added convenience stores that cover the bulk of operating costs and balance out the sharp fluctuations in gas prices.
Total recently entered a partnership with Casino Guichard-Perrachon & Cie., under which the hypermarket chain will operate convenience stores and diners at some Total stations.
But some gasoline dealers wonder whether putting more emphasis on services will pay off.
"French customers aren't loyal to us," said Christian Roux, manager of a Total station at Saint Genis-de-Saintonge, near Bordeaux, in southwestern France, and head of the gasoline dealers' association at the Conseil National des Professions de l'Automobile, a lobby group for car-related trades. "They want to be mollycoddled, but they don't want to pay for the services," he added.
To reverse the trend, traditional dealers asked the government for measures to create a level playing field with hypermarkets. The government responded with a special fund, which distributed €12 million ($14.8 million) in aid last year, helping renovate 490 stations and close 238 outlets.
There is no plan to do more, a government official said. "We are happy with the current situation," the official said. A "slim profit margin means low prices at the pumps. It helps keeps inflation down."
Amid the cutthroat pricing, some tiny, family-owned service-station companies are sprouting up on the sites big oil firms have abandoned.
Privately held Dyneff is expanding in southern France; Picoty SA is growing in the west; and Thevenin & Ducrot Distribution SA is targeting the east. Each offers quality services, while keeping a tight lid on costs.
In Laignes, the Burgundy village, former BP station owner and manager Jean-Pierre Gaussman has struck a deal with TD Distribution, which operates a network of 400 stations under the brand of Swiss oil syndicate Avia.
He says keeping the pumps open from 7 a.m. to 8 p.m. six days a week typically doesn't leave him with more than €20 of profit a day. But even if some customers only fill a few liters to be sure they can make it to the next hypermarket, he says he's happy to keep the pumps.
"Avia's a no-nonsense company: no endless seminars on how to say hello or sell a new lubricant," Mr. Gaussman said. "But when I have a problem, I just call the chairman."
Write to David Gauthier-Villars at David.Gauthier-Villars@dowjones.com