BIS Select Committee Inquiry into the UK Retail Sector: Submission from the Petrol
Retailers Association (PRA)
1. Introduction
1.1 At current value exceeding £47.5bn/year for fuels only, the petrol retailing sector is
arguably one of the most critical in the UK market given its indisputable importance
to our social and business well-being. In addition, the shop sales of the independent
petrol filling sector total £2billion a year, comprising a significant portion of the
turnover generated by small shop retailers. Independent petrol retailers need
increasing shop volumes to improve financial sustainability and so rely on the
strength of the UK convenience market, currently growing at 4-6% per year by
signing up to strong franchises such as Costcutters, Budgens, Londis and Spar to help
boost dry stock sales. This helps offset declining fuel volumes and margins and the
collapse of car washing due to the proliferation of unregulated hand car washes.
After considering the terms of reference outlined by the Committee, our submission
focuses mainly on regulation and costs affecting the independent petrol retail sector
- that is why we ask the BIS Select Committee Inquiry to give special focus to this
submission.
1.2 The Petrol Retailers' Association represents over 5,500 independent petrol retailers
and forecourt operators across the UK. This is more than 60% of the total number of
such retail outlets. Our members range from small rural facilities in the Western Isles
of Scotland, Wales and Northern Ireland to refuelling facilities combined with garage
workshops and vehicle dealerships to larger convenience retail outlets and
motorway service areas. It is an association within the Retail Motor Industry
Federation (RMI).
1.3
160
140
120
2.98
22.49
100
80
57.95
Margin
VAT
60
Duty
40
Cost of Product
20
54.48
0
1
1.4 The above diagram demonstrates the gross margin of 2.98ppl available to a
“typical” independent forecourt retailer based on a pump price of 137.9ppl for
UNLEADED PETROL (28 February 2013). The margin is variable within a usual range of
1.00ppl to 5.00ppl. This gross margin has to cover all the financial and operating
costs of the site before any net profit accrues.
1.5 PRA welcomes this Inquiry into the UK retail sector and is committed to working with
Government in order to identify policy areas where businesses can better survive
and help achieve economic growth. We would welcome an opportunity to submit
oral evidence to the Select Committee.
1.6 For more information about the issues raised in the submission, please contact Brian
Madderson, Chairman of PRA via email Brian.Madderson@rmif.co.uk or phone 020
7307 3424.
2. Jobs and growth
2.1 The continuing prevalence and growth of hypermarket forecourts is driving down the
number of independent petrol retailer sites across the UK with up to 300 closing
every year. Whilst the rate of closure is now trending down, the proportion remains
alarming.
2.2 The average hypermarket sells 11.3 million litres of fuel a year, whereas an
independent retailer sells 2.1 million litres a year.1 This figure equates to each
hypermarket draining the entire volume of five independent sites out of a local area,
resulting in a loss of jobs (an average independent forecourt provides up to eight
part and full time jobs), a loss of local facilities and decreased fuel resilience in the
event of a crisis (such as the panic buying seen in March 2012).
2.3 Furthermore, hypermarkets are increasingly relying on automated services including
forecourt areas e.g. ASDA “Automat” model, to improve profits. Such investment
strategy also contributes to net job loss.2
3. Planning
3.1 Following recent research undertaken by Christie and Co3, their report summarised
that hypermarkets are obtaining planning consents for both forecourts at existing
stores and new out of town developments at the rate of 40 to 50 per year.
3.2 Taken with acquisition targets to buy or develop filling stations adjacent to existing
stores, this aggressive roll out by hypermarkets will result in a loss of a further 1,000
independent forecourts over the next 4 years.
3.3 A major issue here is that under previous planning regulations, there was no rigorous
“impact” test to determine what effect an additional filling station would have on
existing facilities. With a retail road fuels market that is now firmly on a declining
trend, every new hypermarket with aggressive pricing and fuel discounting takes
volume away from existing independent outlets.
3.4 Many of these provide a much wider range of services than a typical hypermarket
forecourt e.g.: supplying red diesel essential for farming communities; providing post
offices and cash machines for ageing/disabled local residents; providing hi-speed
offset HGV facilities (70% of these are on independent sites); offering garage
workshops with MOT bays; offering ATM services.
3.5 As stated in the new National Planning Policy Framework (NPPF) set out by the
Department of Communities and Local Government, at paragraph 70, planners
should “guard against the unnecessary loss of valued facilities and services
particularly where this would reduce the community’s ability to meet its day to day
needs” and should ensure that established shops and facilities are able to develop
and modernise in a way that is sustainable and retained for the benefit of the
community.”
3.6 Finally, anecdotal evidence suggests that demands from local planners are often
more stringent for a relatively modest expansion in forecourt shop size for a small
independent retailer than appears to be the case for massive out of town
hypermarket proposals.
1
Data from Experian Catalist
2
Example: http://www.bbc.co.uk/news/uk-england-leeds-22093818
3
Christie and Co are property specialists with an expert retail team focusing on petrol forecourts
3.7 Recommendation: New planning guidance should be formulated for filling stations
and small retail businesses that prevent hypermarkets forcing such local businesses
out of the market. This does not denote preferential treatment and any new
independent proposals would be subject to exactly the same process as the
hypermarkets. PRA calls for a level playing field that provides a measure of
protection to vital existing businesses.
3.8 Once petrol filling stations close they are gone forever. The impact of the
hypermarkets in this regard is far greater than, for example, the pressure on rural
pubs in relation to which the planning system has intervened on numerous occasions
to save them from closure.
4. Business rates
4.1 The postponement of the 2015 business rates revaluation has already adversely
impacted on petrol forecourts. Business rates are one concern common to all
retailers whereby action would support businesses across all sectors.
Recommendation: PRA call for any increase in business rates in line with inflation to
be cancelled until the 2017 revaluation.
4.2 Furthermore, with declining volumes and margins in the fuel market - due to market
maturity and aggressive competition from supermarkets and oil companies - many
petrol filling stations have invested in robust convenience offers.
4.3 However, the profitability of these investments has been undermined by the VOA’s
assessment of rateable value based on shop turnover.
4.4 This is in contrast to standalone convenience stores which are assessed, not on
turnover but on the sales floor area.
4.5 For example, one of our members with a forecourt achieves a turnover of £1.5m a
year and supplied by Spar achieves a creditable 20% gross margin of £300,000. The
Rateable Value for the shop on this site is £76,000 or 25% of total gross profit. Close
by, there is a Tesco Express standalone convenience store with an identical sales
floor area to our member. This shop turns over £4m a year at the much higher gross
margin of 30%, equating to £1.2m. The Rateable Value of this shop is just £26,000 or
2% of total gross profit.
4.6 Recommendation: This is clearly an unfair and anti-competitive methodology used
by the Valuation Office Agency to produce such a massive discrepancy and should be
reviewed.
5. Fuel Cards
5.1 Another factor prohibiting growth in the petrol retail sector is the embedded
practices occurring within the Cards industry (credit and debit), resulting in increased
Merchant Service Charges (MSC), at the expense of retailer income and consumer
value. Huge differences in fuel card charges for the same card, is also creating
unfairness. PRA has a full briefing paper available to explain further how these cards
work to the detriment of both retailers and consumers and is happy to provide this
to the Committee on request. (A joint meeting at HM Treasury has taken place with
the PRA and the Association of Convenience Stores to discuss these issues.)
6. Employment costs
6.1 Employment costs can be detrimental to the ability of small retailers to take on new
staff. Costs such as the National Minimum Wage, which has increased year on year
inhibit small businesses from taking on new staff and renders supervisory roles
unviable. Other employment costs are due to hit retailers such as auto enrolment
which will place further financial and administrative burdens on employers. In order
to ensure compliance with incoming reforms, it is advisable for employers to procure
independent professional advice, adding further costs to compulsory changes such as
auto enrolment.
6.2 Recommendation: National Minimum Wage should be frozen for at least the
remainder of this term of Parliament.
7. Regulation
7.1 Upcoming regulations covering licensing and tobacco displays (the latter of which
will be compounded if plain packaging proposals currently under consideration are
also adopted) are due to come into force which will further affect petrol retailers
who are often reliant on their forecourt stores to remain profitable. For smaller
forecourt retailers, up to 60% of their shop sales come from tobacco products.
7.2 Recommendation: Action from Whitehall to stem these upcoming changes will
lessen the financial burdens faced by retailers.
8. Conclusion
8.1 The number of independent petrol forecourts which has been declining at an
average rate of 400-500 sites per year for the last 12 years is beginning to slow but
the overall reductions remain critical. Resultantly, local communities are left without
facilities and consumers are faced with longer drives to fill up their car. A petrol
forecourt can often be the lifeblood of a community, particularly in rural areas and it
is essential steps are taken to preserve the sector and stem their decline.
8.2 PRA would welcome the opportunity to provide evidence to the Committee and
outline further how steps can be taken by the Government to ease the burdens faced
by the retail sector.
For further information please contact Brian Madderson, Petrol Retailers
Association Chairman via email Brian.madderson@rmif.co.uk or 020 7307 3424.