The case study is based on the petrol station called Fairway Convenience Centre owned by Mr XYZ in Durban North. It is situated at the busy intersection of Old Mill and Waterkant Roads. It is in close proximity to the Ruth First Highway, Broadway commercial precinct, Durban North residential area, Durban North Primary School, Northlands Primary School and Durban North College. The suburb consists of higher income households, a business hub which has banks, lawyers, doctors and several other small businesses. It has recently developed into a popular night hotspot with lots of crowd pleasing restaurants and fast food outlets example: Nandos, McDonalds and Rocomamas etc.
This garage has already integrated with Woolworth’s food, steers and a car wash. It is a well-established business.
The closest competitors are:
• A shell garage next to a Pick N Pay Hypermarket which includes a liquor store, pharmacy, Mugg and Bean and a supa quick
• A total garage including a Mugg and Bean on the go. This garage is situated opposite Nandos and McDonalds.
Analysis of this business indicated that the way forward is to accelerate and invest further to drive growth. The strategic thrusts are:
• Differentiation Strategy- Engage the competitor. The aim is to establish a superior quality and customer service offering than the competitor.
• Product Development- Increase growth by offering more products and innovative services.
• Corporate Combination- 100% alignment to contractual obligations, exceeding all targets.
• Market penetration- Enhance consumer experience through exciting value add promotions.
Part A: SWOT Analysis
Overview of chosen petrol station
The case study I have done is on the Engen Fairway convenience centre in Durban North. The reason for this particular choice is that it is in my local neighbourhood, it has the following attached to it:
a. Woolworths food hall
b. Steers takeaway
c. Car wash as well as a kids play area
I am a regular customer at this petrol station and note the high volume of traffic that goes through during peak hours. The versatility of the garage covers all one’s daily needs.
Location- It has a prime location that is in the middle of the Durban North residential suburb. It is close to a number of schools around the area as well as quick access to a major highway (M4) and several important roads in the suburb. It is close to the commercial hub on Broadway. It caters for a multitude of consumers including families, business employees and passing traffic.
Convenience Offered- It offers the consumers our daily requirements: fuel, fast foods, Woolworth’s groceries, a car wash and a kids play area. It also has sufficient parking space, it is well lit, has good shopper flow. Multiple till points at the different stations within the garage ensure that one does not spend too long in queues.
High staff turnover- On interviewing the owner Mr XYZ, he stated that in the last year their staff turnover was around 11.5%. This is a concern as new staff require training and on boarding which is time consuming and expensive. Customers usually like building relationships with the employees that leads to loyalty, a high staff turnover lowers customer loyalty.
High reliance on petrol sales vs. diesel sales- Petrol prices and margins are regulated whilst diesel price is not regulated. Mr XYZ explained that 73% of his fuel sales are petrol. With diesel being 27%, this high percentage on petrol sales limits revenue and profit growth.
Fuelling Automation- Automation will reduce forecourt attendants by 75%. Decreases pay costs and increases your profit margins. Automation also reduces the risk of theft in the form of drive-aways.
Drive through food and fuel- To further enhance the customer experience and save time, an innovation of drive through fuelling together with drive through shopping from either the fast food take away or the Woolworths food hall. It will increase the number customers driving through, increased sales due to convenience and increased profit margins
Competitor footprint- Due to its location in a high traffic area it is vulnerable to competitors opening up in close proximity. I have done an analysis of areas of opportunity within a 3km radius and there are various sites that could potentially be used as a fuelling station.
Road closures- As discussed with Mr XYZ the closing of the M4 or Broadway would be one of the biggest threats to the business. This is because the business is heavily reliant on these 2 major roads for passing traffic.
Porter’s 6 Forces
Level of Rivalry: The current competitor footprint comprises of a shell garage 1.2 km away which is situated outside a Pick N Pay Hypermarket; a total garage 2km away that has a Mugg and Bean on the go attached to it. I feel that the bigger of the 2 threats is the shell garage due to the fact that it contains a multitude of consumer attractions such as the Pick N Pay Pharmacy, Pick N Pay liquors, the supa quick, Builders express, Mugg and Bean and the car wash.
Strategy: Differentiation strategy- This strategy is to communicate to the consumer the superiority of the quality of the Woolworths brand. The consumer will then make a comparison in their minds of Pick N Pay versus Woolworths. Part of the strategy is to build capability of all the staff to ensure superior customer service and a friendly experience when visiting. Engen already has a loyalty program in place which now needs to be enhanced so that it offers more value to the consumer than the competitors program.
Threat of new entrants to the market: Through my market research I have picked up that there is a massive shift from residential to commercial in the Durban North area. This opens up a huge opportunity for new entrances to the market. Prior to my area scan I have identified 3 possible opportunities for entrepreneurs to open up fuelling stations.
Strategy: Growth, product development- It is not possible to stop the opening up of new fuelling stations in the area. The strategy therefore is product development. As an example increase the products available to the existing consumer. The possibilities are:
a) A delivery service
b) Courier Service Drop Off Point
By improving the service offering, the consumer would then make a choice of this fuelling station over a new one which does not have a wide variety of services.
Availability of substitute products: The impact of substitute products in the Fuel industry has a long term effect rather than short term in a developing country such as South Africa. The world as a whole is becoming more environmental conscious and leading towards electric cars rather than fuel cars. This although does not play a major role in South Africa as yet due to the fact of the affordability of an electric car to a South African consumer.
Strategy: Growth, product development- The threat of the increase of electric cars is longer term. The strategy is to implement charging ports and increase them as the availability of electric cars increase. There is also the possibility of becoming a major supplier of electric batteries.
Power of the buyer: Due to the research I have conducted in and around the petrol station area, the Durban North suburb mainly consists of people belonging to the higher income group. These consumers have a higher disposable income because of this they are attracted to more premium products in the Woolworth’s quick shop and steers fast food restaurant. Each household has an average of 2 cars and they travel a lot which leads to them fuelling their tank up weekly.
Strategy: Growth, market penetration- The disposable income in the Durban North area is above average therefore the strategy is to increase the consumer spending. There needs to be an increase in weekly promotions example:
a) Fill a tank of fuel and receive a free car wash
b) Lucky draw competitions: spend R500 or more and receive an entry to win a family holiday.
A constant consumer engagement program will ensure loyalty as well as increase sales.
Power of the supplier: Being an Engen franchise fuel supply is restricted on a contractual basis to Engen. This supplier therefore has full control over supply, price, availability and promotions on fuel. For example if Engen drivers go on strike, the fuelling station would have no supply of fuel. The products at Woolworths and steers are strictly governed as to buying from their Distribution Centre and the selling prices are dictated. Purchasing from these DC’s also ensure that a high quality of all products is maintained at all times. The suppliers also provide training of staff and business support.
Strategy: Corporate combination- There are existing corporate contracts in place. The strategy is to improve on integration with suppliers working towards a common goal. The aim is to be the partner of choice to all suppliers. This means adhering to all their contractual obligations and audit criteria.
Power of complementary products: Complementary products offer value to the consumer and increases foot fall in store. The car wash and Woolworths food is a powerful complementary service to the fuelling business which further increases the foot fall.
Strategy: Growth, market penetration- The strategy is to improve the value offering to the consumer so that the complementary offering becomes their first choice driving the sales of the company. For example: A car wash, a loaf of bread, the newspaper and a 500ml cool drink for R100.