SEVERAL of the 'seven sisters' of the petroleum industry, such as Shell, Esso and Texaco, have dominated the Jamaican gasoline retail trade for decades. However, local players have forced their way onto the scene in recent years, gnawing at the market share of the multinational integrated oil giants.
A picture of the change is painted throughout the streets of Kingston where, dotted among the foreign brand names that once monopolised the industry, are local trademarks such as Michael's, Johnson's, Epping and Unipet (United Petroleum Jamaica).
The trend had its genesis in deregulation of the local petroleum industry in the early 1990s, says president
of the Jamaica Gasoline Retailers Association (JGRA) Trevor Heaven.
"What has been happening is that since deregulation in the early 1990s, you have seen the emergence of a number of smaller independent stations. Individuals have now gone into the business and started to invest in sites across the island, and they have elected to do this as independent facilities rather than align themselves with a multinationals," Heaven told the Business Observer.
Unipet was the first Jamaican petroleum marketing company with broad-based ownership, advertising itself as being operated by 'Jamaicans for Jamaicans'. The firm started operating nearly 20 years ago and presently has 10 stations islandwide. "Not bad for an organisation that had some doubting its concept," quips Unipet chairman Evert Palmer.
"There were some challenges, particularly as the multinational companies thought that we were not able to lend expertise to develop and sustain the business, but 20 years being around with an impeccable record would speak for itself," says Palmer, adding that "The Unipet experience has led to a multiplying of several other local players in the market that numerically outnumber the multinational companies in terms of the number of marketing companies."
One of the strongest local retail petroleum outfit which entered the market was National Fuels, owned by businessman Roy D'Cambre. D'Cambre sold the National chain in 2004 for the sum of US$11 million (J$640 million at the time) to Total, which later bought out Esso's assets to become one of the dominant players in the local market.
Many of the emerging local players Palmer speaks of formerly operated under the multinational companies in franchise and licensing arrangements. While under the multinationals, they individually strengthened their brand names and put themselves in a position with the ability to operate independently, buying fuel directly from the national refinery or even negotiating better prices from the multinationals.
One such operator is the LG Service Centre gas station on Constant Spring Road. The service station was owned by late JGRA president Lloyd 'LG' Brown and is currently being operated by his children -- Donovan, his son, and daughter, Keena. Formerly under the Esso dealership network, the gas station, which is situated at the intersection of Dunrobin Avenue and Constant Spring Road, was supposed to be one of 37 service stations rebranded to Total after the French petroleum company acquired Esso's local operations in March 2008. But while other Esso gas stations made the switch to Total, including another one operated by the Browns on Red Hills Road, the siblings decided to use the Constant Spring operations to honour their father's wish of owning his own brand.
The decision was made possible because the Browns owned the premises, which is an exception to the industry norm. Typically, under a profit-sharing arrangement, the multinational owns and maintains the gas station facility while the dealers manage it.
"When Esso sold to Total, because we owned the property, we had the flexibility of making a decision," revealed Keena Brown when the switchover occurred in 2009.
Today, she tells the newspaper that the company is loving the independence.
"What I think is the number one (advantage) is that you have a say in the direction that you want your company to go," explains Brown.
"Also, you don't have to deal with all those fees anymore when you're on your own. We are still governed by what's happening in the market but you're more flexible in your pricing," she adds.
Indeed, though Brown says it doesn't apply specifically to her company's situation, the historically uneasy relationship between the multinational companies and their franchisees is believed to be forcing many operators to disband from the international giants.
"Truth be told is that multinationals do not serve much of a purpose other than investing in sites which already exists. They do not contribute much to the economy other than exploiting the situation and transferring most of their resources back to their shareholders overseas," says Heaven.
The 'bad blood' between the two parties is well documented. For instance, under LG Brown's tenure as JGRA president in the mid 2000s, Esso dealers in the Corporate Area stopped displaying the price of their petrol in protest against the firm trying to force them into an arrangement to cap their gross mark-up on petrol at five per cent, in exchange for Esso selling them petrol at a defined price. If the dealers declined to have their margins set, it was alleged they would have had to pay a higher, uncompetitive price for the gas they purchased from the multinational.
Heaven says the disputes have only become worse today, alleging that some multinationals are actually moving to increase their share of revenues while squeezing their dealers who already make thin margins in the region of three to six per cent.
"There is no question about it that (the multinationals) have publicly and privately indicated their intention to increase their return on investment. What that means is that as they take more in a very competitive environment and the dealers that are aligned to them as franchisees find that their costs are extremely high and their margins are extremely low," says Heaven.
"Also, outside of the fact that they charge these huge amounts on their dealers, they also charge a rental on the property, maintenance costs on the equipment and royalties on the (convenient) stores," adds the JGRA president.
It is against this background that Heaven anticipates the emergence of locally owned petroleum companies to continue at an increasing pace, especially with the announced sale of Texaco's local operations.
"There is no question about it that the trend will continue. Texaco has indicated that they have put a bid out for their sites to be sold and a lot of the retailers themselves are asking the company to sell them the site that they operate from now," says Heaven,
who is recommending that Government, which owns its own marketing company, Petcom, seeks to negotiate with Texaco to acquire its assets and use it to bolster the local brand.
"Even if the money is too much, find the financing from somewhere and, having acquired it, sell it back to individual dealers... What it will become is a Jamaican company rather than bring another multinational into this country to 'breed' us," argues Heaven.
But all is not rosy for the local players in the industry.
First, the fact that they are not associated with a multinational means that they don't enjoy easy transfer of technology and the ability to draw from the vast experiences of an international oil firm. What's more, is that, like most other businesses in Jamaica, they have been significantly impacted by a weak domestic economy.
"There is no gain saying that business is down in the region of 20 to 25 per cent," acknowledges Palmer.
But the Unipet boss says the company is optimistic that as soon as the economy rebounds, it will be able to take advantage of opportunities.
"We have plans on the drawing board to increase our presence islandwide by expanding our station network by at least two in the near future and to introduce and offer additional services and products to enhance brand Unipet," says Palmer, adding "We also offer supplies to small and medium-sized businesses who take advantage of our competitive prices for fuel, batteries, lubricants and other products."
Keena Brown related a similar experience to Palmer's, and also had an equal amount of optimism for the near future.
"It was very rough last year because of the decline in the general economy; people weren't spending as they usually do," says Brown.
But she adds: "My dad built a strong brand and the name 'LG' stays no matter... This year is looking like it will be a better year and we are always looking at new creative ways to expand and grow."
Source: http://www.jamaicaobserver.com
No comments:
Post a Comment