Inaugural Australian Fuel Industry Update (Sep 21 Qtr)

The three months of the September 2021 Quarter could reasonably be described as one of the toughest quarters for the Australian fuel retail industry in recent memory. Extended COVID-19 lockdowns in NSW and Victoria saw significant demand destruction in Australia’s two biggest states, while border crossing restrictions extended the impact in adjacent states. These issues, coupled with ever rising oil prices and consequent increases in wholesale fuel prices made it a challenging period to say the least. These issues are highlighted in the production of the inaugural Australian Fuel Industry Quarterly Update – a joint initiative of ACAPMA and The Informed Sources Group. Click here to read more.

Have you ever wondered how many service stations comprise the national petrol-convenience network in Australia? Or the brand that has the greatest number of sites in a specific State or Territory market?

These questions are answered in the inaugural ‘Australian Fuel Industry Quarterly Update’ – a report that provides an overview of the operation of the fuel retail industry during the September 2021 Quarter.

“The Australian Fuel Industry Quarterly Update is a joint initiative of ACAPMA and The Informed Sources Group. It is designed to provide a series of quick strategic insights relating to the Four Ps of the fuel retail industry in Australia – namely: Product, Place, Promotion and Price,” said ACAPMA CEO Mark McKenzie.

There is an abundance of fuel price information available to the Australian community at present – not the least of which includes the ACCC’s periodic Petroleum Market Reports and the weekly fuel prices report by the Australian Institute of Petroleum. Both reports provide comprehensive and authoritative information on average fuel prices in Australia.

But ACAPMA frequently gets asked about the actual structure of the industry.

The ‘Australian Fuel Industry Quarterly Update’ leverages the combined knowledge of ACAPMA and The Informed Sources group to provide a ‘ready reckoner’ in relation to the structure of the industry in terms of:

  • Product: Information about the relative sales of the various grades of petrol and diesel products in each Australian State and Territory Market.
  • Place: Identification of the national retail site population, summarised by Australian State and Territory as at the end of the Quarter, including any changes in site numbers that occurred during the quarter.
  • Promotion: Information relating to the branding of retail sites in each Australian State/Territory market, including changes in site branding during the quarter (i.e. gains and losses in branded sites).
  • Price: Trend information in respect of average ‘wholesale’ prices (i.e. Terminal Gate Price basis) and retail prices, that compare the historical quarterly averages with the averages of previous quarters on a rolling 12-month basis.

“This inaugural report provides a snapshot of the industry experience during the September 2021 Quarter which, it would be fair to say, was one of the most challenging quarters in recent history for our industry,” said Mark.

The September Quarter was characterised by significant demand destruction in NSW (34%) and Victoria (21%) relative to the preceding quarters and fuel retailers were grappling with an ever-escalating increase in the wholesale price of fuel due to global pressure on oil and finished fuel product prices.

The report identifies four key themes that largely characterise the operation of the market from an industry perspective during the September 2021 Quarter, namely:

  1. FUEL DEMAND (AND EBITDA) DESTRUCTION IN EASTERN AUSTRALIA

Fuel retailers in NSW and Victoria experienced a drop in fuel retail demand owing to the extended lockdowns in these states during the Quarter. There were also some significant falls in regional demand in the neighbouring states of Queensland and South Australia owing to restricted border movements.

As an essential services industry, fuel retailers remained open during the lockdown (albeit some with restricted hours) which meant that most fuel retailers continued to carry normal business costs in the face of dramatically reduced fuel revenues.

ACAPMA Member feedback suggest that the ‘typical’ loss of pre-tax profit (EBITDA) during the Quarter was in the order of $90k per site in NSW and Victoria, creating significant cashflow challenges and forcing many retailers to explore use of government support measures such as the Morrison Government’s SME Loan Recovery Scheme (which became available to SME fuel retail businesses from 1 October 2021).

  1. CONTINUED SIGNIFICANT ESCALATION IN AUSTRALIAN FUEL WHOLESALE FUEL PRICES

These price rises were attributed to rising oil prices created by OPEC production decisions and supply-demand issues created by the uneven nature of the global economic recovery in the major northern hemisphere economies.

The sharp rise in the cost of monthly fuel purchases that occurs in periods of sustained price escalation means that retailers are generally placed under significant cashflow pressure, as prior month fuel sales do not bring sufficient revenue to fully fund the cost of forward month fuel purchases (although this varies between fuel retailers according to the individual use of price smoothing or hedging actions that may be in place within the enterprise).

  1. STAFFING SHORTAGES

Despite other industries being closed, the fuel retail industry continued to experience significant challenges in securing retail staff to support round-the-clock operation of their retail fuel sites. These issues were not new to the Quarter. Rather, they mark a continuation in a national shortage of ‘unskilled’ workers owing to the zero inflow of visa workers given the 18-month closure of Australia’s international borders.

Traditionally, visa workers account for an average of between 20% and 30% – depending on seasonal variations – of the fuel retail workforce. These workers are a dominant cohort when it comes to staffing of late night and early morning shifts in the nation’s service stations.

  1. INCREASING INVESTMENT UNCERTAINTY

Uncertainty surrounding the rate of economic recovery in NSW and Victoria, coupled with ongoing uncertainty surrounding about the future nature of border restrictions meant that most fuel retailers were unable to plan ahead. This issue was further compounded by apparent changes in urban demand in the face of sporadic ‘return-to-work’ patters in the capital cities, giving rise to significant uncertainty about near term in retail networks.

Significant developments in some Australian Government policies during the Quarter (e.g. in the areas of energy security, fuel quality standards, and alternative vehicle technologies) served to increase uncertainty about the nature of fuel demand in the longer term – that is, beyond the next 2 to 3 years of COVID-19 recovery.

The result is that most fuel retailers, despite being relatively confident about the prospect of business recovery in the near term, are increasingly cautious about the timing and quantum of substantial near-term investment in fuel retail infrastructure (as opposed to non-fuel retail infrastructure).

All in all, the three months of the September 2021 Quarter is a period that most fuel retailers are seeking to put behind them as quickly as possible.

“The next two quarters are likely to be characterized by fierce competition as fuel retailers seek to rebuild fuel forecourt volumes and return their fuel revenues to pre-covid levels, albeit in the face of continued COVID-19 uncertainty and volatile world oil prices,” concluded Mark.

A copy of this report can be accessed at https://acapma.com.au/news/

In addition, ACAPMA and Informed Sources will host a webinar to present the update on Thursday, 9 December 2021 at 3pm (Sydney time). To register for the webinar, please email communications@ACAPMA.com.au.

In the meantime, further information about the report can be obtained by emailing Mark McKenzie (CEO of ACAPMA) markm@acapma.com.au or Nick Ferris (Commercial Manager – Asia Pacific, The Informed Sources Group) at nferris@informedsources.com.

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