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Mon 20 Oct 2008 04:00 AM

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All pumped up

Middle East forecourt retail operators are set to reap the benefits of location as the credit crunch bites.

Retailers may be nervously looking over their shoulders as the credit crunch bites, but regional forecourt operators are set to reap the benefits of location. Dominic Ellis investigates.

As with most sectors in the UAE, forecourt retailing has come a long way in a relatively short time. The march towards convenience has been one of the driving forces but so, in a roundabout way, has the anomaly that fuel companies don't make money on fuel at the pump. This has actually been a positive for the retail marketing side, prompting companies to diversify, be more consumer-focused and receptive to market changes.

Dubai market heavyweights, EPPCO/ENOC and Emarat, are now rushing headlong into convenience, with both now planning to launch standalone and franchise operations.

At some point there will be a scarcity of land on which to build, so the only growth is with convenience stores.

Emarat, which opened its first store in Deira 12 years ago, now has 90 and rising. Over the last five years, it has been busy on a whole host of new initiatives regarding FMCG retail and vehicle services, such as Fast Track. It recently inaugurated a new vehicle testing centre at the Shamil service station in the emirate of Ras Al Khaimah.

Darren Smith, manager, retail marketing support for Emarat, said it launched Emarat Plus two years ago, an updated format which looked at layouts, merchandising and revenues and gave more emphasis on dairy, fresh produce and chilled drinks.

Merchandising chillers were installed in cash counters, providing an extra space to sell. Last year it launched Café Arabica, and such has been the success of Bakeria, introduced three years ago, that it is planning to roll out franchises from October.

"If you look around Dubai, everyone can buy the same products," he said. "So we looked at the competition, and decided to introduce bakeries. It's a nice smell and if you don't feel hungry when you walk in, you will when you walk out, and we looked at the price point."

"It's not a sit-down dining experience, just something to nourish your hunger while you're working. As is the trend the world over, the move towards fresh, quality products is the way the business will go."

EPPCO/ENOC would agree. The company has 14 Pronto bakeries now in operation, six more coming up by the end of the year and another 20 next year, which is still small when seen in the context of all its 170 stores but a significant development nonetheless.

Convenience is a key plank in the business' wider growth strategy which will see EPPCO stores phased out and the entire network branded ENOC within a few years' time.

"We went in with a ready made concept, but now our business and the market has matured," said Zaid Alqufaidi, CEO, Retail Business Stream, EPPCO.

"We now have Aqua Mart stores which are just in line, if not one step ahead, of Star Mart. ENOC is already a global brand, but retail will complement the circle."

Get ready for feverish franchising activity as both companies look to steal a march.

Smith said Emarat is talking to individuals and companies about franchises as it increasingly looks to position itself as a serious standalone retailer. Its strategy this year and next is to launch more standalone locations, whether that's convenience stores or bakerias, or both together.

"We have a lot of expertise in convenience stores and expertise, so it's taking that and converting it into a package that we can sell to individuals or companies so that they can operate the business," he said.

"We have the operating procedures, the assets, the brand names, expertise in house - it's crazy not to utilise it and make the most of it. Some people come into the franchise business with one shop - and we're sat with 90 and haven't done it."

He declined to say how many franchises it is looking at "quite a large number" and said it's primarily a question of doing it right and getting the right people on board. "It's not just money, but the expertise and motivation to do a good job," he said.

Smith said it is now starting to target commercial towers, since every single tower could potentially support a convenience business.

Self-service trial

EPPCO's controversial two-month self-service pilot scheme expires on October 12.

"All the feedback we received was negative, and that was expected," said Alqufaidi.  "But it's happened in all parts of the world. Maybe we didn't launch it properly but we're trying to drive the idea. We are losing on the fuel and somehow the message hasn't been going through, so that puts pressure on our existing operation."

He said in time, it may actually look at ways of providing additional services, perhaps have staff to check your oil, water and tyres, in tandem with the larger convenience drive.

"People are willing to pay to park their car at the mall, so we won't be doing it for free."

ENOC has payment cards for individuals in operation, but one proposal is that individual cards are made available for self-service customers from early next year.

"Today the customer has to come inside the store which is inconvenient, so we have to bring the solution to the pump."

Introducing cost-effective new technologies continues to taxes the minds of oil company managers. Smart cards are reportedly being introduced by Abu Dhabi National Oil Company (ADNOC) to regulate the sale of diesel in a bid to crack down on the illegal fuel trades. ADNOC Distribution, which operates 170 stores in the UAE, also has a convenience presence through its Oasis Service Centre which features a shop, food court and rest area.

It is looking at Business Centre Towers (the Chrysler-like building), Dubai Healthcare City and Dubai Airport Free Zone.

"If a good residential area came along, we'd love to give it a go, but it's not the focus. Besides, there are less good residential locations than commercial ones," he said.

"But the other issue is how quickly can the owners lease out the offices; while there's loads of buildings, they're not all full. We're obviously looking for ones that will fill up. Rents are of course another important factor; one company was asking us AED 1000 (US $272) a square foot, so it was a case of ‘thanks very much, goodbye'".

Alqufaidi said EPPCO/ENOC is also focusing on Dubai and especially keen to launch more community centres, where the forecourt is part of a larger set-up that includes drive-thru fast food outlets and other amenities, such as pharmacies. It is in the process of tieing one up at Emirates Hills and three more are in the pipeline.

"I dreamt about this four years ago," he said. "Now it's going to happen, people will be able to get everything on site rather than drive anywhere. But land is a big issue, you need a good sized area. What makes convenience works is the availability of parking."

Other plans on the table include two-storey Aqua Marts, which would maximise revenue earning capacity on the maximum 1,500sq ft sites. "There could be a bakery, café, WIFI; somewhere to relax or do some work while your car's being serviced."

Having the leading developers on song is important, although it's not always easy promoting petrol retailing in a market where the emphasis is on luxury lifestyle.

"Nakheel built Palm Jumeirah without a single service station, you don't think cars will go in and get stranded? Similarly at Dubai Marina. There's always a commercial issue to justify the land - it's taken us a long time to convince them, but they know now that it's an integral part of any infrastructure, in fact, having a station has become a mandate."

Despite the abundance of forecourts, Alqufaidi said he doesn't believe the market is saturated.

"At some point, there will be a scarcity of land on which to build, so the only growth is with convenience stores and make them standalone, in a tower or shopping mall."

The only drawback of handling over to the dealer is ensuring standards.

"At least when it's completed, there will be rules and guidelines. In order for the business to expand, we can't operate the whole network ourselves and we will handle over to other operators."

Smith and his team review retail business on a monthly business and divides the calendar into six major promotional periods each year. "This year we noticed more of a summer effect; the last few years it's been crazy busy, but this year it did quieten down a bit."

Its sales mirror most convenience operations, with confectionery, snacks, drinks and cigarettes among its top-selling lines. It picked up an award from Disney for selling more of their DVDs than any other company in the GCC.

He said Emarat has one of the best training programmes, whereby every member of staff goes through seven days of training, and that other companies see this, which has led to poaching.

"We've introduced a special monthly allowance supplement, a minimum AED 250 (US $68) a person, because we realise Dubai's getting more expensive," he said.

"And we have mystery shopper, star of the month where we give cash rewards to staff who have been nominated by customers or supervisors, and star of the year. All our supervisors have been internally promoted, a lot of them starting pumping petrol."

Environmental awareness is increasing across all areas of the business.

"We're doing a lot of things customers aren't even aware of, we're constantly upgrading shampoos to make them more environmentally friendly, and biodegradable shopping bags, which I think is a first for the region."

CHANGING THE CHANNEL: Airport retail sales boom in region

Airport sales will grow by 11% in 2008 to $30 billion, making it the fastest growing channel of retail, and no prizes for guessing which regions are spearheading the growth: Asia Pacific and the Middle East.

Dubai Duty Free, celebrating its 25th anniversary this year, is gearing up for two new operations at Concourse 2 and Terminal 3, resulting in an additional 10,000m2 of space.

The Emirates-dedicated Terminal 3 has its soft opening from mid October. The retail space at Concourse 2 runs almost the whole length of the terminal and exiting passengers will access 6,400m² of shops on the same level as the departure gates.

A new warehouse and distribution centre has opened in Ramoul, featuring a semi-automated retrieval and storage system, the 27,000m2 facility is the largest of its kind regionally.

Airport sales are running at around 31% ahead of last year and half-year sales topped AED1.9 billion,. To keep pace with growth, Dubai Duty Free has increased its staffing levels by 50% in recent months to 3000.

Operators are rubbing their hands at the wealth of new airport capacity coming on stream, including the new Al Maktoum International - Jebel Ali (120 million passenger capacity), Abu Dhabi International Airport's expansion (capacity increasing from six million to 20 million) and a doubling in capacity at Bahrain to 15 million. Aer Rianta International Middle East is on target to hit $830 million in sales this year, with year-on-year sales at Bahrain Duty Free up 18%.

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