The inability of the oil majors to make a living out of selling petrol despite the remarkable degree of price uniformity between them always was one of capitalism's minor mysteries. The rise of the supermarkets as a dominant force in petrol retailing has stripped away some of the mystique but in the process it has made the business even more unprofitable for the incumbent operators.
Shell's response, as fleshed out yesterday by the top brass on a visit to one of their sites on the North Circular, is to go for a mixture of cost-cutting, acquisitions and better customer service. The cost cutting bit is not new - BP and Mobil have already taken the axe to their downstream oil marketing operations and Shell is doing likewise axing nearly 3,000 jobs across Europe.
Nor is the strategy of growth by acquisition very novel. Shell apparently regards a 20 per cent market share as the minimum necessary for critical mass. The depressing bit is that it doubts whether it can achieve that target other than through taking over stations from other operators such as Gulf.
The interesting part of the strategy is Shell's decision to go back to serving its customers through quaint initiatives like putting extra staff onto the forecourts to fill up the tanks, wipe clean the windscreen and check the oil.
The return to personalised service is a fad running through many sectors at the moment, notably supermarkets. But it is not obvious why it should work in petrol retailing. The supermarkets, who now collectively sell more petrol in Britain than anyone else, make a powerful case for the argument that motorists buy on price and little else. For Tesco, Sainsbury and Asda it is a loss leader to get the customer into the supermarket aisles.
Shell, which has turned many of its forecourts into mini-shopping malls, believes it can reverse this trend with its customer care initiative. In the end, however, it is hard to see how it can beat the supermarkets.
The economics simply do not stack up. For every pounds 1 a motorist spends on petrol, 76p goes in tax and fuel costs account for another 17p. That leaves 7p to cover overheads. Shell needs to halve that to make a profit but the customer care initiative is likely to increase costs. Throwing extra staff at customers looks an odd way of going about saving money and staying in the game.Reuse content