* Shell, BP, Total see retail as key in an electric world
* Strong retail profits during pandemic boost confidence
* Firms plan to add filling stations and charging points
* GRAPHIC-Retail business growth: https://tmsnrt.rs/2VqAZ47
By Ron Bousso
LONDON, Dec 3 (Reuters) - For Big Oil, coffee and chocolate
could be the new black gold.
Under pressure from investors and governments alike to cut
emissions, major European oil companies are ploughing billions
into renewable energy but are struggling to craft business plans
that promise the returns shareholders have come to expect.
Europe's big oil firms, however, have another card to play:
their vast global networks of filling stations.
BP, Royal Dutch Shell and Total
all say they are betting on higher profits from sales of
groceries and snacks at their retail networks, which will still
be an essential port of call for motorists in an electric era.
Paying at the pump to fill up with petrol may only take a
few minutes, but even with the fastest electric vehicle (EV)
chargers, customers would have at least 10 to 15 minutes to kill
- plenty of time to grab a coffee and do some shopping.
While the so-called marketing operations of big oil firms -
retail sales of fuel, lubricants, groceries and TV dinners -
usually contribute a smaller slice of profits than oil and gas
production, they typically have higher margins.
The renewable energy and power businesses oil companies are
moving into, however, tend to have lower returns on investment,
making it important for firms such as BP and Shell to find ways
to boost their overall returns in low-carbon economies.
That's why Shell plans to expand its retail network by more
than 20% to 55,000 sites worldwide by 2025. BP aims to increase
its network of filling stations by nearly 50% to 29,000 by 2030
and boost its EV charging network to 70,000 points.
Total, meanwhile, is planning to increase its EV charging
network in Europe to 150,000 points by 2025 from 18,000 now.
Subway and McDonald's, the world's two biggest food
chains, both have fewer outlets than Shell. U.S. giant Walmart
, the world's biggest retailer by sales, has 11,510
stores globally.
BP and Shell are also betting that daily contact with tens
of millions of customers will give it masses of data that it can
use to tailor sales for shoppers in small towns, cities or even
specific petrol stations throughout the world.
LOCKDOWN PREVIEW
While there are relatively few electric cars on the road
now, oil companies have already had a glimpse of the potential
of their retail networks during coronavirus lockdowns this year.
Fuel sales slumped as travel restrictions kicked in, but
people still nipped to nearby petrol stations with convenience
stores to stock up on daily necessities.
In fact, Shell's retail division, known as "marketing",
which has the world's biggest network of filling stations, had
its best quarter on record in the three months to Sept. 30,
bringing in $1.6 billion in adjusted earnings.
So far in 2020, Shell's marketing division has contributed
60% of its overall earnings, which are traditionally dominated
by its upstream oil and integrated gas businesses.
Huibert Vigeveno, Shell's head of refining, chemicals and
marketing, said the company holds a daily call to check on
customer preferences for anything from engine oil to croissants
so it can constantly adapt.
"Having 45,000 retail sites over more than 80 countries
allowed us to learn very fast," he told Reuters.
"It started in January, when we saw what was happening in
China and how consumers were behaving. And we shared that
immediately with all the 80 countries in which we operate."
Shell's marketing profits were also helped by strong sales
of premium fuels, which have higher margins, and lubricants.
BP and Total benefited from a boost at their retail
divisions during the pandemic months too, helping to plug
revenue shortfalls from lower fuel sales and reinforce their
plans to expand rapidly into convenience stores and EV charging.
"We saw during the pandemic people shopping online and
topping up in local stores like ours, but it's a long-term
trend, too," said Emma Delaney, BP head of customers and
products.
Total's Chief Financial Officer Jean-Pierre Sbraire told
investors in October that retail sales in Europe were back at
pre-pandemic levels in the third quarter, even though fuel sales
remained very weak.
LOW VOLATILITY
BP's profit margins from convenience stores have risen 8% a
year since 2015 and they delivered a gross margin of more than
$1 billion in 2019, a figure the company aims to more than
double by 2030, Delaney told Reuters.
BP's return on investment - or the return on average capital
employed - at its convenience and mobility business, which
includes sales of fuel and lubricants as well as its stores, was
more than 20% in 2019.
Shell too had a return on investment of over 20% at its
marketing division, which includes retail, business-to-business
fuel sales and lubricants, and Vigeveno said it expects the
business to grow 6% to 7% a year until 2025 and beyond.
"The volatility in retail is very low ... but the margin is
high," said Mirko Rubeis of the Boston Consulting Group.
Return on investment has been in the spotlight since oil
majors such as BP announced this year that it plans to cut its
fossil fuel production and invest more heavily in low-carbon
energy sources such as wind and solar power.
Shell is also looking to accelerate its shift towards
low-carbon energy and is due to announce its long-term
transition strategy in February.
While big oil firms typically target a return on oil
investments of about 15%, returns on low-carbon electricity are
expected to be far lower and investors are wondering how they
will square the circle.
IS DATA THE NEW OIL?
When it comes to retail, fuel sales already produce lower
profit margins than convenience stores sales, which are often in
partnership with well-known grocery brands, and that's one of
the reasons for the push into areas dominated by supermarkets.
"Redefining convenience is about much more than fuel. Sure,
convenient fuel payment via our app works, but customers on the
go want much more than fuel. And so we bake pastries, brew
coffee, package deliveries for customers," Delaney said.
BP works with Marks & Spencer in Britain while Shell has a
partnership with British celebrity chef Jamie Oliver to offer a
range of deli food. In the United States, BP has teamed up with
food and drink outlet ampm.
During the months of the pandemic, convenience sales at
hundreds of sites were also helped by deliveries to homes using
online apps such as Deliveroo and Uber Eats, Vigeveno said.
BP estimates that more than half the customers who visit
Marks & Spencer at its filling stations come for convenience
shopping only. Shell's Vigeveno, meanwhile, said half of their
sales in northwest Europe were non-fuel.
Even with a retail push, fierce competition among power
companies, supermarket giants such as Tesco in Britain
or Carrefour in France and new entrants in the EV
charging sector could also narrow profit margins in the future.
And with oil consumption possibly already near its peak,
energy companies will need to radically rethink their retail
businesses to keep making money.
"To successfully adapt, fuel retailers must embrace a new
mindset. Making modest changes or tweaks to the business will
not suffice," said Boston Consulting Group's Rubeis, adding that
the customer data they amass could be crucial.
BP aims to double the daily number of "customer touchpoints"
in its retail business over the next decade to 20 million while
Shell is aiming for 40 million by 2025 from 30 million now.
"Retail is the only thing in the oil and gas value chain
that gets you closer to the customer. If you want to have
insight into the future trends of mobility, energy transition
and so on, that's the only thing that can get you data," Rubeis
said. "Customer data is the new oil."
(Reporting by Ron Bousso; Editing by David Clarke)
