An examination of the variables influencing the fuel retail industry

Abstract

Purpose/objectives: The objective of the study is to contribute to a better understanding of the key variables that influence the profitability of this sector, as well as to develop a reliable model to predict retail fuel sales volumes in an urban setting.

Problem investigated: South African fuel retail outlets are confronted by a wide range of variables that constrain profit and a significant number of outlets are not profitable. In the event of further deregulation, it is conceivable that many fuel stations will go out of business.

Methodology: A combination of a quantitative and a case study methodology, in conjunction with a literature review, was used to test the principal research questions.

Findings/implications: The results suggest that location significantly influences urban retail fuel sales volumes whilst fuel station size and the fuel price play a lesser role. Other significant factors, however, also influence fuel station profitability. The demand for petrol appears to be relatively inelastic in the short term and more elastic over the long term. Conversely, the demand for diesel appears to be completely inelastic.

Value: The article promotes a better understanding of the cost dynamics of the fuel industry. In this regard, the model constructed to predict urban fuel station turnover indicated high levels of reliability. Furthermore, few comparable studies have been published in accounting journals.

Conclusion: The study concludes that urban petrol stations selling more than 370 000 liters of fuel per month are likely to be profitable and that location is a key variable influencing sales. In the event of deregulation, many operators are likely to be eliminated because of high levels of competition and low profit margins. An even greater number of fuel stations, therefore, will be reliant on non forecourt activities to survive.