Impact Partner Content / Absa
Absa has a clear understanding of the fuel industry, which is clearly outlined in our banking solutions. We spend time understanding our clients’ needs within the industry and provide solutions accordingly. We have an end-to-end approach to solutioning the owner’s, business’s and employees’ needs. As a financial services partner to more than 30% of service stations in South Africa, Absa has a thorough understanding of the industry’s intricacies and specific challenges.
Fuel retail is an incredibly specialised sector, with operating margins and financial performance being affected by numerous macro- and microeconomic factors, ranging from oil prices and rand/dollar exchange rates to increasing operating expenses, infrastructure development (such as roads and public transport), consumer purchasing power, the impact of regulations and the future of alternative energy solutions.
Industry challenges
The recent international conflicts have a direct impact on the South African market, as shortages of oil drive up the prices. One of the most important influencers or factors that impact the profitability of service station businesses, is the fuel price. The public usually assumes that when there is a fuel price hike, the service station businesses make more money. However, this is not the case. The profit margin of the business reduces due to the increase of operational expenses directly linked to turnover on a percentage basis, i.e. cash management and merchant service fees. The retailer margin, determined by the Department of Mineral Resources and Energy, called the Regulatory Accounting System (RAS), doesn’t make sufficient provision and there is an average underrecovery of more than 10 cents per litre. The insurance and bank allocations are just above 8 cents per litre and a typical credit card transaction costs nearly 33 cents per litre. The business must recover the increased operational costs from the entrepreneurial compensation margin, currently standing at 133.1 cents per litre. In addition, while the price of fuel goes up, motorists’ budgets may have very little room to grow. Many patrons opt to pursue public transport alternatives, such as the Gautrain and carpool with their fellow employees, and opting for a hybrid work-from-home model. Consequently, patrons are filling up their vehicles less frequently with an average fill of 17.5 litres per visit.
Three roads, one destination to profitability
Probably the most important consideration is viability. Within South Africa, there are three ways to become involved in the fuel retail industry. The first of these being investing in the development of a service station, i.e. the physical building and land, along with the associated assets (property investment). Secondly, you can buy the business operation only. Lastly, you can opt to purchase both the property and the operation.
Service station valuations
Our industry expertise has enabled us over the years to develop an accurate valuation tool that assists us in establishing the value of a service station business. This is an indispensable tool that supports our assessment of the merits of a credit application. For example, at Absa, we can quickly work out if a purchaser is paying too much for a site.
Understanding credit risk
Having knowledgeable and leading industry experts in the Absa Wholesale, Retail and Franchise teams, ensures that we adequately identify the credit risks associated with the industry and on an operator level. This allows us to carve out bespoke lending solutions to individual operators and provide comfort to the Credit Sanctioning team that the important credit and business risks have been identified and mitigated.
Our solutions
Whether it is the finance of a business, working capital or property development, our relationships with oil companies, industry associations and fuel wholesalers, retailers and distributors, means that our products and solutions are truly tailored to meet the needs of service station businesses. Our operational products include cash management, payment solutions, merchant services, electronic banking, investment solutions and commercial asset finance.
Integrated fuel solution
Our revamped integrated fuel solution provides a seamless experience, while giving the filling station owner greater control and peace of mind of full integration with their existing systems. It offers an enhanced system that integrates seamlessly with your existing point-of-sale software. This reduces human error, fraud and chargeback risks on the one hand. On the other hand, it increases spend at filling stations while automating the reconciliation of sales transactions.
Islamic Banking
Our Islamic Banking develops Shari’ah-compliant products. Whether you want to transact, save, invest, plan financially, travel or protect your assets, there is an Islamic product for you.
Renewable energy
Given South Africa’s abundant sunlight, increasing electricity tariffs, a concerning grid system, decreasing cost of solar photovoltaic (PV) installations and a supportive regulatory environment, there is a strong case for filling stations to invest in solar PV. Fuel businesses generally operate 24/7, which makes renewable solutions ideal.
A dedicated renewable energy team will look at your needs and provide advice on the right solution to ensure a more sustainable future.
Our knowledge and expertise will protect your solar PV investment by:
Building on our experience and success in the funding of solar PV
Working with industry leaders in the sector
Considering the cashflow of the asset in our credit decision
Understanding that this is an asset with a long lifespan, so we look at finance terms of up to 10 years.
Conclusion
Absa does not approach lending into the industry on a one-size-fits-all basis – rather, we constantly scan the industry to identify the opportunities and develop solutions accordingly. Our leading industry expert has a clear understanding of the industry and is well placed to contribute this knowledge to providing bespoke market-leading solutions.
To find out more about the fuel and franchise industry and the available financing solutions, visit www.absa.co.za, or call: +27 11 350 8000 or email franchise@absa.co.za
Absa is an Authorized Financial Services Provider and a Registered Credit Provider NCRCP7
