Last month, members of the national business community faced the tricky question of what to wear for the festive opening of a gas station. Total Liban, the Lebanese unit of French oil multinational Total, put the question on the agenda by inaugurating, with speeches and circumstance, a re-developed flagship station on one of Beirut’s main traffic arteries, the six-lane urban highway connecting Downtown Beirut to Dora.
Total Liban’s senior management told Executive on the sidelines of the opening party that the company achieves a daily sales volume of 20,000 liters at the outlet, dubbed Medawar Station after the surrounding neighborhood. The station generates this volume from an average of 1,500 customers a day, but Total aims to boost the station’s fuel throughput by 30 percent based on the location’s full redevelopment into a station that features eight gas pumps, an automated car wash, a modern automotive servicing area, an ATM and a convenience store with two, albeit a bit tight, aisles.
According to a press statement, the location also has a Liban Post antenna, indubitably to the delight of people who know how to use the device.
The invited guests at the opening were not only pampered with canapés and entertainment but were treated to a service station that aims to live up to a standard that is common in developed markets but still far from ubiquitous in Lebanon’s national network of gas stations.
In this context, the Medawar station opening was as much aimed at catching the attention of the motoring customer base as it was promoting the idea of a modern gas station and conveying Total’s commitment to the internal target groups of auto-industry members, distribution partners and station operators, says Reina Cullinan, Total Liban’s commercial director.
“We are striving to project a constant and uniform image throughout the market. We would like the customer to have the same experience whether they come to a Total-owned and operated service station or a dealer-owned and operated service station,” she tells Executive in a separate interview about the company’s strategy. Cullinan emphasizes the alignment of Total Liban not only with the new global branding of the multinational group, but also with the group’s worldwide-enforced policies on safety and product quality, among other standards.
According to Cullinan, Total Liban has a network of 180 branded stations. The majority of stations are dealer-owned and operated under contract while the company owns and operates 30 to 35 stations directly. In terms of fuel volume sold, Total Liban accounts for nearly 20 percent of the gasoline pumped into Lebanese vehicles, Cullinan claims, making the company the volume leader in the market.
Other large gasoline distributors and station operators include Medco, Wardieh and United, each brand comprising upward of 180 stations. Some of these networks have historic affiliations with multinationals and maintain product relations with international brands such as Caltex and Mobil, but Total Liban is the only company in Lebanon’s retail fuel sector that is fully owned by an international parent and reports to a global corporate head office.
This means that Total Liban’s results are integrated into the annual reports of the group; however, how much the activity here contributes to Total’s global bottom line is not something that Cullinan would disclose. She does reveal that Total Liban felt the impact of the depressed economy in that the size of the average customer transaction was down, saying, “we did not have negative growth in 2013 despite the situation but we did feel the impact. The growth that we saw was not as good as we would have liked it to be.”
She concedes that the growth in turnover that Total Liban achieved in 2013 was influenced by factors such as network expansion and the company’s investments to migrate 30 stations to its new global brand identity. Without those factors, she says, the year would have been “very flat.”
After 18 months in Lebanon, the native South African is nonetheless positive about the country and Total’s esteem in the market. “There are not a lot of exciting things happening in Lebanon because of the situation, but we — as Total — remain very positive about the country. We have always been here and been committed, and we want to stay committed. Our investment budgets, whose numbers we are not allowed to disclose, have not been cut back and in fact we have an aggressive investment strategy,” she says.
The strategy involves, on one hand, continued upgrades of the network by migrating another 40 stations to the new brand colors before the end of the year, along with the rollout of more large stations along major traffic arteries. Three such projects are under implementation and four more are planned for delivery in 2014.
The expansion plans and the investments they represent are not peanuts by local standards. To begin with, the acquisition of land for a station is difficult, due to the scarcity of suitable properties, and those that are available carry a high price tag. Once a property is acquired, a major station can require a further investment of between $1 million and $2 million, Cullinan explains. “Excluding the cost of land, $1.5 million is not a lot of money to pay for a flagship-size station.”
The second pillar of Total Liban’s growth strategy is diversification from pure gas sales into more retail and customer services, such as money transfer, banking services and food offerings. The convenience stores will stock more high-margin items and, for the planned expansion into roadside restaurants, the company has begun negotiations with potential partner companies that could implement family-oriented eateries or bistros at Total Liban stations, perhaps even including play areas for children.
According to Cullinan, such concepts have become possible thanks to recent legal changes allowing food preparation on commercial sites. Overall, Total Liban aims to increase the share of non-fuel items in the company’s revenue to 25 percent from the current 10 percent.
Playing a peculiar market
The low contribution of non-fuel-related products and services in the revenue streams of gas station operators is among the several peculiarities that characterize the fuel distribution industry in Lebanon. More significant discrepancies vis-à-vis global best practices relate to the fact that Lebanon has highly individualized traffic and a high number of vehicles per capita when compared with any other small country in the upper-middle income group of emerging economies.
In the economy of gas station operators and fuel distributors, this is reflected in the market presence of many stations that might be neither economically viable nor environmentally acceptable in more developed countries.
According to unofficial numbers from members of the fuel sector, Lebanon’s national fuel distribution network includes around 3,200 stations of which only about 2,200 operate under the requisite government license. Of these 2,200 legally run stations, around 2,000 are branded, estimate officials in the Association of Petroleum Importing Companies (APIC).
While the major operators and APIC itself are anything but beacons of financial transparency, it is entertaining to note that Lebanon has, by international comparison, a very high number of gas stations by pretty much any parameter one chooses.
For example, the number of all Lebanese stations (licensed and unlicensed) at 3,200 is 30 percent below South Africa, a country that also regulates its oil wholesale margins and controls pump prices at its 4,600 stations according to the South Africa Petroleum Industry Association. However, South Africa is about 20 times larger in terms of population. In terms of territorial dimensions, South Africa is roughly 120 times the size of Lebanon, which makes the Lebanese network extravagantly dense in comparison.
Using a European country for comparison that is only about eight times Lebanon’s size and while just taking licensed gas stations into account, Lebanon’s 2,200 rank not far below Austria’s 2,500. But although Austria has a higher density of gas stations per capita than France and Germany, each Austrian station has a theoretical clientele of 3,400 inhabitants. The hypothetical average operator of a licensed Lebanese service station by contrast has to make his profits on the basis of a ratio of only 2,000 inhabitants per station.
Finally, when correlating the number of stations to the length of the national road network, the Lebanese landscape mathematically spots one gas station every three road kilometers, while a South African motorist has to drive 78 and an Austrian 49 kilometers, if they happen not to like the colors of the nearest fuel vendor.
In other words, Lebanon has a higher density of gas stations than bank branches and it seems a daring feat, at least in mathematical terms, to run out of gas because of want of a pump nearby (not having a working gas gauge in the car or days of facing a supply shortage are different matters). Operators have to be very creative and hard working to succeed in a field crowded with many competitors and no opportunity for price differentiation, due to the government control of pump prices. Either that, or they have to dodge all sorts of common sense business principles, not to mention almost every operational standard that is enforced in developed economies.
Given the market’s constraints it is no wonder that Cullinan proclaims, “I am sometimes surprised when I see the deals that we are doing and deals that we have throughout the country, where volumes are very minimal — they are little, little stations.”
Being profitable and safe
Total Liban sees the threshold for a station in its network to make economic sense at a monthly sales volume of at least 300,000 liters. But as Cullinan puts it, “we are working with what we have” in the network. She explains the company’s ongoing partnerships with small operators, with the policy of being present in every corner of Lebanon. She has yet to visit several of these in person because of security-related restrictions that Total, as a multinational, places on the movement of its international employees in Lebanon.
In the area of security and compliance with group safety standards, Total Liban maintains that the trucks in its third-party owned delivery fleet comply with European standards. It also conducts annual maritime emergency drills to be prepared for the possibility of an oil spill from a vessel during delivery or at its fuel importation terminal.
Across its network of branded stations, the company has a training program for pump attendees and uses independent monitoring of product quality to be sure that only certified and compliant fuels are disbursed at the pumps. At the opening of Medawar Station, visitors could step into the van with the test laboratory that is used to monitor fuel quality at all Total Liban stations.
Operational improvements of its new stations include energy-saving lighting and water-saving car washes. But more important for environmental safety are the collectors in the ground designed to capture spills of gasoline, contaminated water and lubricants all around the station. “We collect all contaminated residue at the oil change and car wash and dispose of it responsibly. This is something that the Lebanese market as a whole may not be sensitized to but it is something that Total is very conscious about,” Cullinan explains.
When asked about the details of how the company disposes of contaminated motor oils, she says that Total Liban has an agreement with a partner, “whose name we are not allowed to mention,” and adds that this partner company uses the contaminated lubricants “in their equipment, in burners and that kind of stuff.”
While it seems doubtful that an environmental watchdog or a supervisor in a country with stringent waste treatment standards would be satisfied with incineration of contaminated oils by an unnamed industrial company as a bona fide disposal method, Cullinan makes a point in saying that Lebanon’s poor waste treatment infrastructure poses a problem and that dumping of such wastes in a landfill is not an acceptable solution. “We are trying with the very limited infrastructure in Lebanon to play our role as best as we can,” she says, and concedes, “oil companies will never be green.”
As to the question of what to wear for a gas station launch party, fashion experts on site at the opening of Medawar Station recommended casual or smart casual. Male attires at the event were dominated by suits and ties chosen to mesh with a great gas station image. But from an operational perspective, the warm reds worn as uniforms by Total Liban’s pump attendants were clearly the natural fit to both environment and occasion.