After a lengthy pilot period Pick n Pay and BP have combined forces to roll out small-format Pick n Pay stores at BP service stations across South Africa. This deal mirrors existing retail partnerships established between Woolworths and Engen, as well as Caltex and Fruit & Veg City
With little brand loyalty to attract customers to their sites, fuel companies have looked at their convenience offering as a way to attract business. And in certain cases it has been a resounding success. Just ask anyone who knows the Engen garage on Orange Street in Cape Town. Whether it is servicing drunk students at 4am on a Friday morning or singles looking for a convenience dinner on the way home or reps grabbing lunch, the place is busy 24×7.
BP and Pick n Pay have been testing the retail forecourt model since July 2008. Getting the formula to the point that the retail partners as well as the franchisee can generate a return was complex. “We needed to ensure that everyone benefits, which is not easy to negotiate in a three-way split,” says chairman Gareth Ackerman.
It is estimated that 120 Pick n Pay Express stores will be rolled out in the next five years. This is many more than Woolworths/Engen with 42 sites currently, with plans for another 34. The challenge is finding suitable high traffic sites in metropolitan areas. Initially these will all be on sites that are owned by BP and the store is run by an independent operator. In time PnP hopes to negotiate a separate deal that includes those sites owned and operated by independent dealers who contract with BP.
Franchisee owners will become part of the PnP network of franchisees. While PnP will earn rebates and a percentage of the revenue – as is typical in its franchise deals, Ackerman is confident that the deal will be good for the franchisees. “In the eight pilot stores we saw a huge uptick in turnover. This has been sustained over the three year pilot period.” Ackerman believes there is more opportunity to increase revenue. “Once we get our ranging tighter and increase our convenience offering we believe trading densities will increase.”
The new stores will not initially make a significant contribution to group revenue, which touched R55.3bn in the year to December. Instead, Ackerman says, the venture is one component of a strategy to expand the group’s footprint ahead of its competitors, using different store formats to suit different opportunities. The partnership also complements Pick n Pay’s plans to deepen its franchise network. BP’s signature Wild Bean Cafes will remain part of the offering.