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Table of Contents
1. Abstract ................................................................................................................................................. 3
2. India oil & Gas Outlook ......................................................................................................................... 3
3. Oil Industry Supply Chain ..................................................................................................................... 3
4. Indian Refining Capacity ....................................................................................................................... 4
5. Petroleum Logistics:Ports ..................................................................................................................... 5
6. Petroleum Logistics:Pipelines ............................................................................................................... 6
7. Petroleum Logistics:Railways ............................................................................................................... 6
8. Petroleum Logistics:Terminal/Depot ................................................................................................... 7
9. Indian Retail Landscape ........................................................................................................................ 7
10. Demand Drivers of Petrol & Diesel: Retail Sector ............................................................................... 7
11. Essar Oil Retail & Marketing ................................................................................................................. 9
12. Essar Oil Retail Business ..................................................................................................................... 10
13. Bibliography ........................................................................................................................................ 15
14. Glossary ............................................................................................................................................... 15
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Retail and Marketing: Essar Oil’s Journey
ABSTRACT
This paper discusses and provide insights on how Essar Oil pioneered the concept of setting up retail outlets using the franchisee –owned, franchisee operated model. The Petroleum sector in India is largely dominated by Public Sector companies, but the private players made their presence felt once the petroleum refining sector was deregulated from April’1998 and the rights to market petroleum product was granted to private players from April’2002 and Essar Oil become the first private company in India to enter the refined products marketing sector, further deregulation of petrol marketing in April 2010 & Diesel in Oct’2014 ensured level playing field for the private players.
I. INDIA OIL & GAS OUTLOOK
India is the 3rd largest Energy consumer in the World after China & United States and India’s share is roughly 5% of the global energy consumption. With refining capacity of 230 MMTPA [1], India is the second largest refiner in Asia. Oil constitutes 28% of India’s Energy basket and India is the 4th largest importer of LNG; accounting for 5.5% of global imports. [2]
II. OIL INDUSTRY SUPPLY CHAIN
The supply chain is broadly classified into Up‐Stream Mid‐Stream and Down‐Stream Operations.
Up‐Stream Operations: Exploration and Production is the first step in Oil & Gas Supply Chain, Oil production includes drilling, extraction and recovery of oil from underground. Crude Oil is produced on both land and at sea. Short Term storage serves as the staging area for crude distribution throughout the entire supply chain.
Mid‐Stream Operations: Includes Crude transportation, storage and distribution. Pipelines are mostly used to transport for shorter distances i.e. Port to refinery Crude storage or interstate movement. Shipping Channel is the most commonly used source to move crude to various refineries across different geographies.
[1] Million Metric Ton Per Annum; [2] Source: PPAC, BP Statistical Review of World Energy 2016
Oil28%
Natural Gas7%
Coal58%
Nuclear1%
Hydro4%
Renewables2%
India’s Energy Basket
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Down‐Stream Operations: Includes refining, refined product storage & transportation to Depots/terminals and transportation to point of sale. Refinery transforms crude into consumable products i.e. LPG, Petrol, Diesel, Jet Fuel, multiple manufacturing feedstock etc. Terminals are the final staging point for refined fuels before point of sale. Final point of sale includes retail outlets, airports and supplies to bulk customers.
III. INDIAN REFINING CAPACITY
With refining capacity of 230 MMTPA [1], India is the second largest refiner in Asia. Refining Capacity as on 2016 [2] in MMTPA:
IOCL 80.5
HPCL 24 BPCL 27.5 Others 18 RIL 60 EOL 20 Total 230
Essar Oil have a 20 MTPA refinery at Vadinar in Gujarat, which started commercial production on May 1, 2008. With state‐of‐the‐art technology, it has the capability to produce petrol and diesel that meets the latest Euro IV and Euro V emission standards. It is India's second largest single‐location refinery and amongst the most complex globally, with a complexity of 11.8 on the Nelson Index and it has the capability to process the toughest crudes. EOL Refinery is strategically located to cater the demand of growing domestic market and supply to global markets and in proximity to the Middle East, the largest crude oil source in the world resulting in lower crude freight costs. [3]
[1] Million Metric Ton Per Annum; [2] Source: PPAC, BP Statistical Review of World Energy 2016; [3]http://www.essar.com
Essar Oil Vadinar Refinery during Night
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IV. PETROLEUM LOGISTICS: PORTS
India’s crude imports touched 202 MMT in FY16, CAGR of 7.4% over FY06‐FY16. Petroleum Oil traffic at both major and non‐major ports increased with a CAGR of 7.7% over the past 5 years. .Despite increasing capacity, utilization rates of the major ports are much above the world’s average. Investment is required to develop new ports along the west coast and augment the capacity of existing ports. An investment of $18.6billion in major ports & $28.5billion in non‐major ports by 2020. [4]
V. PETROLEUM LOGISTICS: PIPELINES
Major onshore crude pipelines includes Mundra‐Panipat Pipeline, Paradip‐Haldia‐Barauni Pipeline & Salaya‐Mathura Pipeline and are operating at a utilization rate of more than 100%. Among product pipelines, Haldia‐Mourigram‐Rajbandh, Gawahati‐Siliguri, Chennai‐Trichy‐Madurai, Mangalore‐Hassan‐Bangalore, Vizag‐Secunderabad, Mumbai‐Manmad‐Bijwasan have a utilization of more than 100%. [5]
[4] IBEF, Ministry of Shipping; [5] PPAC, Industry Data
High Demand Zone
Source: IBEF, Ministry of Shipping
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VI. PETROLEUM LOGISTICS: RAILWAYS
The increase in traffic is due to increasing levels of industrialization across the country. With eastern region surplus with petroleum products, railways and ports will play an important role in movement of products to deficit regions. Dedicated freight corridors are required to decrease turnaround time which is currently 5‐7 days. [6]
[5] PPAC, Industry Data; [6] Industry Data, Ministry of Railways
High Density Pipeline
Source: PPAC, Industry Data
Source: Industry Data, Ministry of Railways
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VII. PETROLEUM LOGISTICS: TERMINALS/DEPOTS
336 Terminals/Depots supply products to 56,000+ Retail Outlets, Industrial Customers, and Defence Forces etc. India’s total storage capacity of major refined products i.e. Petrol & Diesel is more than 17.6 million Kilo Litre. With increasing consumption Petrol & Diesel, there is a need to augment capacity at existing supply locations and set up new storage & dispatch installations. [5]
VIII. INDIAN RETAIL LANDSCAPE
Prior to 2002, the petroleum retail sector was dominated by the Public Sector Companies with around 19,500 retail Outlets. The Private players made their entry in 2002 and the now total retail outlets count is more than 56,000. More than 40% of the retail network belongs to Indian Oil Corporation Limited and another 24% to Hindustan Petroleum Corporation Limited, while Essar Oil have 6% share.
IX. DEMAND DRIVERS OF PETROL & DIESEL: RETAIL SECTOR
Diesel
At an aggregate all India level, under the transport sector, diesel consumption is maximum in Heavy Commercial Vehicle/Light Commercial Vehicle followed by private cars and Utility vehicles. This huge variance in consumption is due to, the large distances that are travelled by commercial vehicles vis‐à‐vis passenger vehicles.
[5] PPAC, Industry Data; [7] Source: Nielsen Study on “All India Study on Sectoral Demand of Gasoil and Gasoline”
Source: PPAC, Industry Data
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Petrol
At an aggregate all India level, that 2‐wheelers segment accounts for the highest consumption at 62%. This is because majority of middle‐class income population including college students prefer to travel by 2‐wheelers, as it is more economical than traveling by car. Car category contributes for 34% of retail petrol consumption in. It is interesting to note, 2‐wheeler and cars together account for 96% of the total consumption of petrol (retail sales) in India.
All India End – use Share (%) of Petrol in India [7]
[7] Source: Nielsen Study on “All India Study on Sectoral Demand of Gasoil and Gasoline”
62%
34% 2% 2%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
All India End – use Share (%) of Diesel in India [7]
2 Wheelers
4 Wheelers
3 Wheelers 4 Wheelers (Utility Vehicles & Others)
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X. EOL RETAIL AND MARKETING
Essar Oil serves retail customers in India through a modern, countrywide network of over 3,600 operational retail outlets and another 2,400+ outlets under various stages of commissioning. Essar Oil were the first private Indian company to enter petro‐products retailing, looking beyond urban markets and reaching out to consumers in India's heartland. Essar Oil’s retail network is spread across 27 states with 46% of the network concentrated in 4 Western States. 90% of Essar Oil outlets are Dealer Owned Dealer Operated, 8 % are Partial‐Company Owned Dealer Operated and rest 2% are Company Owned Dealer Operated with very few Company Owned Company Operated Outlets.
Tie‐ups with other Indian oil marketing companies gives Essar Oil access to the products and the right to use their terminals and facilities for placing and marketing our products. This gives the company pan‐India presence with more than 40 supply locations. [8]
Essar Oil’s widespread network has created an excellent land bank resulting in the development of Non‐Fuel Retail (NFR). It is a promising business channel for retail today since it facilitates high footfalls, increased customer activation and high recall value with a profitable utilization of the retail site. [8]
All NFR activities are designed to serve the varying needs of the customers. This has created some mutually beneficial alliances across various categories such as Automobiles, Lubricants, Agrochemicals, Banking, Telecom and Food and Beverages. [8]
[8]http://www.essar.com
Legend % Retail Network
15%
31%
21%
26%
8%
100%
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XI. EOL RETAIL BUSINESS To ensure maximum customer convenience and satisfaction various marketing initiatives are in place targeted at both internal (Essar Oil Dealers) and external customers. Customer Segment: [9]
Loyalty Program Essar Oil runs a loyalty program for their customers; mainly targeted at Fleet customers where in every time customer fuels from an outlet they earn points and redeem the same against fuel purchases. The program is designed to include small, medium and large fleet owners along with other large Diesel consumers. The mobile based fleet program not only engage and reward fleet owners but also the drivers.
Toll Free Number Essar Oil have a Customer Contact Centre which is a Toll Free Service to address any query or complaints. Customer also has the option to request for a call back by simply giving a missed call. Each complaint is addressed by respective Divisional/Zonal team strictly within the TAT followed by a call to the customer for ratings. There is also a mechanism in place to reactivate the complaint in case the customer is not satisfied with the resolution.
[9]http://www.essaroil.co.in/customers.aspx
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Social Media Presence As a medium to reach to the customer, Essar Oil has strong presence in Facebook and Twitter. With over 1 Lakh fans on Facebook (https://www.facebook.com/essarpetrolpumps) and 4000+ followers on twitter (https://twitter.com/essarpetrolpump) Essar Oil’s objective is to engage with our audience through conversations around topics like travel, bike/car maintenance, DIY tips, company updates, offering dealership opportunities, contests etc.
Quality & Quantity Focus Essar Oil owns India’s second largest single site refinery at Vadinar, Gujarat, producing high quality Euro IV and V grade products. To ensure that the products being dispensed are of the finest Quality and correct Quantity, regular monitoring of fuel stations through frequent checks by experienced Company officials is in place. These periodic surprise inspections ensure that customers get the right quality and quantity at all times.
[9]http://www.essaroil.co.in/customers.aspx
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Multiple Payment Options
Essar Oil Retail customers have the convenience of paying their bills through cash, or through Credit Cards/Debit Cards and e wallets making their purchases convenient, safe and hassle‐free.
RO Locator For any customer on the go, can easily locate the nearest Essar Oil petrol pumps on Essar Oil’s website with the product prices as well.
Lubricants Essar Oil have an array of Lubricant Brands across different grades so that you have a variety of options to select from based on customer’s choice and the specific needs of their vehicle. This can help customer in maintaining the vehicle for a better ride.
Well Trained Staff The staff at Essar fuel stations is courteous, well trained and geared up to take care of your fuelling needs, at all times.
[9]http://www.essaroil.co.in/customers.aspx
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Amenities There are quite a few Essar Oil Outlets with safe and adequate parking space for truckers, along with a separate area for resting. In addition, all the outlets provide clean & cool drinking water, free air for the tyres, along with well‐maintained, hygienic washrooms for men and women.
Blog Blog serves as a content repository on the website. From auto care to travelling; from business opportunities to ultimate road trips, the Essar Blog is the ideal pit stop for motor & travel enthusiasts who seek to indulge their wanderlust. Blog can be accessed from official website: www.essaroil.co.in
[9]http://www.essaroil.co.in/customers.aspx
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Franchisee Segment: [9] Essar Oil’s diverse retail network is well supported by dedicated sale officers with continuous guidance from the Head Quarters.
Franchisee Help Desk
Franchisee Help Desk is a system for all the existing franchisee in the network to register their grievances, complaints and suggestions by calling. The complaints gets escalated to the respective Divisional/Zonal team who ensures timely closure followed by customer ratings. The whole process is maintained on a portal as well for further analysis.
Quarterly Newsletter The Newsletter captures the news & updates on key initiatives taken, recognising the franchisees based on successful campaigns at outlet. The new Retail Outlet opening also gets covered in the newsletter.
Retail Outlet Manual A comprehensive manual detailing out the key processes, right from indenting to customer service is circulated to the entire franchisee network which act as a quick reference guide for the franchisee. The manual also contains the extensive list of all the safety measures that needs to be in place from day to day operations in the outlet.
[9]http://www.essaroil.co.in/customers.aspx
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Rewards & Recognition To appreciate the hard work and reward the efforts put in by the franchisees in a competitive market to deliver performance of highest level, Essar Oil organizes Annual Dealer Conference every year and set a platform for the franchisees to share their experiences and interacts with the Company Officials.
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XII. Interviews The following people were interviewed personally for compilation of this report: i. Mr. Madhur Taneja
Chief Executive Officer of Essar Oil India Retail Chain Division.
Q1. Majority of the Essar Oil Outlets are owned & operated by dealers, what according to you are the key
factors that needs to be considered while preferring DODO model over others?
Ans. In a competitive market, the company must create a business model that turns out to be a win‐win
situation for both the company and the dealer and the model should be able to suit the specific
requirements of the brand.
When the marketing rights were granted to private players in 2002, to create a brand presence in
PSU dominated environment, the idea was to quickly multiply locations and achieve a nationwide
footprint than establishing brand via Company owned stores. With DODO model, we have been able
to open 25 outlets per week on average which is helping us to expand our foothold across the length
and breadth of the country.
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Q2. Since direct connect of the brand with the customers happens at the outlet, what all additional
measures are taken by the company despite the outlet being managed by dealers?
Ans. We don’t see ourselves as advisor to the dealer network but rather a forever companion in the entire
journey. As company we make sure that there is continuous & regular connect to sensitize the dealer
network on the initiatives and agenda through various channels viz. dedicated sales team, frequent
visits by the senior officials, franchisee help desk etc. In addition to that we impart training &
encourage our dealers to adopt and apply best practices at the outlet. We share the technical know
how to build & operate outlets and help them create brand perception through campaigns, customer
loyalty programs etc. To strengthen the bond and to appreciate the efforts of the dealers the
Company also organizes Annual Dealer Conference in addition to divisional dealer meets.
Q3. With pan India presence & selling products through more than 3500+ outlets, how does Essar Oil
manages to supply product to these outlets with refinery located at Vadinar?
Ans. Though our refinery is located in Gujarat, there are other markets as well where we ship our own
product through channels viz. road, rail and sea with the last mile delivery to the outlets from the
terminals/depots. The hospitality arrangement with the Oil Marketing Companies has also helped
and ensured that there is supply security. While we compete, we collaborate with our competitors.
Q4. What is your take on the growing competition and how well is Essar Oil positioned to tackle the same?
Ans. Competition is part and parcel of any business, and it is nothing new to us and I believe we have a
very motivated and dedicated team to deliver quality at all times. When you have already made a
mark in the market despite the fact that it got deregulated after so long, it speaks of the commitment
and attitude shown during difficult times. We take this as an opportunity to challenge our own
capabilities and serve our customers in the best possible way. To me quality of products, customer
service & customer experience will be the sustainable differentiation.
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ii. Mr. Samir Dedhia
Franchisee of one Essar Oil Ltd. Retail outlet in Mumbai India.
Q1. From business point of view, what else do you look forward to apart from selling petroleum products at the Outlet to get maximum value out of per sq. ft.?
Ans. We are always keen to maximize revenue out of the space invested, we look for an opportunity to
rent out the area to third party and offer an array of services to customers e.g. ATM, convenience
store, car maintenance services, food & beverages outlets etc. & also rent out the hoarding space to
our clients for advertisement or promotions. Essar Oil has a professional and competent team to
guide and help us connect to potential business partners for various non‐fuel offerings in the retail
outlet .To make this a healthy and beneficial proposal for both client & us, we with the help of Essar
Oil do customer profiling, analyse traffic & current offerings and sit with our clients & explore
opportunities.
Q2. What are the different safety measures that you follow in the Outlet? Ans. We always operate with uttermost safety and ensure that everyone working in the premise adheres
strictly to the safety guidelines at all times without fail so that everyone visiting the outlet fuels
safely. Instead of providing a laundry list of all the safety measures I will broadly highlight few of
them.
It is important to spread Safety awareness in the premises through signage e.g. “NO SMOKING” &
“NO MOBILE PHONE”. Ensure that the dispensing hose is not run over by any vehicle during
fuelling. At Retail Outlet, the most vulnerable time for an outbreak of fire is when the tank lorry is
discharging the product into the underground storage tank so we strictly abide by the safety
practices during the entire process starting from entering the outlet, unloading of tank lorry to
complete discharge. During unloading (Decantation) customers should be made aware by a caution
board so that no body enters the retail outlet premise. As immediate control measures we ensure
that fire extinguisher and First Aid Kit are available. To ensure electrical safety it is essential to
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obtain work permit before starting the work at the Retail Outlet especially in an electrical
installation.
Q3. How do you establish and maintain relationship with Customers and retain them? Ans. Our focus always remains on delivering quality services to each & every customer and as we know
relationships are built over a span a time, we ensure that we maintain & extend the same services to
our customers every time. With the help of Essar Oil we are able to train the forecourt staff on how
to attend to customers. In addition to that company guides us throughout and runs marketing
campaigns at the outlet & customizes loyalty programs for different customer segment to retain
customers. We ensure that basic amenities viz. clean toilet, drinking water and manned air facility
are in place. We have complaint redressal mechanism, social media presence & Website as
engagement tool.
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XIII. BIBLIOGRAPHY [1] Source: PPAC, BP Statistical Review of World Energy 2016
[2] http://www.essar.com
[3] IBEF, Ministry of Shipping
[4] PPAC, Industry Data
[5] Industry Data, Ministry of Railways
[6] Source: Nielsen Study on “All India Study on Sectoral Demand of Gasoil and Gasoline”
[7] http://www.essaroil.co.in/customers.aspx
XIV. GLOSSARY MMTPA Million Metric Ton Per Annum PPAC Petroleum Planning & Analysis Cell IBEF Indian Brand Equity Foundation PSU Public Sector Undertaking NFR Non Fuel Retail EOL Essar Oil Limited IOCL Indian Oil Corporation Limited HPCL Hindustan Petroleum Corporation Limited BPCL Bharat Petroleum Corporation Limited RIL Reliance Industries Limited
