Is this Z pleading poverty and ‘looking’ for support
All that discounting and market share still trending down ....hmmm
https://www.stuff.co.nz/business/119...nmanned-effect
Printable View
Is this Z pleading poverty and ‘looking’ for support
All that discounting and market share still trending down ....hmmm
https://www.stuff.co.nz/business/119...nmanned-effect
Prognosis is grim. When the loyalty scheme changed from August ? 2019 Z for the first time allowed the "stacking" of discounts and I predicted this would lead to a significant impact on their margins and sure enough its happened. There's been a massive move up from about 8 cents per liter average discount to roughly double that level now.
Its simple enough to sign up to their email reminder system and they let you know when they have their 10 cent off days. Buy just $40 of petrol and stack your 10 cent discount each time and effectively you get $5 off (10 cents a liter stacked for future purchase of 50 liters) that $40 or effectively a 12.5% discount off each $40 purchase. 12.5% off is effectively as much as 28 cents per liter (at $2.259 per liter) when you use all that stacked discount later, although it is somewhat ameliorated because to claim the discount you need to buy 50 liters and at that time you only get 10 cents per liter off.
I only drive modest mileage and find its typically quite easy to get $1 per liter off when you use your stacked discounts to purchase 50 liters every second month.
I think their discount will get slightly worse from here through this stacking thing as people get more used to taking maximum advantage of it, and more discounting from having to compete with unmanned stations and they are probably shooting themselves in the foot a bit with this new sharetank as well.
Despite this stacking thing the way Caltex in particular has lost market share with its petrol sales is really quite confronting.
Beagle - bit of a worry when a CEO says ‘Rather than abandon the 'nice coffee-clean toilets-forecourt service' model Z was founded on, Bennetts says the company is trying to introduce a range of discount products for its more price-conscious customers. ’
So nice coffee and clean toilets AND A DECENT DISCOUNT.
It all seems rather confusing from a making money perspective
Looks like we're past "peak fuel" too and with a wide range of new and hopefully more affordable electric vehicles coming onto the market over the next few years along with the N.Z. Govt incentive for EV's of as much as $8,000 each, and with more and more unmanned stations coming on stream its more difficult to see the investment case as being worthwhile.
Suppose they could find another electricity minnow to throw a quick $50m at and that might be the panacea of all their problems :)
If I was running ZEL I think the best way to confront the EV thing is to install fast chargers at ALL ZEL stations thereby leveraging significant amounts of coffee, snacks and ice-cream sales while EV owners charge their cars up. There's going to be a chronic shortage of EV fast charging stations in the years ahead, mark my words.
https://www.nzherald.co.nz/business/...ectid=12303658
Premium fuel prices set to come |under the pump" according to AA.
Been rorting motorists for the last decade !!
I think this is the point peat. I was involved in this industry at the time when Challenge & Gull entered, and when we were worried about others. At the time, the company I worked for responded, and its never looked back - maintaining its low cost base regardless of margins. History is repeating tho - increase in margins has attracted newcomers, with the added bonus of the majors scrapping it out for wholesale supply (this is a strong evolution of the market since the 1990's). Z is caught in no man's land - instead of building diversification by expanding out of NZ, they paid top $ for Caltex, have a high cost base compared with its fellow majors (BP, Mobil) and its smaller competitors and have seen margins erode as everyone scraps for market share. I hope they have a 'transformation' plan; they'll need it. I think things will get worse before they get better (although I do think things will eventually get better).
Sylvester - Seems the Z ‘transformation plan’ is selling more pies, coffees and sweets
Which is not a bad plan in and of itself. But I think that "premium food offer" space is taken already by the green and gold one. And I can't see them saying "help yourself" to Z. Also, that doesn't address the cost base issue associated with either selling fuel or managing the shops...staff numbers seem high relative to the other majors. I get the focus on customer needs; but there is a balance with efficiency, especially in what is essentially a commodity fuels market. Even in that space, BP and Mobil have 98 octane to differentiate themselves a bit.
Beagle mentioned 3.5 cpl net margin. Even that is relatively high compared to what was going on when BP and Shell were slugging it out in the late 90's - 2000's. That period was not good for the industry (no investment possible), but it did shake out the weaker players (eg, Shell, then Caltex). Given that history (admittedly, experiential bias on my part), downside risk still seems quite high to me.
I agree SylvesterCat, BP's food offer is quite substantially better than ZEL and I have never understood why ZEL or Caltex have never had 98 Octane when many higher performance European cars require this fuel. Go figure ? Its like they have their head in the sand in this regard. ZEL have been the least extreme in their "milking" of motorists with the premium they've asked for 95 Octane but with price display coming its clear that further pressure is coming on their 95 Octane fuel margin. Just annualising apparent forecast 4th quarter margin's gives an interesting heads-up into possible earnings downside for FY21. Start factoring in reduced margins from premium fuel, ever increasing competition for the unmanned minnow station players, Govt action of wholesale pricing and requirements for increased jet fuel storage at Wiri and the steady roll-out of EV's, I agree 100%, the downside risk looks quite significant.
More concerning as you suggest is their cost structure and I really don't think one can rely on management to be proactive in cutting their cloth to suit the new reality that appears to be rapidly unfolding. Management have a history of "shocking" the market with downgrades both to earnings and dividends so anyone relying on 40 cps fully imputed annual dividends is taking a big risk as to its sustainability.
I can easily foresee that 3.5 cpl margin coming down to ~ 2 cpl in FY21.
Surely the Oil companies will just raise the price of 91 to cover the reduction in the current gains from premium fuels.
I doubt they will be very interested in taking the pain themselves.
They've never been renowned for philanthropy.
Yes, but, unmanned stations from the minnows will keep the pressure on. Whichever brand is first to differentiate themselves from the market by offering fast charging stations for EV's across most of their branch network will gain a significant first mover advantage. I wouldn't back ZEL's current management to be bright enough to realise this. BP probably better positioned anyway with their superior food and drink offer as early EV adopters are likely to be fairly well off and respond better to BP's more premium in store experience while waiting for their EV's to charge up.