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Cut to the quick

01 November, 2010
The Spending Review has put the spotlight on consumer spending power in the coming year. amy lanning reports on the outlook for petrol retailers
Page 10 

With colossal job losses in the public sector and cuts in public spending, the government's Spending Review announced by Chancellor George Osborne last month has sent shockwaves through the nation and forecourt operators are unlikely to ride the storm without a struggle.

Next year is looking like it will be a difficult year for the petrol retailer as spending power is further squeezed with a 1ppl hike in fuel duty on January 1 and a 2.5% rise in VAT three days later, along with an increase in National Insurance contributions for employees in April.

Brian Madderson, chairman of RMI Petrol, said: "It's going to be a particularly tough year for independent forecourt operators. We already have quite clear anecdotal evidence that drivers are being more careful about the journeys they make and nothing we've seen suggests it's going to be any different next year. It may be further tightened with the job cuts so there will be less fuel volume.

"There will be just as much competition from the hypers as they fight among themselves for customers," adds Madderson. "Add to that the backdrop of the global price of crude oil likely to go up and the $100 barrel could be back on the agenda.

"So with prices going up and fuel duty increase due to hit on January 1 and VAT rise to hit on January 4 it's going to be a long, tough winter and a long, tough year for forecourt operators, and I can't see much that's positive on the horizon."

Reduced consumer spending power is at the root of the problems. According to the Markit Household Finance Index for October, there will be widespread gloom among UK households as fiscal cuts take shape. The report highlights that lower incomes and higher debt is creating anxiety over future finances, and spending is falling at the fastest rate for nine months, adding to concerns that fragile consumer demand may destabilise the economic recovery.

Market researcher Mintel has also claimed that the global economic crisis has changed consumer behaviour and predicted key trends for 2011. Alexandra Smith, global trends analyst at Mintel, said: "These consumer trends for 2011 are a legacy created by economics, but now gathering their own momentum and are set to influence the global consumer mindset for a long time to come."

The research revealed that 43% of consumers in the UK are trying to save for rainy days, up by 15% from last year, and 35% say their choice of store is determined by special offers or discounts.

The report said brands would need to demonstrate how a product or service delivered longer term benefits or prevented future problems suggesting a possible rise in demand for fuels such as Shell's Fuelsave. It said retailers would also need to be more creative in order to lure consumers into stores creating more of a retailer experience, not just a shop.

With concerns of a double-dip recession, it's undoubted that tough times are ahead for forecourt businesses. Some regions will fare better than others, with retailers in the Northeast concerned about being the worst affected.

Top 50 Indie Phil Richardson, of Newcastle-based Park Road Group, which has eight sites, said the situation in the northeast is dire yet no-one is writing about it.

"Fuel volumes around here are significantly down. In one week my sites were at best 16% down and at worst 28% down. The oil companies are pricing fuel on their own sites at a level independents simply can't compete with. I am also concerned that the public sector accounts for about 64% of all employment in this area, so we will be affected by the government's planned cuts of 490,000 public sector jobs. I was talking to a property agent recently who described the market as a 'holocaust'."

The general consensus is that those who have invested in their convenience store, and those outside of rural areas, will best ride the storm. Madderson said: "The recession has led more people to use convenience stores rather than the hypers so we are seeing some increase in c-store volume.

"White pole, rural retailers that have a high price and low volume will feel yet more pressure, and the government's rural fuel duty rebate pilot scheme has done nothing to quell those fears. And we've seen nothing out of the Coalition regarding a fuel price stabiliser.

"On a positive side, the initiative taken by the Car Wash Association in conjunction with RMI Petrol, will work on rogue car washes and that could start to boost back some car wash revenue."

Meanwhile, speaking at the Confederation of British Industry annual conference, Prime Minister David Cameron insisted that innovation and job creation in the private sector were essential to help rebuild the economy, and promised that Ministers would dedicate themselves to promoting British business and helping create the conditions where entrepreneurialism could flourish.


Fast facts

Spending Review:

l 490,000 public sector jobs likely to be lost

l £7bn in additional welfare budget cuts

l Police funding cut by 4% pa

l Regulated rail fares to rise 3% above inflation

l Bank levy made permanent

Spending power squeezed:

l Fuel duty to rise by 1ppl on January 1

l VAT also to rise by 2.5% to 20% on January 4

l Employee National Insurance contributions will rise by 1% in April 2011

l Retail Price Index inflation currently running at 4.6%

Relief for businesses:

l Hope for an amendment to the VOA's 2010 Revaluation Scheme, which will prevent an inflated hike in business rates

l The Coalition has saved employers from matching the NI contribution rise

l Start-up businesses can take an Employer National Insurance contributions holiday for each of the first 10 employees they hire in their first year of trading. It is open to new businesses set up between June 22, 2010 and September 5, 2013.