PetrolPlaza Russia Special. Challenges and opportunities of the market

We speak to Evgenii Korotin, Director of Russian research company Competition Technology Centre, about the challenges and opportunities facing the Russian forecourt market.

Will the redesign of service stations, especially their outdoor features, be a big trend in the future?

That is a growing trend even now; followed not only by the national networks of major oil companies, but also by smaller regional filling station networks which realize that it is no longer possible to maintain their volume of sales in the shrinking retail market without significant improvements for customers. Price competition has reached an impasse, while the pricing policy of the majority of filling stations can be considered as passive and ineffective, for it doesn’t make use of the potential of the local markets for every site. That is why the non-price methods become the only effective mechanisms for attracting new customers, where the rebranding and the improvement of service package at filling stations hold a prominent place.

Apart from the modernization and refurbishment of some assets, do you expect also expect a large increase in the number of service stations in the coming years?

The construction of filling stations will go on, although not as quickly as before the economic recession. It will mainly involve the implementation of the development programmes that were launched 2-3 years ago. A dramatic increase in the number of new filling stations is hardly to be expected. The most substantial improvements are more likely to be carried out at aftermarket filling stations.

The Russian market has some characteristics which differentiate it from other markets such as the European. What are the biggest challenges facing the Russian fuel market?

The biggest challenge facing the Russian retail fuel market in the next 2-3 years is going to be the customer-oriented approach. When the market was stable most filling station networks did not research their customers’ requirements or consumption patterns. Now that the situation has drastically changed those operators will do their best to attract and keep customers at their filling stations.

CNG and LNG were fuels growing worldwide in use and efficiency, but the current low oil prices have hampered their growth. Do you see the CNG and LNG transport market improving in Russia?

The LPG and CNG market is maintaining its growth rate. Unfortunately its share in the total fuel consumption volume is still very small. Thus, there is no question of a noticeable impact of liquid fuel market prices on the gas fuel market development so far. The latter is most likely to depend on the volume of the traffic that uses CNG and LPF fuel.

In the US and in Europe we have seen how fuel retailers are betting on automatized service stations with modern fuel dispensers that include in some cases touch-screens and self-service technology. What trends do you expect to see in the Russian market?

The development of automatized filling stations can present a serious alternative to the construction of full-scale filling stations. Major independent fuel market players have shown in the last 2-3 years how the automatized filling stations can outperform full-scale filling stations considerably based on proper planning and smart price policy. Many big cities in Russia don’t have a strong market in automatized filling stations so far. Therefore, it is no wonder that the majority of large oil companies have started to develop this market sector in recent years.

Another established trend in the Western world is the convenience aspect of the forecourt, with packaged foods and meals becoming a major source of income (convenience stores, restaurants, diners). Will this trend also become as important in Russia?

Russia is in no way different from the Western world on this count. The market of c-stores and cafés at filling stations is still rather weak, and most established retail fuel networks, regardless of their size, have realized that food-stuff supply at filling stations is not only aimed at improving the profit margins against the backdrop of a fluctuating fuel margin, but it is also an important competitive advantage factor in attracting more customers. Actually a number of regional filling station networks in Russia have succeeded in attracting customers to their shops and cafés, and in some cases they have even outperformed their Western counterparts at it. At the same time the largest filling station networks in Russia are still regarding the development of their ancillary businesses and related services as one of their top priorities.

Interview by Oscar Smith Diamante | Translated by Taya Shetle