Changes brewing at the bowser in New Zealand

In the very old days, it was just petrol, sold by the tin, often encased in a wooden box.

By the 1960s, it was probably possible to buy an ice- block in most petrol stations, and by the 1980s, they were turning into petrol pumps with dairies attached.

For years, that was the emerging model for petrol retailing - combining a mum and dad-style petrol-selling business under the banner of a global oil brand offering pies, papers and peanut slabs, along with petrol. More recently, the pie-warmer is as likely to have become a branch of Subway, and the coffee machine an eat-in espresso bar.

And if you are not collecting Fly Buys, you are probably claiming petrol discounts from a supermarket docket, with the lion's share of the discount funded by one of the big two grocery chains - Foodstuffs and Progressive Enterprises - trying to spur customers down their aisles rather than their competitor's.

Meanwhile, the economics of petrol stations with low turnover, or whose tanks were too expensive to replace when they came up for renewal under safety and environmental regulations, caused an exodus of operators from the industry. In 1976, there were more than 4000 petrol stations. Today there are more like 1300.

Now, says Mike Bennetts, chief executive at Greenstone Energy - the new Kiwi owner of the Shell petrol stations as well as a 17.1 per cent stake in the country's only oil refinery at Marsden Point - a new round of "fundamental restructuring" is getting under way. Some long-time players are seeking either to quit the market or to change their business model.

"Everyone used to compete the same way," Mr Bennetts says of the days when the "big four" - Shell, BP, Mobil and Caltex - went head-to-head in a war for customers in which they all widened their offering from petrol- only to a range of retail goods and services.

But Mobil wants out and would walk if it could find a buyer, while Caltex is pulling back into fuel wholesaling, and neither has much appetite for investment in the ageing national distribution infrastructure that today's "big four" share.

Of the traditional players, only Shell/Greenstone and BP are clearly committed to the local retail fuel market.

“It will look quite different in three years. During times of restructuring, it enables you to buy at a good price and to take opportunities," Mr Bennetts says. After a long career in "big oil", he is relishing how quickly he can make big decisions. The ultimate boss - Infratil chief executive Marko Bogoievski - is a stone's throw away from Greenstone's offices on Wellington's waterfront, while his main competitors will be seeking permission through layers of global bureaucracy.

Over at BP New Zealand, however, Mr Bennetts' counterpart, Mike McGuinness, wonders if the Greenstone boys are not getting a little over-stimulated with all this talk of further upheaval.

"The Shell/Greenstone transaction was a major restructuring, and there may be more, depending on whether Mobil or Chevron (Caltex) sell out or stay, but they've both already announced de-capitalisation plans. I see evolution of what we already had," Mr McGuinness says. He entered the industry in 1984 and remembers when the "big four" was the "big eight".

Perhaps, with Caltex and Mobil pulling back or out, the New Zealand industry is slimming down to become the "big two".

Not so fast, says Gull Petroleum's New Zealand head, Dave Bodger. Although Gull owns no refining capacity, has no retail presence in the South Island and just one storage facility, at Mt Maunganui, the Australian-owned operator says it is picking up a steady flow of independent operators ditching the major oil brands in favour of the nimbler, more cost-conscious recent contender.

While Gull and its competitors trade pot-shots about who is able to join the "club" that shares refinery and distribution facilities around the country, and why Gull has not yet done so, Mr Bodger believes the opportunities for Gull are expanding.

The company intends to bid for storage facilities in Timaru, which Chevron is selling, and reckons that Greenstone, as a local owner, will rethink the price of Gull's sharing national infrastructure.

If, for example, the Mobil assets were broken up and sold regionally, there could be opportunities for Gull to emerge as a bigger player. Perhaps we are looking at the emergence of a new "big three".

"That organisation [Greenstone] is sitting there in deep think-tank mode at the moment," Mr Bodger says. "They are bright people and there are a lot of things that their opposition can guess they can do. Some will be obvious, but some will be out of the box."

Whether part of that plan includes ditching the Shell name for a Kiwified alternative remains to be seen. Mr Bennetts has three years' rights to the Shell name and is not rushing a rebrand.

"You only get to do that well once," he says. "We expect to know our way forward by the end of the year. There's the Shell name and everything it stands for, but it makes it hard to reposition. No-one knows it's a New Zealand-owned company now, and we know most people prefer a New Zealand brand."

Equally important for Mr Bennetts is doing something to restore the industry's profitability. While customers may not believe it, margins in petrol retailing have been tight and static for years at about 15 cents a litre, across the supply chain.

The industry has done as much sharing as it can without exciting attention from competition regulators, and the way forward now has to be a combination of "seeking internal cost efficiencies, increasing scale, and the use of information technology" that allows greater customer self-service.

Speaking carefully, Mr Bennetts says, "there is clearly a margins element to this as well". He fears that when people hear that sort of talk they interpret it as a big price jump, when even a one cent a litre margin improvement delivers a one-third improvement in bottom-line profitability.

"The return on average capital employed is the mother of all measures," Mr Bennetts says, "and the return across this industry is less than 10 per cent. That's barely above the weighted average cost of capital."

As part of Infratil's stable of assets - the 50 per cent stake in Greenstone represents about 9 per cent of the Infratil book - Mr Bennetts both welcomes and fears the additional scrutiny that comes with being part of an NZX-listed company.

It will expose under- performance, but also allows him to build the case for more commercially acceptable margins. It's a potentially risky strategy, which is why Mr Bennetts is choosing to spark a bigger debate about the state of the industry, and the economic challenges which are pushing long-established players out of the market, or into new strategies.

"There will be opportunities to improve scale as opportunities come along," he says. "Smaller players will become more focused and may enter the market, perhaps as regional players. Our competitors' supply chains may be broken up through sale to someone who could organise them in different ways. It's exciting."

Author: Pattrick Smellie