This is a feature from erpecnews magazine, issue 86 - To read the feature in the e-book, click here
A special report by Nick Needs
The general feeling concerning Mexico, is that with a population of 129 million, it needs to double the size of its retail fuel network, currently standing at 14000, just to keep pace with consumer trends. It’s very exciting for retailers and indeed retail equipment companies, to be operating in an emerging market such as this, especially at a time when there are not too many other opportunities around the world to build service stations on this level.
International major oil companies and a sizeable wave of modern looking local operators are currently putting all their efforts into signing up as many existing fuel retail sites / gasolineras as they can, with some securing up to 10 contracts day. But once the market has stabilised, which it will do in the not too distant future, we will see many new sites being built, with some possibly even having a shop offer, which is decidedly lacking in the Mexican market right now. It’s just a question of where energies might lie, in this multi operator dash for market supremacy.
After this year’s NACS PEI in Las Vegas, I popped over the Mexican border for a few days, to try and get a better understanding of exactly what’s happening there, two years down the line from state owned operator Pemex, being told to share the business of Mexico’s retail fuel market.
Having worked the Mexican market since 2016/17, I met up with Raul Silva, Mexico Country Manager for dispenser and systems manufacturer Petrotec, who told me that he has regularly witnessed the effect of an MOC opening up a new site in Mexico City.
It's fairly dramatic. Every time an international oil company opens up a new location, the fuel consumption of that station increases tremendously, as people have a much greater trust in the brand.
Raul Silva, Mexico Country Manager, Petrotec
He explains: "In the past, I have to say they had little trust in the Pemex. I have heard stories about customers filling up their cars on new MOC sites and then telling all their friends that they are achieving many more miles to litres with this new modern fuel, but actually most people agree, the sudden increase in their car’s fuel efficiency, is mostly down to them now receiving the correct delivery of fuel, which historically was not always the case on every fuel station in Mexico. I have a habit of regularly going onto random retail sites and asking customers about their experiences when re-fueling their cars and I have discovered that the public are now beginning to also trust some of the new regional brands, like Hidrosina and La Gas for example, which is great news for the local economy.”
Pointing fingers at Pemex
For years, a problem talked about in Mexico has revolved around Pemex retailers not delivering at the pumps, that which customers may have paid for. However, from talking to those in the front line, it appears that Pemex may not be to blame here, as the gasolineras have seemingly played their role in this alleged scandal, but of course members of the public will always point fingers at Pemex, not necessarily the dealer, when it happens at a Pemex site.
Speculation revolves around a sizable number of gasolineras applying extremely sophisticated methods to disrupt dispenser delivery systems, ensuring that the customer at the pump receives just a little bit less, maybe 5 or 10%, than he has paid for.
The government body for legally monitoring fuel deliveries in Mexico, Profeco, has apparently held regular spot checks nationwide, but have often been unable to spot how this is being done, which at the end of the day can result in huge bonuses for site owners. Lack of trust in the consumer market has led to some oil companies offering a guarantee to customers, that should they request the standard 20 litres measurement test, they will offer them a year’s supply of fuel for free, if indeed the amount delivered is not what is shown on the dispenser reader.
Petrotec’s approach
I asked Raul about the way Petrotec is approaching the Mexican market “Dispenser manufacturers like us, specifically look for the companies investing in fuel station equipment. Repsol, as an example of a major retailer we are working with in Mexico, will typically make a contract with a site here and then change the equipment as a matter of course, buying it from us as equipment manufacturers for example and then installing it. Repsol also take responsibility for the maintenance on all their sites i.e. the dispensers, the probes and the fuel storage systems, but for the majority of oil companies in Mexico, it doesn’t work like this. Most, simply strike an agreement with a site to sell its fuel and then offer financial benefits based on how many litres are sold. The brand and the imaging of the said oil company is adopted by the site, in keeping with most dodo (dealer owned dealer operated) agreements, but typically, it’s the decision of the gasolinera (the fuel retailer) as to which fuel dispensers or what systems it operates”.
And as I found out myself, from talking to a few local retailers, this approach is not just adopted by the smaller to medium sized operators. Exxon-Mobil, as one of the world’s leading MOCs, wants nothing to do with the buying, installation and maintenance of equipment in Mexico, telling site owners that this is their responsibility and that ExxonMobil simply wishes to brand their site and then sell them the fuel.
Downstream gains
With the many downstream gains made recently, courtesy of the Mexican government, which in part forced Pemex to release its monopolistic grip on the Mexican market, some people may have been slightly concerned about the approach of newly appointed Mexican President, Andres Manuel Lopez Obrador, who they feared could possibly re consider the country’s new, open and free trading agreements across the fuel retail sector, bringing yet more change to the market. However, more recently the feeling has been that any changes surrounding the fuel sector will only concern upstream and have no impact whatsoever on those having invested so hugely in downstream activities. Phew!
Everyone involved in the Mexican retail fuel marketplace seems totally absorbed and so hungry right now, notwithstanding the huge competition in the market, with many companies looking for a quick win. Repsol, mentioned earlier in this article as an example of an international MOC, has 107 retail sites already in Mexico, but going forward, it has already signed over 250.
An eventful UBER trip
During my three day spell in Mexico City, Raul and I were invited to visit a Repsol site situated and hour outside the city centre, for me to see for myself a re-branded site, complete with shiny new Petrotec dispensers. On our UBER journey out of the city, which gave me a chance to see the suburbs of Mexico City, I asked Raul to give me a bit more detail concerning Petrotec’s position in the Mexican market.
He told me “Petrotec have been operating in Mexico through its distributor for many years, but since 2017, we have established our own presence and now sell directly to the local market. Our work with Repsol was a major reason for expanding our operations here, as they were looking for an equipment company to work with which had experience of the local market, which we did and they also were very familiar with us and our products as we had worked with them for many years in Europe. We knew the major players in the market and they were a major industry client, so the benefits in working together here were certainly mutual”.
Having now been Ubered out of Mexico City for well over an hour, we pulled off the highway onto what could only be described a dirt track, squeezed in between a row of small shops and houses. I noticed how dark it had suddenly become. There were no street lights and it was 9 o’clock in the evening. Both these factors contributed significantly to placing me out of my comfort zone at that precise moment and then to stretch the imagination further, the taxi came to a virtual standstill as we edged over three extremely large speed bumps, prompting both Raul and I to look at each other as if to say, I’m not sure we should have come this way. I think at this point we were both looking forward to stepping onto the much heralded Repsol site any time soon and for me especially to be in an environment that I was perhaps more familiar with.
However, as things transpired, it was in fact an UBER satellite navigation short cut through one of the poorer residential districts of the city, which ultimately brought us back onto a major highway shortly afterwards, where we quickly discovered a glittering Repsol fuel station, a mile or so down the road. Paranoia aside, it is fair to say from talking to the locals afterwards, that caution does need to be exercised when travelling around certain areas of Mexico City and I was grateful for being with Raul at this time, who’s street wise credentials in this particular district of MC counted for considerably more than mine, having only arrived in Mexico just a few hours earlier.
A Repsol site for sore eyes
It was amazing to see the difference a modern, well lit fuel station made, up against a backdrop of quite tired looking buildings occupying the frontage of this busy commercial road. The fresh colours of the site and the bright LED lighting utilised was enough on its own to capture the curiosity of the passing traffic and I could see at that point, why the business of a newly branded retail outlet increases dramatically once it comes on line.
Filling up your car in Mexico is generally attended service, which is always great to see, especially when in Europe this concept seems to have become extinct. Guys in orange overalls were busy running around the customers trying to re fuel their vehicles and get them off the site as quickly as possible.
With no shop, there is no reason to over stay your welcome as a customer, particularly as there are most probably another three cars in a queue behind you waiting to get on the pump. From the manager, right though the staff working on the site that evening, there was a sense of pride which came with smiles and gestures in all the right places.
Star of the show, from Raul’s perspective especially, were the four P400C Petrotec fuel dispensers, occupying centre stage on this busy retail operation. These are an H-style multiproduct model range from Petrotec’s Progress family, with two hose options i.e. a hanging hose and hose retraction, up to four fuel grids and eight hoses, with a dispensing capacity of up to 130L/min. This model also allows the integration of multimedia and payment systems. Each dispenser seemed to play its part in the effective functionality of this well run forecourt.
The Mexican market
As we walked around the site, Raul talked to me a bit more about the common traits of the Mexican market “The main differences here are that the oil companies / fuel distributors, of which there are now over 50, do not own any of the retail sites. These are typically owned by smaller owner operators, the ‘gasolineras’ typically in groups of 3 or 4 at a time. It is in fact exactly the same in the Turkish market. When it comes to servicing, none of the distributors here carry out multi brand maintenance and have difficulty managing contracts or service level agreements. As a result, spare parts can often be a nightmare to acquire if you are looking to get a problem resolved in a hurry. However, we do offer assistance across all dispenser brands here like we do in Spain, through our service division Petroassist.
“All the major dispenser brands operate here in Mexico, like Dover, Gilbarco and Bennett. As well as Repsol, we have also started to make progress working with other oil companies here in Mexico like Shell, BP and local operator Hidrosina, mainly indirectly though, through our local distributor.”
Whilst currently most sites are owned by the gasolineras, in its future plans, I believe Repsol are looking to establish a network coco’s, company owned, company operated, sites, but it’s difficult here because most gasolineras don’t want to sell their filling stations and want to keep them in their family business. The other part of the market here which can be brought into question is shop retailing, which generally has not been adopted by service stations in Mexico to any significant degree. Two supermarket companies though, 7 Eleven, through its Petro7 brand operating widely across Mexico with over 500 sites and Oxxo Gas, with over 200 retail fuel outlets, both seem to have an excellent convenience / fuel retailing model in place and were in fact well ahead in the de regulation game coming into force when Pemex lost its monopoly to sell fuel a couple of years ago. They now each have their own fuel brands and also own most of the retail sites on which they operate, placing them in an extremely strong position for future growth.
Previously these outlets had fuel stations, but they were of course Pemex branded. It will be interesting to see how Pemex, which still has the largest retail network chain in Mexico, copes in the following years as I’m sure it will always be defined to a great extent on its past reputation, which by all accounts is not good in the eyes of the public. It must be remembered also that Pemex own none of their retail sites, which, looking to the future, is not in keeping with the way the new oil company thinking.
The next big challenge will be for the ‘new wave’ oil companies, local or otherwise, to build their own mid-stream facilities, i.e. storage between the refinery and their fuel stations. We’re not talking about refining, as not even Pemex, has a refinery, but being able to store fuel, which will make a huge difference to these independent operators in terms of functionality and also possibly in the price they charge at the pump.
As regards Mexico City, I did start to feel much more at ease in this vibrant city, so I crammed in as much as I could before heading off to the airport to go back to London. My trip seemed almost complete when the taxi I was in pulled onto a recently re-branded Gulf station, adorning a PWM totem sign system - and very smart looking it was indeed!
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