Growing Fuel and Fleet Business in the Year of the Shark
As markets across Europe reel from the effects of COVID-19, three things are clear in the world of commercial fuel and fleet in Europe:
- 1. There has been a significant negative impact across all sectors
- 2. Some segments have suffered considerably higher losses than others
- 3. There are huge differences in the capacity and will for different players to recover and grow
While these three comments may seem kindergarten-obvious, they nonetheless lead to one inevitable and important conclusion: 2020 and 2021 are going to see heightened, if not intense, M&A activity in our markets.
The fuel retailer’s headache
As if vehicle electrification and hypermarket competition were not enough, fuel retailers have had to contend with vast declines in footfall. Sure, those sites with a high percentage of convenience retail sales have fared better, but even in those cases throughput and footfall are unlikely to recover to pre-COVID levels.
Majors will once again be looking to offload parcels of company-owned sites – either to individual dealers, dealer groups or national licensees. There will be pressure on brand licensers to deliver programmes and incentives to drive up site traffic. Retailing is going to look an even less attractive business for the majors in Europe – and we would expect selective expansion of major dealer groups like Eurogarages, further penetration of market newcomers like Socar, new entrants from the commercial transport market buying and building unmanned sites, and a whole load of sites being either closed or offered up for sale.
Fuel card issuing: an expensive luxury?
Fuel card issuing locks in customers, drives up loyalty, adds an incremental margin stream and allows for the addition of added value services around the core fuel card proposition.
But it’s expensive, and capital intensive.
In a market where fuel retail is struggling, costs are under intense scrutiny, and shareholders will be looking to reduce capital employed, how tolerant will they be of the costs and complexity involved in operating a fuel card business? Not very, we guess.
Majors employ large field and office-based sales teams; they operate and try to maintain heavy and ageing processing platforms; they rely on big back-office teams to manage everything from card applications, through fulfilment, to customer query handling.
Will they keep doing that? You have to wonder. It strikes us as highly likely that majors will look to work more extensively and in all segments with resellers, sell off card customer portfolios (Radius, Edenred and Fleetcor will be rubbing their hands) and outsource their platforms to third party payments processing specialists.
For those companies with a shark’s eye and sharp teeth, there will be opportunities aplenty.
Amidst all of this transformation, consolidation and upheaval, it strikes us that some certainties exist:
Certainty #1: channel reconfiguration
As we’ve said before, it seems untenable for major retailer-issuers to retain their heavy current business models. So, expect opportunities to arise for new and existing resellers, and in leasing and affinity channels. At the same time, expect majors to take a far more liberal view of acceptance: acceptance strategy will partly be left to dealer groups and licensees to determine, and centrally there will be a greater willingness to open the door to third party cards and payment apps.
In parallel, we expect the heavily-guarded corporate fleet sector to open up. That will mean the removal of volume-based discount thresholds for third party issuers, essentially giving the green light for DKV, UTA and others to stroll into the corporate fleet segment and alter, forever, the competitive landscape.
Will the majors’ nervousness over b2b2c, affinity and subcontractor segments continue? It’s a drum we’ve been banging for some time – but we think this is all going to change.
Opportunities everywhere.
Certainty #2: the cloud
There are major fuel card issuers either sitting on vintage, complex and expensive fuel card management systems; thinking of replacing them with similarly complex and expensive systems with a more recent number plate, or hiring IT consultants to tell them what to do.
All of this is going to start looking profoundly wasteful to shareholders. Whatever the preciousness about sensitive customer data, believe us – this stuff is all heading for the cloud, and will all be moved into the hands of cloud processing specialists.
Investment and growth opportunities all over the place.
Certainty #3: consolidation
Glib as this may sound, in recessionary conditions, markets consolidate.
Those who lack the capital resources to compete their way back to growth will, without doubt, be looking for investment or a buyer.
It’s more than likely that those firms whose shareholders have deep pockets and some long-term vision will be sniffing out the chance to absorb lesser rivals, or even diversify their fuel and fleet market presence inorganically.
Overriding certainty: investment opportunity
We’ve mentioned only a few areas of our market in which we are certain that well-judged investment opportunities exist. Over the past months, we have picked up heightened private equity interest in European fuel and fleet, with the expert councils issuing out multiple requests for expertise on various segments of the market. That is a yardstick which confirms what we already know – although our market is suffering, it is pregnant with opportunity.
How CFS can help
Through our network, CFS’s partners are well in tune with investment opportunities, potential investors and with fuel and fleet firms seeking investment across Europe.
So if you would like CFS to support your company in identifying and targeting investment or acquisition opportunities, or if you are seeking an investor or buyer, then get in touch with us by email to mst@cfs-europe.cc or visit our website at www.cfs-europe.cc
We can help!
Look out for our next Insight Feature on “why working with fuel specialists makes sense” in a few days’ time, when we’ll be looking at how b2b mobility is set to change over the coming months and years…..
