The New Norm for strategic alliance
New Fuel & Fleet Norms – The Big Tent, Part 1: Killing the Sacred Cows
In our last CFS Insight Feature, we looked at two potential scenarios likely to develop after the virus. These were the “Sharkpool”, in which deeper market consolidation results from opportunistic M&A activity, and “The Big Tent”, in which firms reduce operating costs through strategic alliance. We also maintained the view that these scenarios would not be mutually exclusive – and that elements of both would almost certainly play out in fuel and fleet markets.
Is it off to the slaughterhouse for those sacred old cows?
Even in 2020, between 50% and 75% (depending on the market) of fuel card volumes in Europe are sold directly by major oil company fuel retailers. The field sales, telesales and key accounts teams involved in that activity are large and well paid. They are supported by extensive marketing and customer service operations, not to mention expensive transaction processing platforms.
These costly operations have been built up over decades in the defence of some guiding principles (or sacred cows): we must own the customer; we must own the data; the transaction processing platform must run on our servers and we must develop and launch new services ourselves.
Sustainable? Hmmm….
Shareholders are an impatient bunch
There will be not a single retailer-issuer oil company whose fuel card business has held up strongly during the pandemic. While refrigerated transport has held up reasonably well, and last mile delivery has boomed with online shopping, other commercial transport segments have been hit hard and corporate fleet has been decimated. With heavy sales, marketing, IT and back office costs, the P&L projections of any major fuel card issuer are, to say the least, troublesome.
Major oil company shareholders are not going to accept the inevitable management mantra that this is a temporary downturn, that the numbers will magically recover once the virus goes away. They will expect root and branch change. Some leadership teams will panic, and – lacking the imagination to think more creatively - simply take the knife to their teams.
More enlightened fuel and fleet leaders will rethink things. Does it still make sense to use direct channels to market? Can we innovate in partnership? Do we need to run our own platform? Should we chase our own customers, or instead fling open our acceptance policy to all-comers?
The answers to all these questions will not be the safe, traditional, dull answers of the past. Of that we can be sure.
So how might things look different in “The Big Tent”?
Our view is that there are four principal areas in which we will see substantial change over the coming months:
1. Channel re-engineering
Majors can no longer afford to be precious about customer ownership. If they want to recover b2b fuel volumes and restore b2b footfall to their retail networks, then they will have to do it in different ways. What might those ways be? Maybe working with full service leasing companies to actively sell fuel management as part of the contract hire bundle – and working with them as channel reseller partners, not as arms-length sales agents. Perhaps, finally, developing credible propositions to open up affinity, member organisation and subcontractor segments (currently woefully served). Extending the stables of reseller partners and designing those contracts more effectively. All these hitherto shunned channel options are likely, suddenly, to see some sunlight.
2. Innovation in partnership
Despite a desperately poor track record in successfully launching new propositions, major oil company brands have continued to keep new product development in house. Will shareholders continue to wear this? Highly doubtful. Expensive failure does not sit well in recessionary trading conditions. New propositions will be needed to meet the demands of the new normal: m-commerce, data integration, e-charging platforms, artificial intelligence and so on. These won’t be developed in house any more. Expect to see a shift of NPD towards strategic alliances with nimble, agile, flexible third parties from left field.
3. Platforms in the cloud
FCMS outsourcing, though rational, has often fallen at the hurdle of data protection (or the protection of jobs in IT departments). Too many major issuers have made the mistake of either bolting a fine new tail onto a knackered old body, or buying an expensive box and hiring an army of even more expensive “systems integrators” to drive it. Tens of millions of shareholders’ euros have been squandered on wayward platform upgrade projects, and on swelling the coffers of the SI’s.
We don’t see this continuing. Shareholders won’t pay to upgrade or replace a non-future-fit platform when future revenue is so uncertain. Instead, transaction processing is likely to be outsourced – and more than likely to a cloud-based SaaS provider. Phantom concerns about data security will be magically overcome. So it will be.
4. Liberalised acceptance
Majors’ grip on card acceptance policy was already weakening as DoDo and licensee models replaced the comfort of the old CoCo world. Dealer consolidation into groups (think EG, MFG), the gradual self-branding of motorway operators (think Moto) and the emergence of national licensees (think Vivo or Disa) had already threatened the old acceptance policy hegemony of the Big Oil brand.
Coronavirus will, though, create a tipping point. Desperate for volume, expect the major networks to accept any card issuer who can pay. Expect discounts and MSF’s to increase as competition for third party volume intensifies. Most interesting, expect a complete disappearance of the snobbishness and reluctance around the acceptance of third party mobile payment apps.Mobile payments standards and protocols will harmonise. Majors will accept third party mobile payment apps. Whether they like it, or not.So we conclude that the killing of Europe’s fuel and fleet sacred cows will see a new type of market develop, with all sorts of new and novel partnerships emerging and a world of opportunities for strategic alliance.
If you would like CFS to work with you in planning and executing a strategy to maximise your business opportunities in the “new normal”, then get in touch with us by email to mst@cfs-europe.cc or visit our website at www.cfs-europe.cc com
Look out for our next CFS Insight Feature on The New Fuel and Fleet Norms in a few days time, when we’ll be looking at market consolidation (or fragmentation….)
