Starting an independent filling station
South Africa petrol stations fall into two categories, independent and franchise operations, both of which are funded in the same way.
Independently owned garages still play a big roll in the South African economy.
According to South African Petroleum Retailers Association (SAPRA), who represents all the stakeholders in the petroleum industry, before a new filling station can be opened, three sets of approvals, authorisations and licenses are needed.
- Land use rights for purposes of a filling station;
- An environmental authorisation; and
- Site and retail licenses.
In terms of the Petroleum Products Act, 1977 (PPA) as amended in 2006, and which is administered by the national Department of Energy, one cannot apply for a site and/or retail license before you have both land use rights and an environmental authorisation.
Existing filling stations are in a particularly strong position because of the PPA which controls the energy authorities to ensure that the number of filling stations is appropriate to local sales volumes and does not exceed the optimal number for an area.
Petro companies (Engen, Sasol, etc) offer franchises which include intensive training programmes and stipulations for franchisees. Sasol, for example, will mentor and promote franchisees on a monthly basis and assist the franchisee throughout the process. and visit each month and provide support and guidance.
“It isn’t difficult to get a franchise as long as you have funding. A Sasol filling station franchise costs in the region of R1 million”, says Able Mokoena, Franchise Consultant for Sasol.
“If you have your own site, then Sasol will undertake an inspection of the site before proceeding. Licences are required which are included within the franchise agreement”.
Franchise concept comprise of separate business units
Often, depending on the franchise company, the concept could comprise of separate business units such as the forecourt, a convenience store, a bakery, car wash or a quick-service restaurant. These can be added under certain conditions.
Each business unit has to adhere to individual standards for methods of operation, service levels, management, profitability and continuous training of staff. Most importantly, each unit is regarded as an individual profit centre, and may not be run at a loss and be offset by the other units.
After extensive market research, the franchisor determines which business units are suitable for the particular site and grants a licence to a single franchisee to operate the entire outlet.
Before you sign an franchise agreement understand clearly what franchise royalty fees, penalty clauses, support, training, and requirements you are responsible for or will receive.
The Franchise offers a certain name brand of petrol related products, which are subject to the rules and regulations of the franchisor.
Make sure that all licenses, agreements, and permissions are in place. These should also be a pre-condition in the purchase offer. Find out where the competition is located, what services they offer.
A business plan is a must
Create a working business plan. Make sure you include a provision on monitoring cash flow. Also, include marketing techniques to promote the filling station. Without one, you won’t be able to apply for funding.
There are many different ways to cook an egg and the same applies to raising funds to start a petrol station, or for that matter, any new business. If traditional options such as banks and private funders don’t work, consider the possibility of collaboration with a group of investors. Visit the following links for guidance:
- Overcoming financial hurdles
- No capital, no collateral, no problem
- Where to get the money
The petrol retail price is regulated by government, and changed every month on the first Wednesday of the month. The calculation of the new price is done by Central Energy Fund (CEF) on behalf of the Department of Minerals and Energy (DME).
The petrol pump price is composed of a number of international and domestic elements. The international element, or Basic Fuel price (BFP), is based on what it would cost a South African importer to buy petrol from an international refinery and to transport the product onto South African shores.
Then a number of other elements are added to reach the final price such as Fuel tax, Customs & Excise levy, Slate levy, Retail margin and the Road Accident fund.
If you are thinking of starting a filling station you should read Africa’s Greatest Entrepreneurs by Moky Makura, (2008) published in paperback by Penguin Books. It tells the story of T K Mmusi, a man armed with little knowledge or experience, who started a Total petrol station in Botwana.
Its success provided the capital to start Pula Carriers, a logistics company with a fleet of 20 tankers, each one fitted with state-of-the-art technology. Today, Pula Carriers is a major distributor of fuel in Botswana.