Back To The Future: Mobile Petrol Pumps

Before the advent of the first gas stations in US around 1905, fuel was sold in pharmacies or general stores. However, a few enterprising salesmen sold fuel from pushcarts equipped with hoses which later transformed to (mini) trucks with hoses. This practice of delivering fuel directly to the end consumer in small trucks continued till gas stations became mainstream and started sprouting all over US.

Coming back to the present, the world, as we knew it, has completely changed over the last couple of months and the hypothesis is that we are entering a new normal where the social, cultural, economic and business behaviors will undergo a paradigm shift.

Never before has the world seen such a disruption post the Spanish Flu and WWII. The whole world has come to a standstill and is reeling under the impat of government imposed or self imposed lockdowns.

In our last article (Aug 2019), we spoke about the launch of “Home Delivery of Fuel in India” in 2018 by the Ministry of Petroleum & Natural Gas (MoPNG), in partnership with startups like FuelBuddy, under the aegis of IOCL, BPCL and HPCL. Since, then this model has grown rapidly across the country and will probably scale up even faster in the post-Covid era. This is due to a multitude of factors including, but not limited to, the global supply chain & economics of fuel trade, structural contraints of the exisiting distribution model, changing buying behavior of  consumers and technological disruption.

On the one side, the prices of Brent Crude are at a low which post 2004 was last seen briefly only in 2016. However, that has been offset to a large extent by the significant slump in demand due to the six week lockdown in India. Fuel sales in India were down 18% in March 2020 (LPG being the only fuel that saw a spike) and are expected to be 60-66% down in April 2020, if not more. The depreciation of the Indian Rupee is also not helping the situation as India is a large importer of fuel. As a result, fuel prices have remained largely unchanged over the last month. In addition, despite a near 55% drop in Brent crude futures from the peak in January 2020, diesel prices in India have dropped only 10% and petrol prices only 8.5% (New Delhi rates).

Structurally, the current fuel distribution model for automotive fuel through petrol pumps is difficult to scale at a rapid pace. Historically, a large proportion of the pumps in India have been Capex funded by the three large state owned OMCs (Oil Marketing Companies), which as a model is not sustainable going forward from an investment point of view. In 2019, India had approximately 65,000 petrol pumps of which approximately 60,000 are either owned or run by IOCL, BPCL and HPCL. The OMCs and the government have anyways been trying to reduce their Capex and Opex spend on the pumps. The recent tenders for 78,000+ new pumps as well as allowing Non-Oil Companies to open pumps are a step in this direction. However, till date both the efforts have yet to see any significant traction at the ground level. Crisil Research has even pointed out in a note that the economics do not support the addition of 78,000 petrol pumps. The overall estimate remains that by 2035 India will need 180,000 pumps, with a large proportion of them to come up in rural and semi-urban areas wherein again the unit economics do not add up. Add to this, the billions required in investment to open up these pumps and very quickly it starts looking like a herculean task. 

Now, with the added uncertainty post Covid, both private and public players will be hesitant to continue at the same Capex spend levels if not completely abandon their investment plans for sometime to come. 

Additionally, there is the added complexity of land acquisition, high real estate costs and high density leading to less real estate availability for pumps especially in the urban areas. The rental model also falls short as there is an opportunity cost attached for the land owner and at the higher end of the rental spectrum, the unit economics of pumps suffer again. Even other big fuel retail markets such as the US have seen a sharp decline in the number of petrol pumps. US now has about 1,50,000 pumps as compared to 2,02,800 pumps in 1994.

Another factor, affecting the economics of a pump are that a pump can only service a small captive area (unless it is situated on a highway) with a more or less capped throughput with a high Capex spend. Altenatively, “Doorstep Delivery of Fuel” can service a larger area through its bowser with a higher throughput at a fraction of the Capex required for a pump, thereby making the unit economics more favourable for doorstep delivery. This will lead to a potentially higher market proliferation by the fuel delivery startups like FuelBuddy in the future.

In addition to all of this, a sharp decline in sales during the lockdown period will also lead to huge losses especially at the petrol pumps. Rather, as stated in the media, the All India Petroleum Dealers Association (AIPDA) has already sought a financial relief package from the oil companies. As a result, there could also be closure of pumps or reduced operations due to working capital constraints. This will also provide an impetus to home delivery of fuel. 

Supply chains in the post Covid economy will also change significantly. There will be a marked shift towards smaller supply chains with lesser touch points to reduce the inherent risk in long supply chains. This will automatically lend to the fuel delivery model as more people will opt for fuel coming to them at their home or at their business rather than them sending employees to the pumps to refuel or get fuel in cans for their generators.  The whole model will gravitate towards who can build trust with the end customer and also supply in a safe and hygienic manner. Cost and credit will be replaced as the overarching factors affecting buying behaviour. Fuel is better suited for doorstep delivery as compared to food as the end product has zero or neglibile touch points. Think “contactless petrol pumps” that come to you.

Last few years had seen the emergence and huge growth of the “Shared Economy”, with companies like Uber, Ola etc growing by leaps and bounds. The near future will see a significant shift back towards the “Personal Economy” with more and more people opting to commute in their own personal vehicles. This “distributed commuting” will lead to an increase in the demand for automotive fuel and combined with the other factors will add to the pie for startups like FuelBuddy to eat into.

The existing model also has leakages in the supply chain with adulteration and pilferage being the well documented evils. FuelBuddy has developed in-house a full technology stack and interface including the app, backend engine, IoT integration, RFID, geo fencing, geo tagging, navigation, secure locking and storage solutions to offer the customer a convenient, safe, hygienic, pilferage free and adulteration free experience. The economy and the people of this country need these savings for us as a country to be able to bounce back from this economic shock and restart the growth engine of the nation. Even if we can reduce the import of fuel into the country by addressing the pilferage and adulteration menace we would have served a huge benefit to the nation’s economy.

MoPNG has indicated that they will be opening up doorstep delivery of fuel for personal vehicles also soon. This will really open up this space and allow the end customer to avoid queues at petrol pumps and further reduce the touch points in their fuel purchase. 

As we said at the start of this article “It Mattered Then. It Matters Now.”. Or as the timeless classic suggests its time for us to go “Back to the Future”.

On a closing note, lets all commit again to maintain Social Distancing and Stay at Home to defeat the Corona virus. We at FuelBuddy believe “TogetherWeCan! TogetherWeWill”. Now you can sit back and enjoy the latest Netflix show or learn to cook a new dish or make yourself a “Dalgona” coffee and leave the worry of fueling to experts.

profile-image

Gautam Malhotra

Guest Author Gautam Malhotra is Strategic Advisor at Treis Solutions LLP which has come up with FuelBuddy. FuelBuddy is an app based on demand fuel delivery service in the Delhi NCR region. It services more than 70 clients and over 300 sites across Gurgaon, Manesar, Dharuhera, Rewari, Bawal, Faridabad, Noida/Greater Noida and Delhi.
profile-image

Aditya Singh

Guest Author Aditya Singh is a MBA from University of Leeds, UK. He is an entrepreneur with 15 years of experience in Marketing, Operations and Logistics. He has special interest in tech-enabled business innovation. He is currently COO, FuelBuddy

Also Read

Stay in the know with our newsletter