Fuel margins tight and others will leave: Z Energy

Wednesday 25th May 2011 11 Comments

Z Energy, the company that owns the former Shell retail network in New Zealand, says retail fuel margins are so tight other companies will be forced out of the market and it needs to offer more to survive.

Z Energy, formerly called Greenstone Energy, was formed by the Guardians of New Zealand Superannuation and local company Infratil, and is rebranding the Shell network it bought last year.

In its first full year to March 2011 Z Energy sold 2654 million litres of fuel and recorded earnings before interest, taxation, depreciation, amortisation and financial instruments (ebitdaf), based on current cost, of $167 million.

That compared to ebitdaf of $141m that Shell reported in the 2009 calendar year.

Chief executive Mike Bennetts said Z Energy's net profit was 2-3 cents per litre including the convenience store retail margins. By contrast, more than $1 of the pump price went to the Government in taxes and levies, he said.

"The returns in this industry are simply not strong enough to encourage or enable sustained investment, and as a result larger global companies are looking to exit the market. Over time the lack of investment will continue to erode supply security and customer choice."

Mr Bennetts said Z Energy believed it could grow by providing customers what they most wanted.

It had surveyed 17,000 people on what they wanted from the company but it could not deliver on those views straight away, he said.

Z Energy's first pilot petrol station opens next Friday in Greenlane, Auckland, trying to fine tune the model of delivering forecourt service, improved food and coffee and speed of getting in and out of the station.

There will be 10 pilot sites before rebranding the entire network of 220 sites.

Comments from our readers

On 25 May 2011 at 9:20 am Peter Paterson said:

So if it's so difficult, and there's really only two players here, why didn't Z simply stay where it was yesterday, not match BP and sweat it out? BP ain't going to sacrifice the margin for long.

On 25 May 2011 at 9:25 am Brian said:

Would be nice to finally see the Service being put back into service stations.

On 25 May 2011 at 9:46 am Nick said:

BP have slogged it out providing service while so many forgot so they have to do a lot better than that.

On 25 May 2011 at 10:09 am walgert said:

I disagree Brian, I can help myself on the pump..service station are more expensive to run, hence the fuell is more expensive. if Z wants to have a cafe, small supermarket, maybe even a postoffice..now thats an idea..maybe not. what Iam saying is, service at the pump is too pricy,but an add on, why not!!

On 25 May 2011 at 2:27 pm karl said:

Interesting comment about Z Energy's net profit was 2-3 cents per litre - how is it pack and save can give 20c per litre discount if you buy $200 groceries or whatever it is . Does that mean they are selling petrol at a loss ? BP giving service yeah they closed down the stations in Petone! We have Shell or Mobile only now.

On 25 May 2011 at 11:06 pm Doug said:

Petrol is even more of a commodity than milk or bread. The low cost business model such as the unmanned supermarket parking lot dispenser is the sustainable model but for this to become a reality this fuel must be priced to take advantage of its low cost and drive the expensive coffee providing models out of business.

On 26 May 2011 at 9:30 am Richard said:

If its so tight, why can I get 25% off vouchers from the supermarkets? Who pays for that?

On 26 May 2011 at 3:41 pm Ron Palmer said:

Richard and Karl are on to it. How come Gull can sell lower than the big 4 who claim there is not a cartel among them!!! Supermarkets don't give anything away and they may re-coup a little by increasing the price of some groceries - But NOT 25 CENTS PER LITRE WORTH. So the mark up of fuel gets close to that on many occasions. Then what about the times the fuel companies load the diesel price to subsidise petrol. NZders are slow on it but not that slow. Would Infratil buy a loser - No way. They know where the easy money is.

On 26 May 2011 at 6:33 pm Bob said:

Twenty cent discounts are offered by supermarkets because fuel is sold as a loss leader. They recover the loss on the $200 worth of groceries you just bought. The 3 or 4 bucks they lost on your tank of gas is recovered many, many times over from your weekly grocery purchases.

On 26 May 2011 at 8:33 pm Regan said:

@Karl and Richard are you two serious? Who do you think pays for the 20c and 25c and 30c voucher? YOU DO! Just like selling carrots at 10c a kilo like pak n save palmy is right now: its a loss leader. They just make it up using the margins on other things. If you get (60l X 25c =) $15 off at the pump then you can bet your basket of groceries might have been cheaper otherwise. The real losers are the ones who only spent $80

On 15 June 2011 at 10:39 am Dario said:

Z are just copying BP Connect stores. Their new Z stores have similar layout with barista coffee etc. Doesnt surprise me as some of the new management have come across from BP! BP2GO stores are were I go as youve always had forecourt service and their privately owned stations.