Filling stations can be really lucrative businesses, but a significant number of entrepreneurs entering this industry fail very quickly, according to two entrepreneurs who want to do something about this.
Building on their own experience, which includes everything from personally washing windows and pumping petrol to managing their own filling stations as partners, Sbonelo Mbatha and Mark Harper have established PetroConnect to support existing and new entrepreneurs in this field.
This was never part of his master plan for life, says Mbatha. He actually planned to become an accountant and only started pumping fuel as a stopgap when he couldn’t find an accounting job after completing his studies.
After a while, he was promoted from petrol attendant to various other positions at the filling station. He eventually got an opportunity to own one himself, after completing an entrepreneurship programme run by one of the major oil companies.
Harper, on the other hand, grew up washing windows at the filling station his father owned. He also studied accounting.
The two met at an industry body for filling station owners. Mbatha was the chair and Harper vice-chair.
They worked closely together and decided five years ago to join forces in building their own businesses. They currently own nine filling stations together, spread across KwaZulu-Natal, Gauteng and the Free State.
While a filling station can be quite a lucrative business, they saw many entrepreneurs coming into the industry and failing – some within three months of acquiring the business, despite having had a really good site.
“Of the group of 10 who attended the training program with me, I am the only one who survived,” says Mbatha. “It is not because I am smarter than the others. Some of them are very smart, but there is a missing link – that training and mentorship.”
They don’t have the necessary systems and this results in up to 40 people losing their jobs and as much as R20 million being lost, Mbatha says.
Two years ago the partners decided they wanted to assist those coming into the industry and started packaging the solutions that would provide that missing link.
The first real challenge new owners face is cash management, they say. A filling station could receive on average R200 000 to R300 000 cash every day. If it’s not managed properly, an owner could end up being unable to pay the fuel company the R500 000 to R600 000 it takes to replenish the fuel stock.
The filling station owner sees cash all the time. Having R150 000 and R600 000 in the bank account could look like a lot of money, but if one doesn’t resist spending it on other things, you will be headed for disaster.
PetroConnect developed a back-office system that tracks the money from the moment the fuel attendant takes receipt of it, and right through another six or so pairs of hands before it ends up in the company’s bank account. This is aimed at flagging any potential leakages.
About 18 months ago, PetroConnect started an academy for potential filling station owners. It starts with the screening of potential candidates, for credit-worthiness and possible criminal-records, and includes psychometric testing. This is followed by a two-week practical programme on site, which includes business and entrepreneurship skills training.
Currently, the candidates pay for the programme themselves to ensure they “have some skin in the game”.
This results in a pool of pre-selected candidates for petrol companies or entrepreneurs looking for partners. PetroConnect provides a list of possible candidates but leaves the actual matchmaking to the parties themselves.
The company is in the process of getting accreditation for the programme from the National Qualifications Framework (NQF), and oil companies have shown some interest in partnering with it.
Mbatha and Harper say that, if done right, a filling station can deliver a return on investment of between 25% and 40%.
An average filling station, including the convenience shop, could cost R6 million to R10 million to acquire. The petrol margin is regulated.
Apart from cash management, prospective entrepreneurs should note that this is a labour-intensive sector. It runs 24/7 and needs good management if it is to succeed.
Service levels can set a specific filling station apart and consistency is key in this regard.
There are, however, factors the owner cannot control, such as increasing competition with various loyalty programmes offered by oil companies, and security risks are ever-present.
Johannesburg alone saw more than 10 bombings in filling station convenience shops earlier this year, says Mbatha, adding that proper insurance is therefore essential.
PetroConnect offers insurance, advisory and brokerage services; it helps entrepreneurs to find funding and establish the back-office and labour-relations systems. It also offers a subscription service that provides ‘deals for dealers’, using the combined buying power of its members to negotiate discounts for them on various services.
With transformation high on the agenda and the publication of new sector codes imminent, PetroConnect also provides transformation consultancy services.