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Fuel provision is an essential service in South Africa that contributes over 6% to the country’s GDP. It is also one of the most inelastic South African industries that can perform well in recessions. If you are experienced in the fuel industry, you can set up an independent station or purchase an existing franchise opportunity through a major oil company, each of which has its own advantages and disadvantages. In this article, we will consider the aspects of purchasing a service station in South Africa.
South Africa is the biggest fuel consumer on the continent holding more than 20% of the market share. The country pumps 11,7 billion liters of petrol per year. Other petroleum products are not far behind. Pursuant to the South African Petroleum Industry Association, the fuel industry supplies 18% of the country’s primary energy needs through annual sales of 27 billion liters of liquid fuels. The country produces 50% of its fuel needs from crude oil refineries, 35% from coal, and 5% from gas.
There are about 5,000 stations across the country that have a combined annual turnover of over R200 billion. The industry is dominated by 6 companies:
Numerous gas stations have Alternative Profit Opportunities. A C-store, car wash, café, ice cream shop are only a few examples. In general, fuel sales represent the lion’s share of income, comprising about 80-90% of an operation’s turnover.
The government is the regulator of wholesale margins and petrol retail price based on import parity pricing formulas. Domestic pricing depends on supply and needs in international markets and the exchange rates of rand and US dollar.
To enter the fuel industry, you have to own a significant amount of potential and specialized industry knowledge. The purchase of a service station will definitely help you to set your positions in the industry much faster. Set-up costs can vary from R10 million to R100 million based on the size of the business. The asking price depends on the business’s profitability, size and location, usually comprising R2,5 — R35 million. Holding licenses is the necessary step in establishing a business in the fuel industry that can be difficult as the government limits the number of licenses issued.
There are some difficulties you should consider before you enter the sector: fluctuating oil prices, overheads, competition, port delays, and currency volatility; these aspects can all influence your profit margins. Petrol stations usually have no downtime; most of them remain open 24 hours a day. It should be noted that success in the petrol business largely depends on relationships; established operators will often have a competitive advantage and this can restrict new players. An owner needs to put a lot of efforts into building up the business being hands-on in the first years until a reliable management team is created.
To set up a petrol business, an entrepreneur is required to obtain 3 licenses and authorizations:
The creation of a detailed business plan is also a must, especially if you are applying for funding. The plan should encompass provisions on monitoring cash flow and marketing proposals to advertise the station.
An entrepreneur can raise the funds to start or buy a service station by approaching a bank or a private funder. Also, as an option, one can collaborate with a group of investors.
There are many benefits that come with owning a petrol or filling station. The South African energy industry remains sustainable and prosperous. It would be a wise choice to start a petrol business in this country. The lawyers of “Eternity Law International” will give you competent advice on setting up a fuel business in South Africa. Feel free to contact us anytime.
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