BANGKOK�US energy firm Conoco Inc. is aggressively expanding its retail oil products business in Thailand in the face of dramatic rationalization in the recession-hit Thai petroleum market. Subsidiary Conoco (Thailand) Ltd. intends to build 35 Jet-branded service stations by the end of 2001 at a cost of $40 million.
Conoco has invested about $131 million over the last 9 years to establish a retail network in Thailand. Its stations now number 110.
By undertaking an aggressive expansion, Conoco intends to capitalize on its success in Thailand's retail sector by taking advantage of contraction that has taken place there, especially over the past 3 years, during which the kingdom's economic crisis has severely affected the Thai oil market.
Most of Thailand's retailers�including majors like the Petroleum Authority of Thailand (PTT), Shell Co. of Thailand, Esso (Thailand) PLC, and Caltex Oil (Thailand) Ltd.�have downsized their service station networks and trimmed investment during the past few years in the face of shrinking oil demand. Reduced demand, coupled with fierce competition and the overbuilding of service stations during the early 1990s, have forced certain players such as BP Oil (Thailand) Ltd., Petro-Asia, and Sukhothai, to withdraw from the market altogether.
As a result, the number of standard-sized service stations in Thailand has significantly fallen to about 4,900, while the number of motor fuel brands has dropped to about 20 from the peak of nearly 30 in the boom years of 1996-97.
Conoco's success
Statistics show that Conoco has outperformed others during Thailand's economic recession. Its share in the country's retail motor fuel market, though a far cry from those of the majors, has doubled over the past 3 years to 4.4%.
Average monthly sales of motor fuels at Jet service stations grew from 454,000 l. in 1998, when the effect of Thai economic downturn took full effect, to 489,000 l. in 1999. Sales of 555,000 l. are projected for this year.
The first quarter of 200 saw Jet stations chalk up an average monthly retail fuel sales of 527,000 l., 2.5 times the average of Conoco's competitors. (The industry monthly average was about 220,000 l.)
The company expects to achieve up to 10 billion baht in total sales from its motor fuel sales, along with revenues derived from the Jiffy convenience store business. This is an increase of 42% vs. the previous year.
Michael Blackburn, managing director of Conoco (Thailand), said the company's aggressive expansion is driven by the growing popularity of Jet motor fuels and its associated facilities at the service stations, including the Jiffy convenience stores. He cited a consumer survey conducted recently by A.C. Nielsen (Thailand), an independent consumer research firm, indicating that consumers are satisfied with the standard of service and quality of products received from Jet stations.
The high level of customer satisfaction has encouraged over 56% of new Jet customers to become regular clients, according to the survey results.
Retail philosophy
Motorists and rival oil companies acknowledge that one of Jet's strong points, in terms of services, is clean restrooms and ample rest areas.
Conoco's ability to maintain a high standard of product quality and service is attributable to the fact that the entire operation is fully in the hands of the company under the "company-owned, company-operated" concept. The firm employs over 2,800 personnel, up from 1,700 in 1997.
Other oil firms in Thailand rely mostly on dealers to operate service stations carrying their brands, although these companies run a small number of outlets of their own. Some of these independent dealers are involved in selling adulterated motor fuels to earn extra income, a practice that has caused major headaches for the major oil firms operating in the kingdom. These major oil companies are beginning to assume a greater role in investing and operating their own service stations in order to ensure product quality and service standards.
Perhaps paradoxically, the level of service Conoco has been able to achieve in Thailand is the prime reason the firm aims to limit its growth plans to a manageable level.
Blackburn says Conoco has no objective to capture a market share on par with the four major players. "We know we would have problems controlling product quality and services if we were to be that big," he explained.
However, the company wants to grow its market share steadily, to 9% in the year 2003.