How to Start / Open An Independent Petrol Station Busines in Kenya



Independent Petrol Station Busines plan (Kenya)



Overview

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This guide focuses on the business of retail in oil products largely petrol, diesel and related product at an independent level. Independent as opposed to franchise. An independent petrol station operates without the burdens of franchise in terms of branding, standards, targets, management and best practices. Franchised (or dependent) petrol stations are linked to the mother company which has a significant say in the look, pricing, margins and operations of the petrol station.

Franchises have traditionally been offered by large oil marketing companies (OMC). There are over 70 oil marketing companies. Of these ten or so dominate controlling almost 80 % of the market. These include Shell (Vivo Energy), Total, Kenol Kobil, Oil Libya and National Oil.

For long only the large OMC have been offering franchises but over a period of the last 15 years some companies which started as small independents have grown and are now able to offer franchises of their own.

Broadly the oil marketing business in Kenya has the Top Tier made of the large Oil Marketing Companies (referred as OMC which include Total, Shell – Vivo Energy, Kenol Kobil, Oil Libya, National Oil – owned by the government ...)

Medium Tier mostly made of the independents who have grown in size and statures; they run several stations either through franchises or on their own (Hashi, Delta, OilCom, Petro, Gulf and others).

Low Tier companies made of relatively small one or two branch stations constructed and run independently by their owners. These don’t have widely recognized brand names. Below these are the various one or two pump petrol stations often found in rural and peri urban areas.

The focus of this guide is the low tier independents. Low tier in this case does not imply unprofessionalism or “jua kali” rather it could be an entrepreneur who wants to start a single petrol station but professionally designed and run. Think of the many petrol stations not associated with any well known brand, and without any sister stations: The one town independent petrol stations.

A Brief on Franchises

To expand faster, penetrate some markets and manage costs, major OMC offer franchises commonly known as dealership. For instance a franchise could save a company the cost of acquiring its own land to build a petrol station. The alternative to a franchise is a company running a petrol station itself.

How a franchise is offered varies from one oil marketing company to another. But basically an oil marketing company will identify any area(s) they believe needs a first or just extra petrol station then make a call out in the media or on their websites listing the area and what they

require of applicants before they offer the franchise. Interested entrepreneurs then apply, and one is selected and given the dealership.

See Appendix for sample of a dealership callout.

The key considerations are ability to raise enough working capital, offer sound management, and sometimes acquire space to set up the petrol station. To help gauge this, an OMC might ask questions related to your education, work experience, business experience or even request bank statements.

The capital requirements are not standard and will often vary with the location. For instance the capital requirements for a petrol station in Nairobi CBD might be more than for one in Vihiga County. The nitty gritties thus are specific to the company and the location it’s offering the dealership.

Often one of the biggest challenges for the OMCs is acquiring space in strategic places; the reason opportunities for franchises in some towns remain open for long durations ( For instance as of June 2016 Kenol Kobil has had some franchise opportunities open for a number of months. ). If an OMC is not offering a dealership, then it builds and operates the stations themselves.

There are also cases where an OMC could buy a successful independent petrol station and rebrand it. In such cases they will look at the turnover of the petrol station, duration of lease on the land on which it’s built, (in case the land does not belong to the owner) and future prospects of the petrol station.

As an independent petrol station you operate with a more free hand as opposed to the franchise holder. You decide where to set up, have more say in the quantities you stock, operations, standards, manpower and management.

That said the major advantage of having a dealership of the major OMC is the brand recognition and trust that it offers. Because of the millions they invest in marketing they are easily recognizable and generally more preferred by consumers.

On the flip side the sometimes stringent conditions in terms of location, capital requirements, exclusivity and operations could be a dampener. And a location say a town can only hold a limited number of franchised petrol stations, meaning dealerships opportunities are sometimes not available even if you are interested and meet the conditions.

An independent petrol has the advantage of having more leeway in terms of the above specifically capital, margins, supplies, location and operations. Among the main challenges of operating independent petrol stations is acquiring customers and winning their trust. This is not impossible only that it could take longer for an independent petrol station than for a big name OMC dealership. Consumers might also be expecting an independent to offer relatively lower prices than a franchise holder. This in turn could exert price pressure on the independent. Often independents win by location in very convenient places.

Licensing

The licensing conditions for a petrol station whether independent or franchise holder are the same. However a franchise holder could have the advantage in terms of the support that she receives from the parent company. The experience and contacts built over time by the mother company make it easier for the franchise holders to meet the requirements and acquire licenses.

This should not discourage you who want to operate an independent station. Because of the growth of independent petrol stations the licensing regime is more accommodative. There are the usual bureaucracies which are nothing out of the ordinary.

The major licenses required to operate a Petrol Station are:

National Environmental Management Authority License (NEMA)

Due to the possible adverse effects of oil on the environment you need a license from NEMA to operate a petrol station. The license is issued after conducting an Environmental Impact Assessment (EIA). The EIA covers the possible risks during construction, operations and in case the closing down of the petrol station.

The main purpose is to show you understand the risks that can occur to the environment and have mitigating factors. Among these are:

Noise pollution during construction

Air pollution

Solid waste

Loss of trees and other vegetation

Oil leaks – On surface and underground tanks

Public Health – Think toilets and other sanitary services

Socio economic concerns – Think the economic and social impact of the petrol station on the community.

In addition to the above an EIA goes into details of the project such as the set up, existing structures on the land, ownership of the land, neighboring structures, and cost among other issues. This means you should have this information ready. An EIA is conducted by a licensed environmental officer or consultancy. A good and experienced EIA officer should guide you step by step until you get the license .You can get contacts of licensed environment professionals

from NEMA, but we can also recommend some on request. Working with an environmental officer who has conducted an EIA for a petrol station previously could hasten the process.

NEMA charges a 0.05% fee of the value of the project with a minimum of Kshs.10, 000. During the 2016 budget reading the Cabinet Secretary of Finance proposed to scrap the NEMA fees. However the proposal didn’t take effect immediately. Note that scrapping the fee does not mean that an EIA will not be required. It will remain a necessity only that you won’t need to pay NEMA any fee to approve your project. Still you will need to pay the EIA consultant. The fees for the EIA will depend on the environmental officer or consultancy conducting it. But the price for a project such as a petrol station will range between Kshs.30, 000 and Kshs.120, 000. It’s an open market place with no set guidelines on fees.

Energy Regulatory Commission Licenses

The Energy Regulatory Commission (ERC) regulates the oil business in Kenya. Among other things it sets prices at which petroleum products will be sold at every month. It’s also responsible for ensuring petroleum products sold in Kenya are of the right standards. Thus it’s mandated to inspect your petrol station checking the price and quality of fuel you are selling.

Before you start building your petrol station you need what is referred as the Construction Permit from the ERC. This is basically a license to allow you to construct the petrol station, and is given after most of the other licenses have been issued. The ERC does not charge for this license.

Once you are done constructing and ready to run you then require another license from the ERC to operate the petrol station. ERC does not issue the license directly rather through its agents; the agents are Deputy County Commissioners. (If you have observed every time the ERC seeks to close down a petrol station due to adulteration it requests the deputy county commissioner to withdrawal a petrol station’s license). There are no proper guidelines on what the county commissioner should charge, but it should not be more than Kshs. 8000. As is expected some could ask for kickbacks.

To get the ERC construction permit you need to fulfill the following conditions as outlined by the commission:

REQUIREMENTS FOR A CONSTRUCTION PERMIT FOR THE CONSTRUCTION OF

PETROLEUM RETAIL STATION

Requirements for one to apply for a construction permit:

1.Applicant’s company registration certificates (for the firm developing the land)

2.ID copies of the directors

3.Proof of land ownership (copy of title deed in the name of company/director(s)). In the case of long term land lease, copy of duly executed lease agreement in the name of the Applicant company.

4.Valid EIA license from NEMA specifically authorizing development of Petrol Service Station.

5.Development permission from the respective County Government (including County Physical Planning Office)

6.Approved construction drawings by the respective County Government for:

a.Mechanical engineer’s drawings specifying materials and design/ operational limitations (Underground petroleum tank(s) designs & pipe-work layout)

b.Civil engineer’s drawings showing details of Underground tank cradle & backfill designs; Forecourt layout & surface designs; General drainage & OWS layout/ designs

NOTE: (1) All drawings are to be done by a respective class of professional engineers or firm(s) registered as such (attach proof). These shall, at minimum, take into consideration the Kenya Standards for Petroleum Retail Stations namely and in particular KS 1969:2014 & KS 2014:2012

(2)Review of an application takes a maximum of 45 days and may be a subject of site visit if the Commission so requires.

You can apply for this license through the ERC website www.erc.go.ke

Construction Permits and Related Licenses

Before engaging in construction you will be required to acquire the necessary permits from the county government. This is usually after submitting architectural designs, land details and information about the proposed structure. Fees will vary from county to county. For instance in Nairobi the fees include an application fee of Kshs.5000, a signboard detailing the construction which costs at least Kshs. 25,000, Inspection fee of Kshs.5,000 and 1.1 % of the estimated cost of construction.

Other fees that you could incur during construction are charges for water connection which averages Kshs. 5,000, connection to the sewerage system which average Kshs.6, 000. If the cost of constructing the petrol station will be above Kshs. 5 million, as is most likely, then you have to pay the National Construction Authority. The fee is 0.5 % of the value of the building. The fee is paid before the start of construction.

Depending on your location it might be necessary to pay Kenya Power for electricity connection. The fee will range based on the location and distance from other connections. It could range from Kshs. 15,000 to Kshs. 50,000.

Fire Inspectorate License

This is issued by the county governments. The purpose is to ensure that the petrol station is well prepared to handle any fire outbreaks. Officers from the fire department of the county government will advice the number and kind of firefighting equipment that you require depending on the size and services available at the petrol station.

The exact cost of the license depends on the county. For instance in Nairobi County the fee for a small petrol station is Kshs.6000 while that of a large petrol station is Kshs.17, 500.

Outdoor Advertising License

County governments charge for any form of outdoor advertising. The fact that you will have a canopy and board displaying prices, or just announcing the presence of the petrol station, then you will need to have an outdoor advertising license. Fees depend on the size and the county. For instance in Nairobi, the charges will be at least Kshs. 36,000 for a billboard. Signboards start at an average of Kshs. 2,500 per square meter.

Company Registration

To operate a proper petrol station you will need to register your business as a company. This is

done at the Attorney General’s Chambers. The cost will range between Kshs. 15,000 and Kshs.

30,000 depending on whether you are doing the registration yourself or using a lawyer, and how much he charges. Budget at least Kshs. 30,000 for this.

Weights and Measures Permit

You will also need to get a license from the Weights and Measures Departments. The purpose is to ensure that the pumps are properly calibrated and not tweaked to your advantage and disadvantage of the consumer.

The above named Act mandates the Weights and Measures Department to annually certify the mechanical pumps and dispensers in order to ensure that they are properly calibrated to dispense the right amounts of the petroleum products. During the certification exercise, the measuring mechanisms inside the pumps are sealed with a seal-mark of quality assurance. The Weights and Measures Department issues a Certificate of Verification for all the mechanical pumps which is usually valid for 1 year.

Despite the mention of mechanical the same applies even for electronic pumps. The fee will be at least Kshs.10, 000 per annum.

County Business Permit

This is issued to businesses operating within a county by the county government. Specific fees will vary from one county to another, still for petrol the station budget at least Kshs.30, 000.

Public Health License

If you will be selling sodas or other snacks at your petrol station then you will be required to acquire a public health license for your business. This costs an average of Kshs, 3000.

Professional Fees

During the process of set up there will be a variety of professional fees that you will have to pay. This will range from lawyer fees to draw lease contracts or even help register your company, architectural fees and quantity surveyor fees among others. The exact figures for this will vary, but from some case studies budget at least Kshs. 150,000 .

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Set Up

The general set up of a petrol station involves the following key steps which could happen concurrently:

Decide on the kind of Petrol Station you want to set up – size, facilities and services

Acquire land big enough to fit the petrol station. This is through a lease or outright purchase of the land where the land does not belong to you. If the land belongs to you then ensure it’s mapped for commercial use.

Acquire the necessary licenses including specialized ones like NEMA and ERC.

Engage an architect to design the petrol station.

Engage a contractor to build the petrol station

Buy equipment.

Install equipment

Hire manpower

Shop around for a fuel supplier and buy the fuel. Compare various suppliers and settle on the best.

Final inspection and licenses – These include ERC operation licenses and completion certificate from the county government.

Start operations: selling fuel.

Of course the above are the major stages, but there are many other small but important tasks. Then many of the above can happen concurrently.

Process and Civil Works

The very basic components of a petrol station are dispensing pumps and a tank where the fuels are stored. A bare knuckle petrol station hence could have one or two pumps and low capacity storage tanks. Nothing more.

Although such basic ‘petrol stations’ exist, in urban areas they are out of favor. One because the simple set up alone is enough to make consumers doubt the quality of the products being sold.

Secondly with the rise of more professional independents such small and basic petrol stations look crude; not only does a large section of consumers doubt the quality of the products but they also know they can’t enjoy extra services like windscreen cleaning.

Thirdly the present licensing regime is in favor of more professional petrol stations, which the bare knuckle stations have problems fulfilling. Many thus operate on the edge of the law.

This does not mean that a bare knuckle petrol station cannot be profitable, they can and some are actually very profitable considering their setup and running costs. Notwithstanding, you need to have a very good knowledge of what your target market wants.

Basic petrol stations sometimes thrive in rural and peri urban areas where there are no refilling stations within reasonable radius. In such areas they are the preferred by boda boda operators and other public service vehicles. You need to have a very good knowledge of what your target market wants.

The current trend is to move towards independent petrol stations which look equally good as the stations run by OMC: service wise and physically.

While specifics could vary, a standard independent petrol station could have the following very basic set up.

Built on half an acre of land

Four pumps each with two nozzles (or two pumps each with four nozzles)

Two storage tanks each of 20,000 liters capacity. One for diesel and the other for super petrol.

Canopy

Manager’s office

Staff office – Breakout room / Changing room

Car wash

Store

Generator room

Forecourt ( Technically the main area of the petrol station; the pump area and where vehicles are refilled or parked)

Pressure point for air and water

Alarm

Toilets - For men and women

Oil Interceptor

Service Bay

Tyre Repair Center

The above is the general structure and there could be some variations in this. For instance some petrol station will have a strong room, where the safe is while others will keep the safe in the manager’s office. Others will have two sets of toilets one for staff and the other for customers. Others could have a small convenience shop. Still a petrol station could have more storage for kerosene, super, regular and diesel.

Although as an independent dealer you have quite some flexibility on how you set up your petrol station because of the nature of oil as an inflammable product and the potential harm to the environment, you have to meet some standards as set by regulatory bodies, specifically NEMA, ERC, County Governments and KEBS. Thus design and construction of a modern petrol station becomes a skilled technical project that needs to meet some very particular standards.

Even beyond the regulatory specifications design of a petrol station requires one to take into considerations things like traffic flow, future expansion, and safety and maximizing the space you have. This means that it can’t be done in a haphazard, kienyenji manner.

You need an architect and contractor who understand petrol stations. The architect should help you make the best use of the space you have based on the facilities that you want to include in the petrol station, meeting the required standard. There are contractors and architects who tend to specialize in setting up petrol stations. Even when not using a specialized contractor it’s better to work with someone who has practical experience in the building of petrol stations. On the other hand specialized contractors could tend to be a little pricier. In such cases you can get a good architect to design the petrol station and a skilled general contractor to do the civil works.

Some of the petrol station equipment vendors also are one off stop shops; in addition to the equipment they offer design and construction services. This way you tap into their expertise in the business, and since you get everything at one place you save on the ups and downs that happen when you are setting up. This does not mean that such companies necessarily offer the best and most affordable options. Despite their expertise be in control of the process; don’t let them bully you to spending more than you can afford or have. It’s always great to shop around before you settle on a contractor.

The duration it takes to set up a petrol station after you have acquired the necessary licenses will depend on the contractor, your resources and factors like weather which could slow down the project. Often it takes 5 to 8 months. The cost will vary with the location and the associated costs, size and facilities of the petrol station. That said it normally ranges between Kshs.1.5 million and Kshs. 2.5 million.

Layout

The layout of a petrol station will depend on the setting, the traffic flow, shape of the piece of land, what it borders and so forth. A great layout makes it easy for vehicles to enter and leave the petrol station. It entices consumers just to drive in. In ideal cases there should be a small parking and space big enough for vehicles of all sizes to maneuver

For beginner drivers the space to maneuver and ease of entry and exit is a big consideration when choosing the petrol station from which to fuel. However at times due to space constraints it’s not possible to have so much room. When such is the case try at least make sure the entry and exit is user friendly.

Keep in mind you also need to have enough space for loading; that is enough space for a tanker to park and refill the underground tanks without disrupting the activities at the petrol station.

The forecourt should be concrete or paved. To make the station more attractive and enticing some owners use cabro for the whole floor or at the entrance and exit only.

Canopy

A canopy is used for marketing and also for protection against weather elements. For instance when it is raining both the customers and workers can enjoy relative comfort. A canopy also helps consumers identify a petrol station from a distance. Canopies have become synonymous with petrol stations to the extent that a petrol station with no canopy of sorts is considered of a lower quality.

Nowadays there are many designs of canopies. The aim is to look sleek, unique, friendly and inspire confidence. A canopy can cover the whole area of the petrol station but sometimes as a matter of design or due to capital and space constrains it only covers the pumping area.

More often than not canopies are used for branding purposes. So settle on colours and designs that make your petrol station stand out from the competition; branding that is easy to identify and stick in customers mind. If you open another branch and you want to extend your brand then you will use the same canopy design. Canopies and other signage can be installed by signage companies and specialized petrol station equipment suppliers and contractors. See Equipment Suppliers.

Standard large canopies which cover almost the whole petrol station and which are normally supported by four pillars average Kshs.1.8 million. While small ones, covering only a small part of the petrol station are in the range of Kshs.800, 000. Again the specifics will vary with different contractors.

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Equipment

Fuel Dispensers

Fuel dispensers or what are commonly known as pumps are used to transfer fuel from the underground storage tanks to a vehicle’s fuel tank. Fuel dispensers used to be wholly mechanical and analog. However for the last ten years the mechanical fuel dispensers have been gradually pushed out of the market by digital dispensers. They now remain in small peri urban and rural ‘petrol’ stations and kerosene pumps in estates and villages.

A fuel dispensing pump draws the oil from the underground tank, meters and pours in the vehicles tank. To draw the oil the pump has a hydraulic system and a motor running on electricity. Hence a pump has an electronic head consisting of a computer which controls the display and flow intelligence. And the mechanical section with the motor valves and pumps, which draws in the fuel in a controlled manner.

There are different types of dispensers. Differentiating features include the speed of dispensing, the mechanism, the nozzles, design and other such factors. However the very basic things when purchasing pumps are the number of nozzles. Such that one pump could have two nozzles, three nozzles, single nozzles and so forth.

The preferred models by independent petrol stations are twin dispensers; either with two nozzles on both sides of the pumps, meaning that the pump will have a total of four nozzles. Or twin pumps with a total of two nozzles, one on each side (Not on the display side), meaning that the nozzles can be used on both the left and right side. Such a pump will dispense both diesel and petrol.

The advantage of having such dispensers is the ability to maximize the space and avoid congestion: vehicles don’t have to queue in one direction or pump for fuel: OMC commonly use triple or twin dispensers. A triple dispenser has three nozzles on each side, each dispensing a particular type of fuel. Twin dispensers work just fine for most independents.

Once you have settled on the kind of pump you would like, the other consideration is the brand. There are several brands in the market; some very well known while others are relatively new Chinese and Indian brands. The difference in the brands is the workmanship of the machines. Factors like efficiency, how hardy they are, how often they need servicing and the general reputation in terms of quality. Of the well known brands are Wayne, Bennet, Tokheim, which are reputed for quality. Other recognizable brands include Bennet, Gilbarco, Speedmaster Tatsuno. Of the Chinese brands none particularly stands out.

Although the Chinese brands are increasingly being used by small independent dealers, they have a reputation of being of relatively lower quality and susceptible to breaking down often. Nonetheless compared to the European brand they are cheaper.

Another consideration is whether to buy new or second hand. Second hand dispensers are either imported after being disposed off in Europe and Asia, or get into circulation locally after a

petrol station closes down. Well, for a new petrol station it’s advisable to use new pumps. This is for the peace of mind that comes with new items when compared to second hand items. For second hand items unless you do a thorough test you can never be sure of how reliable the machine is. The pump can seem good while being tested then breakdown after a few days. Sometimes if the person selling the pumps is closing down he might not offer any concrete guarantees. A few who sell imported second hand pumps will offer reliable warranties, and the pumps will be ok. New does not mean it’s necessarily better, but often it’s the best choice.

The equipment market is now open, meaning there are now autonomous small and midsized importers who supply petrol station gear. Some are one off importers, just generally conversant with petrol stations; they disappear as soon as they sell you the pumps. Often they offer only short term warranties since they are not in it for the long term; you know the way people go to China see something on the cheap and say I can import this and make money. Though such traders could offer better prices than the more formal traders, they are not able to give the backup service say in terms of installation, repair and maintenance.

There are some specialist petrol station equipment dealers who offer an all rounded service from pump, installation, piping and other accessories. Because they are in the business for the long run they care about the quality of service, the after sales and tend to be more knowledgeable about the trends in the business. Among these are those who represent reputable dispensing equipment brands. Although such sellers could be slightly expensive at times they are worth it in terms of the warranties and the after sales services they offer. Normally such companies will offer warranties of one year covering service and charge for parts.

Below we list some of the petrol dispensers’ dealers. The list is not exhaustive and it’s advisable to visit a couple then make the right decision.

Key things to consider are warranties, the after sales service, if need be can they avail spares and technician, even at a cost? Is the price within reasonable range? Does the seller look as if they are in it for the long run? Do they understand your particular needs? Are the machines second hand or new, and if the former how sure can you be the machines are working fine, not just for the moment but also in the long term? What brands of machines are they selling? Who else have they sold to? And other such factors as the below:

What is the lifespan of the machine? You should go for a machine with the longest lifespan at the best price. You don’t want a situation where you have to replace the dispenser every two years.

How often will (or should) the dispenser be serviced? Are there technicians available from the equipment dealer to service? How much will it cost to service?

Graphics and Ease of Use – A good dispenser should have clear graphics, which are friendly to the attendant and the customer. The customer should be able to see clearly the amount and quality being dispensed and so should the attendant. The graphics should not fade with time or seem distorted as in a digit is not a clear. The dispenser

should also be easy to operate. The attendant should not fumble because the machine is complex.

Ease of Calibration – The machines should be easy to calibrate at any time to reflect any changes in prices. There are some machines available in the market which requires quite some effort to set.

Power Consumption and Efficiency – The machine should be efficient, not consuming excessive amounts of electricity.

Flow Rate – How fast the pump is dispensing fuel? This is measured in liters per minute.

You don’t necessarily need the fastest machine, but neither should you have the slowest as it will affect the levels of service and chase away customers who are in a hurry. A flow rate of 60 - 70 liters per minute is okay. Remember the flow rate specified on the machine and the actual differ. The actual is lower.

Aesthetics – Dispensers are now available in many shapes and designs. This is aimed at making them pleasing to the eyes. It does not hurt to get an aesthetically appealing but functional dispenser

Accuracy.

Physical size of the pump

A double pump, with two nozzles averages Kshs. 450,000, while a single nozzle pump will average Kshs.240, 000. This is for new pumps and recognized European and American brands. Prices could be lower for second hand pumps.

Underground Storage Tanks

Underground tanks are used to store the fuel. The dispenser draws from the underground tank and pours into a customer’s vehicle. As mentioned above there are some standards set by KEBS and NEMA on how the underground tank should be. The standards touch on the positioning of the tanks, design, materials used, painting and so forth. Though the standards could seem like another bureaucratic handle they also protect you the dealer against fire and leakages. If you are buying the tanks from a reputable supplier then you need not worry that the tanks do not meet the standards

Storage tanks are measured in liters; from as little as 5000 liters to as high as 50,000 liters. When choosing the capacity consider possible sales, distance from suppliers, how easy is it to get supplies on short notice, possibility of future expansion and definitely your capital. We recommend you have a tank of at least 10,000 liters. You will see below that buying the right amount of fuel is important especially now that prices are adjusted every month.

Then you don’t have to buy the same size of tanks for all kinds of fuels you are selling. For instance if by virtue of your location most of your customers will be lorry drivers who use diesel then you could have a bigger tank for diesel and a smaller one for petrol and kerosene. The vice versa also holds. Also if you have a limited space which can’t fit bigger capacity tanks then you can start with smaller tanks.

Same with dispensers, there are several dealers in tanks. The key thing to consider is whether they are able to meet the required standards, and whether they have experience in making the tanks. A jua kali fabricator can make you the tank but remember there are very particular things required in terms of the material used, paint and design of the tank. An artisan without this knowledge could make a tank for tanks sake, a tank similar to that for water, without keeping in mind the fact that not only will the tank remain underground for years but there will be massive losses in case the tank catches fire or starts leaking. We recommend that you purchase the tanks from reputable dealers only.

A 20,000 liters tank is priced at an average of Kshs.350, 000. This is a new tank from a reputable equipment dealer. A 10,000 liters tank will average Kshs. 200,000. These are average prices, and the actual could vary from one dealer to another.

Other Equipment

Though the above are the basic equipment in a petrol station, there are other small but important items that you will require. For instance there needs to be a piping system to connect the tanks and the dispensers.

Far from the common convention underground storage tanks are not placed directly below the dispensers. Often they are placed a few meters away and have to be connected to the dispensers through special pipes. Hence you need such pipes, various valves and of course someone to connect the whole system.

If you purchase the pumps from a reputable dealer they will install the pump, show you how it works, and help calibrate, test and make sure it’s working just fine: sometimes this is at a fee. Piping that is connecting the tanks and dispensers is always done at a fee. The amount will depend on the distance between the dispensers and the tanks. The amount starts from Kshs. 40,000 per pipe connection: linking a dispenser with a tank.

Other crucial but small equipment include:

Testing Kit – This is used to test the quality of fuel when it arrives from suppliers. The ERC has contracted SGS Kenya to supply modern and faster kits to petrol stations at a subsidized rate.

Dip Stick – This is made of non corrosive materials, calibrated and used to measure the quantity of fuel in the underground tanks.

Brushes and Squeezers

Uniforms and Gloves

Hose Pipes

Windscreen cleaning kit

Calibration Cans

Underground Safe

-Septic Tank – Toilets are a basic requirement in a petrol station. There is also drainage water from other activities like washing cars, hands and the forecourt. If your petrol station is in a location not connected to a sewerage system then you will need a septic tank. Strictly NEMA would require any waste water that could have come into contact with oil such as the water from the car wash and pump area should go through an oil interceptor before draining in the septic tank. This is always not adhered to. The septic tank will be emptied occasionally as need be.

-Interceptor – An interceptor is more like a series of tanks which serve as a sort of filter separating oil from water. It is assumed that water flowing on the surface of a petrol station says from the car wash or even the water used to clean the petrol station will have some amounts of oil. The interceptor makes sure the oil is separated from the water before draining.

-Water – You need to have a reliable source of water connecting to the petrol station. Water is used for car wash, basic maintenance and running the toilets. NEMA will want to know the source of water that you will be using at your petrol station.

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Fuel Suppliers

Before we look into where and how to get supplies it’s important to understand the market structure and flow of oil in Kenya.

In a very simplified manner the oil chain in Kenya is as follows:

 

 

 

 

 

 

 

 

Wholesalers /

Importer

 

Kenya Oil

 

Kenya

 

OMC & Large

 

 

 

 

Resellers/

 

 

Refineries

 

Pipeline

 

Independents

 

Brokers/Smaller

 

 

 

 

 

 

 

 

Independents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Petrol Stations

Consumers

Petroleum products in Kenya come in either as crude or refined products. In a nutshell the government has an open tender system (OTS) where the winner, from licensed oil importers, imports the crude oil required in the country on behalf of all the other oil marketing companies. Once the oil is here it’s refined at Kenya Petroleum Refineries Limited (KPRL). The OMC are allocated volumes by KPRL based on an agreed formula.

In the case of refined petroleum products, licensed importers can bring them in without going through the OTS.

Imported oil products come in through the port of Mombasa. They are refined at the KPLR facilities at the coastal town then temporarily stored at the Kenya Pipeline facilities still in the town. From there they are pumped upcountry to the various depots in Nairobi, Nakuru, Eldoret and Kisumu. From the Kenya Pipeline depots the fuel is pumped to the OMC depots which are usually nearby. The major oil depots in Nairobi are located along Nanyuki Road, Industrial Area and also along Outering Road.

It’s from the depots that the OMC distribute to their retailers and also sell in wholesale. It follows then ideally you should be buying from the OMC in wholesale then sell in retail at your petrol station. However it doesn’t exactly happen like that.

The OMC and also large independent oil companies have more strict conditions in terms of minimum quantities, bureaucracies, payments and processes. For instance they might not take you seriously if you are going to purchase 1000 liters, and then you have to think of transport to get the fuel to your petrol station. Often the OMC require you to be a licensed wholesaler. Many OMC will also require you to open an account with them based on possible volumes. Opening an account means depositing some money with them say Kshs. 5 million. This amount is to show you are not a onetime wonder. It also acts as a security of sorts, since some will invoice you after supplying the petroleum products.

Because of all these challenges petroleum brokers have come in between the OMC and beginner independent retail dealers. Brokers are essentially licensed wholesalers. They are well capitalized and able to meet conditions of the OMC. They also have trucks with which to transport oil.

So many independents get their supplies from the brokers. The advantage with the brokers are simple things as being able to buy in relatively smaller quantities; think 1000 liters , offering credit, saving you from the bureaucracy of the OMC and delivering the fuel to your station . Of course the mention of broker could bring in images of conmen, swindling, unprofessionalism, and adulteration. Certainly there are risks with the brokers but as you will see below there are some checks and balances that protect you from such risks.

So where do you get the brokers? For a start brokers will get you. The market is competitive and brokers or their agents move around looking for petrol stations under construction. Even before you are done building they will approach you with offers. But beyond that the other best place to look is the oil depots; this is where the brokers go to get the oil. They are there, many of them with their trucks and agents waiting to get petroleum products and supply or just offer

transport services. Other alternatives include approaching existing independent petrol stations and asking if they can link you to suppliers. Brokers are many and all over. If you have a problem locating a broker in your location, let us know, we will be of help.

Now that you have found someone to supply you with fuel, how do you get it to your retail station? It starts with you agreeing on the price. By the time you order you should be ready to start selling immediately. When agreeing on price consider present market prices and the margins you expect. Once you have the prices the next thing is to agree on the modalities of getting the fuel to your petrol station. How will you know that the broker nay the supplier will deliver the agreed amount? How will you know that he won’t mix the fuel with kerosene or adulterate it in any way?

Wholesalers (brokers) get fuel from centralized oil depots from which petroleum products are distributed to all retailers in the region, franchise or not. The exact methods of operations among dealers and wholesalers could vary but there is one common template especially those operating within a radius of about 100 kilometers from the depots. Now say you agree with the dealer that he is going to deliver to your petrol station 5000 liters of diesel at Kshs.70 per liter next Wednesday. On the agreed day you will need to be physically present at the depot or send a trustee to meet with the supplier. A trustee is basically a trusted member of your team. The aim of you or your trustee being there is to track the diesel from the point of purchase to delivery at your petrol station. This ensures that the diesel is not skimmed or adulterated. Adulteration and skimming happens after the fuel leaves the depot and not before. Your role or that of your trustee is to make sure that nothing of the sort happens between the depot and your petrol station.

After the broker purchases the diesel an OMC will issue him an invoice and some sort of gate pass but which has the name of your company. The invoice will indicate the quantity of fuel, the density and temperature at the point of purchase; it will also show what these attributes should possibly be by the time the diesel gets to your petrol station. The estimates are based on distance and the day’s weather conditions. So once the diesel gets to your station you take a sample and analyze it using the testing kit. If the values differ significantly then there is possibility that the oil has been tampered with, and you can decline the consignment. Of course if you were with the cargo from the depot and are certain nothing happened then that is okay. However, if you were relying on the trustee, or if the supplier delivered the oil on his own, then you have to check the quality and quantity.

To check the quantity of fuel the tanker is carrying you use a dip stick. You insert it vertically in the tank and then pull it up. You check the fuel against the markings on the dip stick. Oil tankers are calibrated, and have a calibration table. You refer to the table and get an estimate of the stock of fuel. You should also measure from your tank. Note the quantity in the underground tank before more fuel is added, then take readings after the refill. Sometimes the supplier or his staff intentionally leave some small quantities in the tank which they could later drain and resell.

If the quantity and quality are as they should be then you can give the green light for the oil to be transferred to your underground tanks.

You repeat the process every time you order. However used you get to get to the supplier never compromise on the tests and checks. And even if you trust your trustee always conduct the checks or have your manager do it.

You should not wait until the stock is totally depleted before restocking. A day or even a few hours without fuel is enough to drive some customers away for good. If you are not well capitalized in the first few months you may experience cash flow problems. In such cases look for a supplier who can agree to deliver low minimum quantities, say 1000 liters or so. Often the brokers will try pushing you for relatively higher minimum quantities because they want to sell more. However there is enough competition in the market which gives you power to negotiate hard.

Different brokers operate in various ways. Try insisting on paying for the fuel after it arrives at your station and you have checked the quality. Because of the initial mistrust between you the dealer and the broker, the latter could insist that you pay before the fuel is delivered; make the call based on how you gauge the broker. But yes it’s normal when starting to prepay the broker. In ideal situations fuel should be paid when it has arrived at your petrol station and passed the test but before it’s transferred to your storage tanks. In this business, like any other, relationships are built.

For instance after the first few deliveries you can negotiate with the supplier so that he provides the fuel on credit and you pay after selling the stock. Many brokers will allow a credit period of two weeks to a month. Credit is at times preferable especially when you are facing cash flow problems.

Despite all the above it does not mean that you cannot purchase fuel directly from OMCs or the large independents. You can and it’s possible. But it means higher working capital, more barriers, capital and less flexibility say in terms of quantities that you can purchase. You could enjoy slightly higher margins when purchasing from the OMC. You can weigh the options and see whether to use brokers for a start or purchase direct from the OMCs. OMCs prefer to sell to licensed wholesalers.

~

Operations

Broadly a petrol station buys petroleum products from fuel suppliers and then sells to consumers at a profit. Hence it follows the major operations at a petrol station are:

Buying the petroleum products from a fuel supplier.

Ensuring the products are of the right quantity and quality.

Transferring the products to the station’s underground storage tanks.

Calibrating the pumps so that they can dispense the right quantity of fuel at the right price.

Actually dispensing the fuel to the customers’ vehicles.

Getting paid by the customers.

‘Storing' the cash.

Meeting the station’s expenses.

Calculating the profits.

The above is a general indication of the activities. There are many other minor activities that go into running a petrol station. In addition there could be more services such as car wash, oil and tyre change which we will look at below.

We have covered the Buying Petroleum Products above. Still remember fuel prices in Kenya adjust, upwards or downwards every 15th of the month, and should you adjust accordingly.

You might then wonder what happens if the price falls when you have stock you had bought at higher prices. It means reduced margins or some losses. The movement is often between Kshs1 and Kshs.4. You need to stock intelligently. So if your stock has a reached the level that you usually restock and it’s say 11th then you can hold on if the stock will last until 15th or order low quantities to see you the price adjustment.

Considering the size of the margins vis a vis how the magnitude of the price adjustments then often you won’t suffer total losses if the price falls when you had bought at a higher price, rather you will experience reduced margins. See more on this under Revenue.

Below is a look at price changes in Nairobi for some six months of 2016:

 

 

 

 

Super

 

Diesel

 

Kerosene

 

 

January 15th to

 

 

88.64

 

 

 

 

 

76.7

 

46.3

 

 

 

February 14th

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

February 15th to

 

 

 

86.5

 

 

 

 

 

 

67.88

 

39.62

 

 

 

March 14th

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 15th to

 

 

 

85.58

 

 

 

65.7

 

42.15

 

 

 

April 14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

April 15th to May

 

 

 

80.71

 

 

 

66.23

 

43.96

 

 

 

14th

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

May 15th to June

 

 

 

84.25

 

 

 

 

70.37

 

 

46.98

 

 

 

14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 15th to July

 

 

 

86.17

 

 

 

73.71

 

58.04

 

 

 

14th

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

July 15th to

 

 

 

92.93

 

 

 

83.24

 

61.45

 

 

 

August 14th

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

After a few months in the business with you observing the consumption patterns at your station then you will be able to stock intelligently without so much of a sweat. You might not be able to totally prevent some price shocks but you can manage them. Brokers (suppliers) often have a very good idea on the direction prices will take. Good ones will give you a hint on the possible price direction.

Selling

The other part of the operations has to do with the actual selling. You need to have enough staff manning the pumps. For a start say you have two twin dispensers with four nozzles each, it does not necessarily mean you should have eight attendants; one for each nozzle, doing so will raise your operation costs. Initially three attendants could be enough, and then increase the number as need be. Same if you have four pumps with two nozzles each.

You should also decide whether to operate 24 hours or just during the day (meaning 4AM to 11PM or midnight). This decision will be based on your location. If sales at night are not big enough to cover costs of extra employees and security then there is no need to operate 24 hours. If you are along a major highway / road then it makes sense to operate 24 hours, same if you are in a main town which does not sleep early. You can also operate for long hours if you are in a relatively small peri urban town which is growing fast and with an active night economy. Think fast growing transit towns like Mlolongo and Salgaa.

You also need to look at your immediate competition, if they operate 24 hours and their night traffic is significant then you should do the same. It has become a norm for petrol stations to operate 24 hours irrespective of their locations. But don’t just follow the normal, make judgment based on the realities of business.

In some areas as much as there is demand some petrol stations are hesitant to operate for 24 hours because of security concerns. Such will open until about midnight, close then open at around 4AM or 5AM. Don’t ignore such concerns. Then remember the highest sales are recorded in evenings as people are coming from work and mornings as people are going to work. So it pays to open early and close late irrespective of whether you are targeting personal vehicles, matatu or other commercial vehicles like trucks. There are stations which record higher sales during the night shift than during the day shift.

If you are operating 24 hours or even until late in the night you need two set of workers to work in shifts. Remember the attendants will be standing most of the day, and as a result get exhausted. But since you want to maintain good service, and protect your money then the attendants will need to be ‘fresh’ and keen. That is not possible if you they are exhausted thus the need for shifts. There have been cases of exhausted staff losing concentration and filling a petrol vehicle with diesel, only for the customer to realize and come back complaining.

Left on their own attendants could be lax, some taking advantage of others or having never ending arguments when scheduling their work. To avoid this a supervisor is needed. He is the immediate boss of the attendants. His role is to manage the junior staff, and ensure the

operations of the petrol stations are smooth. Rather than have a supervisor some petrol stations will have a senior attendant who is in charge of the others. She dispenses fuel too but she has more managerial responsibilities than the others.

Cash Management

Now what happens when the attendants receive the cash? How do you know that the amount corresponds to the quantity of fuel sold? How do you protect the cash?

Usually and for clarity and accountability purposes you will allocate each attendant a particular or several dispensers to man. This means that she will be responsible for the quantity that is dispensed from the pump for the time she will be in charge of it. So how do you know how many liters were sold when a particular attendant was manning a pump? You take pump readings at the start and end of the shift. And you compare that with the amount of money that the attendant has collected. Usually the morning shift is taken to mean 6AM to 6PM, while the night shift is from 6PM to 6AM.

Let us give a very simple illustration to help you understand:

Say Mary, an attendant, starts her shift from 6AM until 6PM. At 6AM the reading on the dispenser she will be manning during the day is 20,000 liters. At 6PM while leaving the reading is 19,500, that means she sold 500 liters. If the price per liter is Kshs. 100 then she should hand over Kshs. 50,000. (500 *100)

Of course the next question is whether it’s safe for Mary to handle the Kshs.50, 000. Safe in terms for her own security and well if she can be trusted with such an amount.

To avoid any comebacks what happens is that petrol stations have an underground a safe located in the manager’s / accountant/ supervisor’s office. So when an attendant has sold a certain amount; says Kshs.5000, she drops it into the safe. She could put the amount in an envelope with a cash deposit form showing the various denominations, and the total amount, write down her name, sign and drop it in the safe. Other petrol stations just require the attendant to wrap the cash with an elastic band, stick a paper showing her name and amount then drop it in the safe.

At the end of the day the manager, or account for that matter, opens the safe and counts the total amount of money dropped in by Mary. The supervisor will give the quantity at the start and the quantity at the end. Using the above example of 500 liters at a price of Kshs.100 the total amount of money Mary should have dropped by the end of her shift should be Kshs. 50,000. If the amount is not Kshs.50, 000 then Mary has to explain why.

You have to set guidelines on how much money in sales an attendant should deposit in the safe. The amount should neither be too little nor too much. If too little, the attendant will have to make numerous trips to drop in the safe. This will affect the service. If too much it increases the risk of loss. Most independent petrol stations have set the amount in sales that an attendant should deposit in the safe at between Kshs.5000 and Kshs.10, 000.

Once the day’s sales are accounted for then the accountant or manager can deposit the cash in the bank or whatever other method that is suitable. Remember petrol stations especially those in relatively isolated areas are at a high risk for robbery.

The above are the basic operations of a petrol station, and are not cast in stone. The precise could vary. Also if the petrol station has more services then the operations will be wider.

The key things to remember is that you want the petrol station to operate as smoothly as possible, you want customers to keep coming, you want to protect your investment, you want to prevent any revenue leakages and possibly expand in future or sell out to an OMC at a profit. To achieve this, the station’s workflow should be as smooth as possible, and everyone should understand their roles very well. Let there be as little friction as possible.

To improve accuracy and further track volumes sold you should compare the pump readings and the tank readings at the end of every shift. These should correspond or vary marginally. For example if at the end of a shift the pump readings show the total quantity sold is 3500 liters, and the amount in the tank at the start of the shift was 10,000 liters, then the quantity in the tank at the end of the shift should be around 6500 liters. If there is a significant difference it could hint at a problem. Not necessarily a human problem but also technical like leakages in the tank or the dispenser is not properly calibrated.

When taking quantity readings keep in mind that there could be gain and losses. This is largely affected by the weather. The plus minus amount should be reasonable. High temperatures will make the fuel evaporate both from the tanker and the underground storage.

It’s important to occasionally confirm if the dispensers are properly calibrated. This done by using a calibration jar. Say the jar is 20 liters; you pour the equivalent of 20 liters from the pump and see if it fits proper.

As an aside because of the volumes and amount of cash involved in the business it’s rare for managers or other staff for that matter to purchase and sell petroleum products without your knowledge. More likely avenues of theft are to collaborate with suppliers and trustees to allow adulteration and skim fuel.

To help you understand better about tracking quantities below is a table illustrating tank readings and sales of an actual petrol station:

 

Date

Tank Dipstick Readings (Liters)

 

Sales (Liters)

 

 

 

6AM

Receipt

 

6 PM

Receipt

Day

Night

 

 

2/5/16

33200

 

 

27301

 

5899

3312

 

 

3/5/16

23989

 

 

18766

 

5223

2649

 

 

4/5/16

16117

 

 

12736

 

3381

4090

 

 

5/5/16

8646

12000

 

16005

 

4641

2573

 

 

6/5/16

13432

 

 

9339

 

4093

3331

 

 

7/5/16

6008

 

 

3696

25000

2312

2010

 

 

8/5/16

26686

 

 

22636

 

4050

2903

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9/5/16

19733

 

14854

 

4879

 

 

 

 

 

 

 

 

Receipt in this case means restocking.

Location and Premises

Petrol station is a business which grows on convenience and traffic. A consumer will initially choose a particular petrol station because it’s convenient to them. Convenient first in terms of the station being located along her ‘route’. Convenience, like mentioned above, is also in terms of ease of entry and exit.

Once the petrol station is convenient to the consumer then they make other considerations like prices, service and the like. So the first thing is to locate a petrol station at a place which offers as much convenience to as many motorists as possible; an area with a significant number of vehicle traffic. If you are in an area which offers convenience but has few vehicles then the business will suffer. So just to insist what we previously mentioned think urban areas, growing towns, busy high ways and roads, “ opening up” areas and the like.

Once you have identified the location the next consideration is the premises. Assuming that you will not be renting or buying an already existing petrol station then it means you will be building from scratch. You can’t build on a rented premises, thus you need a lease. Bearing in mind the size of your investment in building the petrol station, and the margins, and the duration it takes to break even then to maximize returns you need a lease of at least ten years. By the end of ten years, keeping everything constant, you should have broken even, made profit and recouped your investment.

Assume a scenario where you have taken a lease of five years in a growing town to build a petrol station. For a start it could take up to six months to 8 months to get all the requisite licenses, source materials and build the petrol station. Then it could take a year for the petrol station to ‘catch up’ and for you to break even. Then a year to start growing... so those are already almost three years... So when consumers are getting used to the petrol station, when the vehicle population is growing and the demographics are in favour then the lease ends. And you pray the landlord will extend it. And he now has capital to develop the land, or he has seen the potential in the petrol station business and he waits for you to get out and put a petrol station of his own if not offer to buy you out.

Definitely the flip side is also possible: you have a long term lease and you are stuck with a petrol station that is not making money. Still it will be easy to exit such an arrangement than it is to get the lease of a successful petrol station extended. It’s instructive to note often when OMCs are looking to buy independent petrol stations they will often insist on a lease of at least ten years, with some like National Oil insisting on 15 years. It is not a shallow requirement but based on the realities of the business.

This might not necessarily apply if you are putting a simple one or two pump petrol station, like often found in rural towns.

~

Revenue

Margins

How much gross margin does an independent petrol station make from a liter of super or diesel? On July 20, 2016, one broker (wholesaler) was supplying diesel at a wholesale price Kshs.68 per liter, and super petrol at Kshs. 82. For delivery to a petrol station about 30 kilometers from Nanyuki Road, Industrial Area, Nairobi where the depots, are he was charging Kshs.1 per liter.

On the same day another broker, still in Nairobi was supplying diesel at a price of Kshs.69.80, and super petrol at Kshs. 82.90. He was charging Kshs.1 for delivery to the same petrol station.

In the period between July 15th and August 14th the recommended retail (pump) price of diesel in Nairobi is Kshs. 83.24, and that of super petrol is Kshs. 92.93.

So if the above petrol station dealer was to purchase diesel from the first broker and sell at the ERC recommended price he was to make a gross margin of ( Kshs.83.24 – Kshs.68.00) = Kshs.15.24 per liter. And for super (Kshs.92.93 – Kshs.82.00) = Kshs.10.93.per liter

If he was to purchase from the second broker from he would make (Kshs.86.10 – Kshs. 69.80)

=Kshs. 13.44 per liter of diesel, and (Kshs.95.60 – Kshs.82.90) = Kshs.10.03 per liter of super. In both cases he would have to deduct transport costs and other expenses.

For an independent the gross margins per liter ranges from as little as Kshs. 3 to as much as Kshs.15. But a rule of the thumb is that you should make at least Kshs. 6 per liter whether of diesel or petrol.

The reasons there is such a wide range despite fuel prices in Kenya being controlled are various but at the very basic are the negotiations and ‘offers’ from various suppliers and brokers. As the supply space becomes more competitive brokers are also competing on price, cutting their own margins so as to make more sales.

If a broker realizes you don’t understand the market they will try to squeeze as much from you as possible. And like with any business right from the OMC depots there are quantity discounts, and brokers sometimes extend those too.

Kshs.6 should be a good guide. Anything lower than that is possible but more often than not you will be getting a raw deal.

Again don’t just look at the gross margins but also related costs like transport which range between Kshs.1 and Kshs.3 per liter depending on the location. Some wholesalers don’t have

enough tankers to meet all the orders they have. Thus they will request you to hire a tanker to transport the fuel. At other times they will hire the tankers themselves. The reason you will find many tankers just waiting for their luck around the major petroleum depots.

Prices

Petroleum prices in Kenya are regulated by the law as specified in The Energy (Petroleum Pricing), Regulations, 2010. The implementing agency is the ERC.

On the 15th of each month the ERC, as mandated by the law, sets prices at which different fuels should be sold. These are the so called pump prices. The prices run from 15th of the current month to the 14th of the next month.

The retail price is based on the formula

Pr=Pw+mr+z

Where: -

Pr = the maximum retail price of Super Petrol, Regular Petrol, Kerosene, or Automotive Diesel applicable in shillings per liter.

Pw = the maximum wholesale price for Petrol, Regular Petrol, Kerosene, or Automotive Diesel mr = the allowable maximum retail gross margin as set,

z = the delivery rate from the nearest wholesale depot to a retail dispensing site in shillings per liter as determined.

As you can see the retail price is also tied to other formulas which also determine the wholesale prices. Further the wholesale price is tied to the formula that’s sets the price for fuel ex Kenya Petroleum Refineries Limited and ex Kenya Pipeline Storage facility at Kipevu.

Without going into the details of the latter two formulas (see the attached Energy Regulations 2010), it’s instructive to note that the formula tries to set the maximum allowed retail margin. As per the regulations the maximum allowed margins for super, regular, diesel and kerosene is Kshs. 3. However when it comes to the practicality it’s not possible to follow the law to the letter, thus we see margins above Kshs. 3.

To get a better understanding of the price setting here is an excerpt from a National Oil Presentation showing the price breakdown especially for an OMC operated petrol station. Though generally accurate it does not wholly capture the market realities when it comes to independent petrol stations. Still it serves as a great guideline on petroleum price breakdowns. The prices used in the example are of 2015.

Cost Item

PMS(Kshs/Lt)

%of

AGO(Kshs/Lt)

%of

lK(Kshs/Lt)

%of

 

(Petrol)

Total

(Diesel)

Total

(Kerosene)

Total

 

 

Cost

 

Cost

 

Cost

 

 

 

 

 

 

 

Cost of

41.24

46%

42.16

53%

39.77

74%

Product

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxes (Duty,

33.27

37%

21.52

27%

1.38

3%

RDL)

 

 

 

 

 

 

 

 

 

 

 

 

 

OMC's gross

7.29

8%

7.29

9%

5.00

9%

wholesale

 

 

 

 

 

 

margin

 

 

 

 

 

 

 

 

 

 

 

 

 

Transport,

3.67

4%

3.67

5%

2.86

5%

Bridging rate,

 

 

 

 

 

 

Allowed

 

 

 

 

 

 

pipeline/depot

 

 

 

 

 

 

losses,KOSF

 

 

 

 

 

 

Charge

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowed retail

3.89

4%

3.89

5%

3.89

7%

dealer gross

 

 

 

 

 

 

margin

 

 

 

 

 

 

 

 

 

 

 

 

 

Delivery rate

0.62

1%

0.62

1%

0.62

1%

 

 

 

 

 

 

 

Total Kshs/Lt

89.98

 

79.15

 

53.52

 

 

 

 

 

 

 

 

AGO (Automotive Gas Oil) is Diesel

PMS (Premium Motor Spirit Super) is Petrol

IK (Illuminating Kerosene) is the normal kerosene

From the above, average percentage margins should be around 5 % of the pump price. But it does not always apply. This is because the market is usually not perfect as envisaged by the law.

Still you cannot sell above the ERC recommended price because that price is the maximum that you should sell at. This implies that you can sell at lower prices. There are many independents who sell at lower price.

Where competition is intense some petrol stations set aside a shilling of the margins to play around with. The manager goes around the stations in the neighborhood noting the prices then comes and adjusts his price accordingly often on the lower side. Sometimes the price is just Kshs.0.30 (30 cents) lower. At the maximum such petrol stations reduce prices with Kshs.1. Sometimes they will lower the price of diesel while keeping the price of petrol higher, and vice versa. This depends on what the competition is doing and also who are the major customers. If most customers are matatu or trucks then it makes sense to lower the price of diesel. The hope is that the price drop will pull in price sensitive customers and pray they will be endeared by service in addition to prices.

Operational Expenses

Let’s say for illustration purposes you get margins of Kshs.6 per liter of fuel, how many liters would you have to sell to meet your monthly costs and make profit? There is no standard answer to this but let us give a stripped down illustration based on figures from some case studies.

The major costs that are incurred in our case study, which only sells diesel and super, are:

Item

Cost (Kshs.)

Labour

260,000

Electricity

63,000

Transport

130,000

Rent

70,000

Security

25,000

Water

3,000

Miscellaneous

45,000

 

 

Total

596,000

Then above are only the major costs. There are other costs which could vary from month to month. For instance there is repair and maintenance costs. At times you will incur transport costs, which based on your location, could be as much as Kshs.2 per liter. Then there are the statutory deductions for your workers particularly NHIF and NSSF which will amount to almost Kshs.800 per employee.

Other expenses could include insurance premiums and interest on loan that is if you borrowed to build the business. Petroleum products are already taxed so the tax you are required to pay is

the income tax. However VAT is charged on lubricants. Thus if you are selling lubricants you will need to have an ETR machine and submit monthly VAT returns.

So using the above example, assuming you are making a margin of Kshs.6 per liter you will need to sell at least 93333 liters just to meet your major costs. To simply further that is at least 3311 liters per day. That is very possible on a good location, service and prices otherwise. Now if your margins are Kshs.3 per liter you would need 198,000 liters. A difference of a shilling is very big in this business.

Presently selling 100,000 liters is considered an average performance in the business. Selling 200,000 liters per month is a good performance. Most of the independent petrol stations sell between 100,000 liters and 170,000 liters in a month. On the lower side we noted a petrol station selling 40,000 liters, while on the higher side we had 400,000 liters.

Below are some actual figures in sales volume from a petrol station located in Nairobi:

Month

Quantity (Liters)

January

96,425

February

107,323

March

105,643

April

124,908

May

127,764

June

126,868

This is an average of 114821 liters per month. Working with margins of Kshs.6 then this translates to gross margins of Kshs.688930per month. If you deduct expenses then you could have monthly profit of about Kshs.200, 000. For planning and projection purposes use lower figures say of 100,000liters. It takes time to hit figures of 200000 liters.

How then in light of low volumes do petrol stations remain in business? By shopping for higher margins, keeping costs low and offering additional services like Car Wash and Service Centers, which if successful are able to meet the expenses of the petrol station.

Let us now go beyond the quick details above look at some of the key expenses in detail.

Electricity

Like we have mentioned above electricity in a petrol station is used one to power the petrol dispensers and secondly to lighten up the petrol station. It’s also used to power other items like air compressors.

In addition to the canopy lighting you should have some spotlights properly illuminating the petrol station. At night a well lit petrol station will attract more customers compared to a poorly lit.

Electricity at a power station is connected using a 415 V three phase and a 240 V single phase.

The major items consuming electricity in a petrol station are:

Dispensers – A typical fuel dispenser has a horsepower of 1.5 and a power rating of 1120 Watts. There are some petrol stations that use some tricks to keep the power consumption of the dispensers low. See when a customer drives in the attendant instinctively starts the machine, and then asks the customer the amount of fuel she wants. Sometime there could be some small talk before the attendant sets the pump and start filling the customer’s vehicle. As the pump is filling the attendant starts to clean the windscreen. If the quantity is reached before the attendant is done cleaning the windscreen the pump continues running. Every time the pump is running without filling in a customer’s vehicle then its using electricity which otherwise could have been saved.

Thus the management of some stations will train the attendants to only start the machine during the actual filling, and stop it as soon as a customer’s order is fulfilled. They should not leave the machine running unnecessarily,

Canopy Lights and other security lights like spotlights- Generally fluorescent lighting is used for sections like offices and toilets. However special High Intensity Discharge Lights and sodium vapor lighting are often used for the canopy and security lighting. Often florescent lights of 24 W are used indoors, and 36 W for areas like the service Bay, and sodium vapor bulbs of 400 W for the canopy and security lights. These consume a lot of energy and you should try shop for more efficient equivalents. There are many instances where canopy and security lights are the biggest consumers of electricity.

Air Compressor – These are largely used to inflate tyres. The ones that are used in petrol stations are in the range of 4V and 7.5V. To reduce power consumption the compressor should be as efficient as possible. The pipes should not be leaking. A leaking pipe means that you need to pump more to fill a tire and thus spend more electricity. The power rating of a 7.5 V air compressor could be 5600 W.

Wheel balancing machine

Automatic Tyre Changers

Greasing Machine

On average a standard petrol station will consume at least 4000kwh of power per month. The power bill will range between Kshs.40000 to Kshs.120, 000 using the above set up. Remember whether you sell 10,000 liters or 100,000 liters there are aspects of the power that will remain constant like the canopy and security lighting. Thus it advantageous if you sell more as the cost is distributed on higher volume. It’s also important to be keen an eye on the month to month

power consumption. One way to do this is by graphing total sales against power consumption and looking out for any spikes, investigating why and taking necessary mitigating measures.

Labour

Labour costs are some of the significant in the business. Take for instance an actual example of an independent petrol station with five attendants, a supervisor and a manager.

The standard salary for an attendant working at an independent petrol station ranges between Kshs. 15,000 and Kshs.22, 000. There are attendants earning less but not below Kshs.12, 000. There are also those earning slightly more but often not more than Kshs. 25,000.

Often supervisors earn Kshs.25, 000 to Kshs. 30,000. But there are those earning less say Kshs.20, 000. In such cases the attendant will be earning Kshs.15, 000.

Managers earn at least Kshs.30, 000, some of course earn less, but it is not common to find managers earning more than Kshs.40, 000.

Thus even at a basic petrol station operating 24 hours, with 3 employees during the day and two at night. Each earning Kshs.21, 000, then total labour costs just for the attendants will be Kshs. 21,000 x 5 = Kshs.105, 000.

If the supervisor is earning Kshs. 26,000 and the manager Kshs. 34,000, then the total wage bill will be at least Kshs.165, 000. Quite an amount for a small business. Still there could be an accountant, a cleaner and some guy who just hangs around doing this and that, or as a trustee. Again the attendants could be six or seven depending on how busy the petrol station is. At any one time there should be an attendant who is a reliever, who sits in say in case of sickness, a break or when for a reason or another there is an exceptional spike in customers.

It’s good to have an experienced manager; someone who have worked in a petrol station, not necessary as a manager. A former supervisor or experienced and responsible attendant could make a good manager. The key thing is to have a manager who understands the working of a petrol station.

An accountant need not be on permanent terms. You could have one on call to work on book on a weekly or monthly basis. Indeed most managers tend to be accountants who have mastered the operations of the petrol station business. Thus in addition to overseeing day to day operations they keep the books. In reality the books of a petrol station are not so complex.

Whatever the scenario labour costs in a petrol station are major and if not controlled them will definitely eat into your profit.

One thing you should protect against is getting many employees even if you are paying them relatively low salaries. A better strategy could be to get a few motivated employees who you pay relatively well. This will increase their output and the service levels. In return the output per

worker will be higher relative to the costs. Not only will lazy workers be expensive both in terms of money but also cost you customers.

Motivated ‘chap chap ‘workers can comfortably manage a number of pumps.

Security

You need some form of security at the petrol station. The often used are guards from security companies. The exact costs will depend on the company but will range from Kshs. 16,000 to Kshs. 30,000 with an average of Kshs. 22,000.

Other dealers prefer independent guards, not associated with any company. These independent guards sometimes cost much less. On the other hand the advantage of guards from security companies is that there is a background check and some sort of proper traceability. This reduces the chance of the guard participating in a robbing the petrol station or conniving with robbers. The hitch is that sometimes such guards are very demoralized.

Guards are needed 24 hours. A few stations operate without any guards. This is okay if you are very small petrol station or in such a strategic and ‘safe’ area that no robbery can possibly happen.

You can boost security with CCTV cameras and an alarm.

Rent

You may not have much control in the rent that you pay. The specifics will depend on your lease agreement. Negotiate for the best rates and don’t take the general view that there is money in the fuel business, and thus you can pay a premium for rent. Pay as low as logically possible.

Sales / What Influences Revenue

Sales in an independent petrol station happen at the pump. A customer drives in, says the quantity of fuel that she needs either in money value or liters. The attendant then dispenses the fuel and the customer pays.

The number and size of sales then plays a big factor in determining the success of a petrol station. Sales will depend on the per capita consumption per customer, foot (vehicle) traffic, the kind of customers that you attract customer loyalty and the extras you offer.

Foot traffic will first depend on the location of the petrol station. Does it offer any convenience by virtue of the location? Is the population in the location big enough? And are there enough people who own vehicles? Do they use the vehicles enough? Or are the vehicles just used occasionally?

Revenue is also the kind of service that is offered at the petrol station, which is the key thing that generates loyalty.

At a more basic level independent petrol stations try to use a variety of tricks to increase sales:

-Parking space for trailers and other vehicles. Parking could be short term where a vehicle coming to refill can park for a few minutes to check something wrong with their car, or do some little shopping within. Parking could also be long term where vehicles park overnight. This is common with long distance trucks or matatu. The parking could be at a small fee of Kshs. 100 or absolutely free. In both cases the unwritten assumption is that in the morning when the vehicles are leaving they will refill at the petrol station. In the case of long distance trucks the quantities could be significant. A convenient location, enough space and security will naturally attract trucks and matatu interested parking.

-Partnership with matatu sacco – In this case a petrol station negotiates a form of partnership with a matatu sacco plying along the route where it is located. Such an agreement could take the form of a recommendation where the management of the Sacco influences members to fuel at a particular petrol station. The management of the Sacco could get some monetary consideration in return for such recommendation. Other practices involve the petrol station offering discount to the members of such a matatu Sacco. Discounts could be per liter or when a matatu accumulative consumption at the station reaches a certain quantity.

This method requires keenness and an efficient way of managing it so as to prevent abuse. Say attendant hands over less cash than expected on the pretext of a discount to the matatu. Some of the common methods used are to have the matatu take the fuel on credit, the driver signs and the Sacco is invoiced to pay. Even when offering discounts in cash others will require the matatu driver just to sign, this will be proof that the discount was offered to the right person.

-Controlled Credit – Others try to attract customers by offering credit services. This often will be geared towards corporate customers, and sometimes regular individual customers. However this should be done with caution and only when you are sure that the customer cannot default. Local businesses could also issues LPO, where their vehicles fuel and they pay you monthly or so. You should be very careful when giving credit to avoid the shock of default. Great credit management can actually help attract high value customers and help the business grow. The converse is also true; poor credit management could lead to major losses.

-Consistence of fuel quality – The quality of fuel is a key factor when purchasing. Some petrol stations will have quality fuel for a period then sneak in adulterated fuel occasionally. There is always a high chance that the customer will discover based on the performance of his vehicle. When in doubt many customers will opt to avoid the petrol station all together. Reputation in the independent petrol station business is not just about service but also the quality of fuel. Any loyalty that was building will be lost as soon as there are doubts about the quality of fuel that is being sold at the station.

~

Non Fuel Products

Although the core business in a petrol station is selling petroleum products, there are value added services and products that you can offer. These will not only serve to increase your revenue but also to attract customers.

Most of your customers will be motorists so it follows that you can first offer services they’d need. The services could be those that they purchase impulsively or those that are planned for but whose purchase is motivated by the convenience of a petrol station. Of the former are services like car wash, while the latter could include things like lubricants, rims, wheel balancing and “service”.

Lubricants

The major oil marketing companies have their different brands of lubricants. Often they have a slightly different distribution method than that of oil. Sometimes they appoint distributors away from the usual fuel distribution chain. There are also many independent importers of different brands of lubricants. For a start you could stick with the more recognized brands and then gradually introduce the less known.

Lubricants can have a margin of between 20 % and 40 %. For lubricants you need to pay VAT, which also means you need to have an ETR machine. Sometimes lubricants contribute to sales to an extent that among some independent petrol stations the revenue from lubricants is enough to pay salaries.

If you have a service bay then to maximize returns you will need to sell lubricants. Customers don’t need to buy the lubricants externally to come service at your petrol station, they will always almost service where they buy the lubricant if there is a garage. The vice versa is also true; if you are selling lubricants its good if you have a service bay too.

Service Bay

A service bay in a petrol station offers convenience to motorists who need quick vehicle service. You can decide the scope of the service you would like to offer, but often the very basics are oil change and wheel balancing, often computerized. As part of the service bay you could have a Tyre Centre, some petrol stations will have this as a separate entity.

For the Tyre Center and Service Bay you need the following basic equipment:

Air Compressor - The air compressor is used to add pressure to tires. They are sold based on capacity and of course brands. A 300 liters compressor, as may be used in petrol stations averages Kshs. 200,000. The exact price will depend on the size brand, dealer and whether it is secondhand or new. Some petrol stations use small compressors of 20 liters or so which average Kshs.30, 000.Keep in mind that a small car

tire 30 psi, a light commercial vehicle requires about 60 psi, while a heavy commercial vehicle will require about 100 psi.

Wheel Balancing Machine – There are various types of wheel balancing machines, each with different features. Some of the differentiations include the size of wheel that they can work on; some will fit standard car wheels, while others can do trucks and even bigger wheels.

On the lower side you can get functional wheel balancing machines for Kshs. 250,000. On the higher side you will get machines going for as much as Kshs. 1,000,000. A machine of Kshs.250, 000 or thereabouts is not necessarily bad and if low on capital can be enough to start with. Still when purchasing makes sure you get necessary warranties and support in case of any technical hitches. If you are purchasing second hand items make sure you test and test to ensure they are in the right condition.

Greasing Machine – Greasing machines are used to grease the vehicle. Prices range from Kshs. 35,000 to Kshs. 50,000. Prices will depend on size, 20 liters, 30 liters, 50 liters and so forth, the dealer and brand.

Tyre Changer – Tyre changers vary from the very basic to the semi automatic. The semi automatic average Kshs. 250,000. Sometimes the tyre changers are combined with wheel balancing. Jua kali tyre changers could be as low as Kshs. 60,000.

In addition to the above machines you will need small items like pliers, spanners, screwdrivers and hand iron machines which are used for repair of punctures.

Even after getting all the equipment you will need someone to operate them. An experienced mechanic with an assistant or two experienced mechanics can be enough. You can even start with one and increase the numbers as business grows.

The charges will depend on the service you are offering but it’s good to keep it in tandem with the competition unless you are offering some significant extra value.

Car Wash

A car wash has the potential to complement your income. The main equipment for the car wash is the car washing machine. And these are several machines of the kind. By virtue of being at petrol station customers expect your car washing service to be at least above average; fast, secure and reliable. You would also need a machine that will be handy and reliable enough to handle the expected traffic that you could get. (See the attached car wash standard guide)

~

Capital Breakdown

 

Item

 

Details

 

Total

 

 

 

 

 

 

(Kshs.)

 

 

 

 

 

 

 

 

 

 

Licenses

 

 

 

 

 

 

 

 

 

 

 

NEMA Fees

 

At a rate of 0.05% of

10,000

 

 

 

 

the project, assuming

 

 

 

 

 

the total project cost

 

 

 

 

 

will be about

 

 

 

 

 

Kshs.5m. Minimum is

 

 

 

 

 

Kshs.10, 000.

 

 

 

EIA Consultancy

 

1

 

60,000

 

 

ERC Operating License

 

1

 

8,000

 

 

Construction Permits and Licenses

 

County Permits +

115,000

 

 

 

 

NCA Fees

 

 

 

Fire Inspectorate License

 

1

 

6,000

 

 

Public Health License

 

1

 

3,000

 

 

Outdoor Advertising

 

 

 

40,000

 

 

Company Registration

 

1

 

30,000

 

 

Weights and Measures Certification

 

1

 

10,000

 

 

Single User Business Permit

 

1

 

30,000

 

 

Professional Fees

 

Lawyers, Architects ,

150,000

 

 

 

 

Surveyors

 

 

 

Insurance

 

 

 

130,000

 

 

Sub Total

 

 

 

592,000

 

 

 

 

 

 

 

 

 

 

Equipment (Forecourt )

 

 

 

 

 

 

 

 

 

 

Dispensers

 

4 double pumps @

1,720,000

 

 

 

 

Kshs.430,000 each

 

 

 

Underground Tanks

 

Two 20,000 liters @

700,000

 

 

 

 

Kshs.350,000

 

 

 

Other Equipment for the Petrol Station and Forecourt

Testing kits, Dip stick,

350,000

 

 

 

 

Pipes, Cleaning

 

 

 

 

 

Equipment and more

 

 

 

Generator

 

1

 

300,000

 

 

Sub Total

 

 

 

3,070,000

 

 

 

 

 

 

 

 

 

 

Equipment (Office)

 

 

 

 

 

 

 

 

 

 

 

Underground Safe

 

1

 

120,000

 

 

Tables and Chairs

 

1

 

20,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stationery

 

 

 

15,000

 

 

Sub Total

 

 

 

155,000

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

Civil Works

 

 

 

1,500,000

 

 

Canopy

 

 

 

1,200,000

 

 

Installation and Piping

 

 

 

200,000

 

 

Connections (Power, Water, Sewage )

 

 

 

70,000

 

 

Signboards

 

 

 

140,000

 

 

Alarm and CCTV

 

 

 

65,000

 

 

Sub Total

 

 

 

3,175,000

 

 

 

 

 

 

 

Service Center/ Tyre Center/ Car Wash

 

 

 

 

 

 

 

 

 

 

Air Compressor

 

1

 

200,000

 

 

Wheel Balancing Machine

 

1

 

250,000

 

 

Greasing Machine

 

1

 

50, 000

 

 

Tyre Changer

 

1

 

250,000

 

 

Car Washing Machine

 

1

 

70,000

 

 

Water Storage

 

1

 

50,000

 

 

Miscellaneous

 

1

 

120,000

 

 

Sub Total

 

 

 

950,000

 

 

 

 

 

 

 

 

 

 

Stock

 

 

 

 

 

 

 

 

 

 

Petrol ( Super )

 

10,000 liters @ Kshs.

830,000

 

 

 

 

83.000

 

 

 

 

Diesel

 

10,000 liters @

730,000

 

 

 

 

Kshs.70.00

 

 

 

Lubricants

 

Various

 

200,000

 

 

Transport Costs

 

@ Kshs.1.50 per liter

30,000

 

 

Sub Total

 

 

 

1,790,000

 

 

 

 

 

 

 

 

 

 

Working Capital

 

 

 

 

 

 

 

 

 

 

Salary

 

3 Months - Monthly

495,000

 

 

 

 

Payroll

@ Kshs.

 

 

 

 

 

165,000

 

 

 

Rent

 

3 Months @

210,000

 

 

 

 

Kshs.70,000 per

 

 

 

 

 

month (Excluding any

 

 

 

 

 

Lease Fees)

 

 

 

Electricity

 

3 months @

90,000

 

 

 

 

Kshs.30,000 per

 

 

 

 

 

month

 

 

 

 

Water

 

3 months @

6000

 

 

 

 

Kshs.2000 per month

 

 

 

Sub Total

 

 

 

801,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grand Total ( Adding all the above sub totals)

 

10,533,000

Notes on Capital

The above figures are based on actual prices and estimates based on a variety of case studies and quotations from various vendors. Since for all items there are price ranges we have rounded of figures to the nearest thousand.

The breakdown above should serve as a very good guide. Actual prices and figures could differ slightly depending on vendors, how you plan to set up, size of the station, location and other such factors. Among the factors that could vary include:

The EIA Consultancy which will depend on the firm or environmental officer.

The Construction permits and licenses which will depend on the county.

Professional fees of lawyers and architects which will depend on the professionals themselves.

Dispensers – The number, brand and type that you use and vendor. For instance if you have two single nozzle dispensers then the cost for both will be about Kshs. 500,000.If you have two instead of four double dispensers then the cost will be about Kshs.860,000.

Underground Tanks – These will mostly vary with size. Thus if you opt for bigger or smaller sizes then the amount will spend will be different.

Civil Works and Canopy – The cost could be higher or lower depending on the size. For instance the cost of a canopy can go down to Kshs. 800,000 if the size is smaller. Civil works could be as high as Kshs. 2.5m again depending on the size and contractor.

Cost of stock could also go down if you opt to start with lower quantities, say 5000 liters. The vice versa also holds.

If you don’t have a service center and car wash then you won’t incur all the related costs.

Items like rent will also depend on your location and lease agreement.

The working capital is optional but it’s always good to have some cash at hand since the business is unlikely to pick in the first month, or even second month. You should have enough cash to pay your staff and meet other expenses in during the duration.

Is it possible to start an independent petrol station with a smaller amount? Yes it is possible. You can adjust facilities as need be.

~

Suppliers

Name of Company

Details

Contacts

Dispensers / Underground Tanks / Canopies and Related

PJ Petroleum Equipment

Without bias this is perhaps

 

the leading petroleum

 

equipment supplier in Kenya.

 

They have a range of

 

products suited for depots and

 

retailers. For retailers they

 

have a range of pumps,

 

storage tanks and accessories

 

like piping, canopies among

 

others. In addition to

 

equipment the company also

 

provides repair and

 

maintenance services, related

 

consultancy and is able to link

 

you with designers and

 

contractors to build the petrol

 

station.

 

 

P J Petroleum Bldg, Off Thika Rd, Behind Safari Park Hotel next to USIU

Jane: 0722842738

Wang'ombe: 0700513940

Joseph: 0706940444

Phone: 020-359-8814

Email:

[email protected]

Website:

http://www.pjpetroleum.co.ke

The above is the main branch, but they have other stations within the country. These are:

-Nairobi Off Theca Road, along USIU Road Next to USIU University

-Nairobi Nanyuki Road Branch, Opposite National Oil Depot.

-Eldoret Branch,

 

 

 

 

 

Uganda Road opposite

 

 

 

 

 

 

Kobil Petrol Station.

 

 

 

 

 

-

Kisumu Branch, Kibos

 

 

 

 

 

 

Road near Kondele.

 

 

 

 

 

-

Mombasa Branch,

 

 

 

 

 

 

Spark House along

 

 

 

 

 

 

Jomo Kenyatta

 

 

 

 

 

 

 

Avenue.

 

 

 

 

 

 

-

Meru Branch

 

 

 

 

 

 

 

Makutano along Meru

 

 

 

 

 

 

–Nanyuki Rd, Opp.

 

 

 

 

 

 

Three stairs Hotel

 

 

 

 

 

-

Kisii Branch Ronald

 

 

 

 

 

 

Kibet Kisii – Nyamira

 

 

 

 

 

 

Rd, Opp. AP Camp

 

 

 

 

 

 

Next to Oresi Hospital.

 

 

 

 

 

-

Nakuru Branch

 

 

 

 

 

 

-

Nairobi Clayworks

 

 

 

 

 

 

 

 

Shankan Enterprises Ltd,

 

This is one of the older

Shankan Enterprises Ltd,

 

 

 

 

petroleum equipment

Shankan House, 18

 

 

 

 

 

suppliers in Kenya. Though

Kabarsiren Avenue,

 

 

 

 

 

they are biased towards

P.O. Box 44432-00100,

 

 

 

 

bigger projects they are the

Nairobi, Kenya

 

 

 

 

 

appointed distributors of

Tel: +254 722 527814 / +254

 

 

 

 

Wayne dispensers and

722 520911

 

 

 

 

 

systems in the country.

Fax: +254 (020) 332778 /

 

 

 

 

 

222938

 

 

 

 

 

 

E-mail: [email protected]

 

 

 

 

 

ea.com

 

 

 

Mectro Supplies Limited

 

Mectro supplies a variety of

Mectro House, Outering Road

 

 

 

 

dispensers, underground

 

 

 

 

 

 

 

tanks and related equipment.

 

 

 

 

 

 

 

They are also involved in

 

 

 

 

 

 

 

construction of petrol station.

 

 

 

 

 

Petroleum and Industrial

 

This is another well known

Masai Rd, Langata, Nairobi

 

 

Services Limited

 

supplier of petrol dispensers

+254 716 431 205 / 725 633

 

 

 

 

and related petrol station

668 / 733 611 506

 

 

 

 

 

equipment like piping.

[email protected]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fuel Suppliers (Resellers)

 

 

 

 

 

Forthall Resellers

 

 

0722814862

 

 

 

Petrogas

 

 

0727446363

 

 

 

Riva Petroleum Dealers

 

 

0737 556978

 

 

 

Circular Petroleum

 

 

0722 800 450

 

 

 

Resellers

 

 

 

 

 

 

 

Eldoret Petroleum Services

 

 

0710946550

 

 

 

Ltd

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chui petroleum kenya

 

0716875665

limited

 

 

 

 

 

KK Distributors

 

0722 748149

 

 

 

Garage Equipment and Accessories

 

Autoexpress Kenya Limited

This is a leading and one stop

0735 253411, 0724 253531

 

shop for almost all the tools

 

 

that can be used at service

E-mail: [email protected]

 

bay and tyre center. These

 

 

include from wheel aligning

www.auto-xpress.co.ke

 

machines, jacks, greasing

 

 

machines, tyre changers, tyre

 

 

fitting machines, tyres,

 

 

batteries, lubricants, rims,

 

 

alloys and all the related

 

 

items.

 

Amity Equipment

 

Garage rd. (off-Dar-es-

 

 

Salaam rd.) Industrial Area,

 

 

Nairobi

 

 

726944399 / +254 733944399

Oakpark Motors

 

0707 719 946

Kingsway Tyres

 

+254-722-227719

 

 

 

There are more suppliers, but the above should jump start you. If you need more contacts let us know and we will be of help.

A Brief on Competition

At the very basic, and keeping everything constant since the fuel that is sold in Kenya comes from a single source then there should be no difference in the fuel sold in Petrol Station A and Petrol Station B. So the customer should not mind buying at either petrol station. But perception and reality are different.

There is fuel adulteration, which reduces the quality of fuel and makes motorists selective. Before they drive to a petrol station they must have some level of trust in the fuel being sold there. Trust comes from previous experience but more often from the branding of the petrol station. If the petrol station has weak branding say by poor construction and amateur displays then there will be a level of doubt. If the station is a relatively new and not associated with any of the major oil marketing companies or even the well known independents then the level of trust will be lower.

That is a challenge faced by new independent petrol stations: it takes time to build a reputation. And if in the initial days there is information; real or fake that the petrol station could be selling low quality fuel then , and word spreads among groups such as matatu then the station could have a problem attracting enough customers to break even and grow.

One way independents try to build trust is by trying to have professional construction and facilities similar to those found among the more recognized brands. Was it not for the names nowadays it’s sometimes difficult to differentiate between small independents, big independents and the major oil marketing companies. If from the outside petrol station looks professional then customers trust them more easily.

Like we mentioned above even before the customer starts to think about trust the first consideration is convenience. Convenience in relation to distance to the petrol station, where they are from, where they are going, ease of entering and exiting and “disruption” of their journey.

So competition is also based on convenience, locating at such a place that offers as much convenience to as many motorists as possible. The convenience could be by virtue of there not being another petrol station in the neighborhood … it being the petrol station that is easy to get in and get out, or the petrol station “ along the way “ and any other such convenience that could be applicable in the area. Ideally most motorists fuel “to” rather than “from” so a petrol station located along their “to” route, and which has an easy entry and exit then will have chances of making more sales than another located in the “from” route.

Once a customer has identified a convenient petrol station and opted to trust it, she could make a purchase. But there are other considerations that she will keep in mind, consciously or sub consciously. A key thing will also be the service. Service could mean anything from the customer care, how the attendants receive the customer, how they greet and smile or the attention they give. It does not have to be anything out of the ordinary but it should not be below average. If it is above average the better.

Service also means extras such as windscreen cleaning. Service is also the other facilities available at the station and which could keep the customer coming such as car wash, servicing and the like.

Critical Success Factors

Below are the critical success factors in the independent petrol station business

-Location in terms of convenience

-Demographics and Business activity of the location

-Proper management , finance and cost control

-Intelligent sourcing so as to enjoy the best prices

-Competitive Pricing

-Good customer service

-Consistency of product and service

-Skilled, responsible and motivated staff

In Summary Think:

Location – Busy area or highway, ease of entry, the correct side of the road Service – Quick, Polite staff, Windscreen cleaning, free water, free air Quality of fuel – Right quantity and unadulterated

Aggressive marketing to win over companies with fleets

Related Products such as Service Bay and Tyre Center – The more services you have the

more customers you attract.

Appendix

Example of a callout

Galana Oil Kenya Limited is a fully fledged oil company, operating under the DELTA brand in the retail network. We also market cooking gas under the brand name DELGAS and are the authorized distributors of ENOC Lubricants in Kenya. Exciting business opportunities have arisen to operate new and existing Delta Service Stations located in the following strategic locations.

Thika Highway

Waiyaki Way

Nanyuki

Kericho

Naivasha

Mombasa Road.

The opportunities entail the following business lines:

Fuels Business

Modern Supermarkets

Carwash

Service Centers

Modern Restaurants

Gas distributorship

Lubricants distributorship

The expected monthly net income ranges between Kshs. 200,000- Kshs. 3 million. The opportunities are open for both Individuals, Saccos, Investment groups and corporate. For more details Please contact John or Lilian on the contacts below on or before 30th May 2016

For More Information Contact Galana Oil Kenya Limited 1st Floor, Taj Tower Upper Hill Road, Upper Hill P.O. Box 11672-00100 Nairobi | T:020 4934000 / 0720 607 555 / 0727 531 197/8. | Email: [email protected] | Website: www.galanaoil.com

Oryx Energy Dealership

Opportunity for Service Station Dealership: Oryx Energies Kenya Limited is a fast growing and dynamic oil and gas multinational with a Pan African outlook that is serving energy needs for today and tomorrow.

We supply and distribute fuels, lubricants and LPG products needed by consumers, industry and maritime operations in Kenya and the great lakes region.

Following the steady and continuous growth experienced in our fuel business, we are looking for talented, dynamic, energetic, ambitious, customer focused and self- motivated individuals with a high level of integrity to run and manage the service stations in our recently established retail network while maintaining world class standards that our brand is known for.

Requirements: The Dealer must possess minimum ‘O level education and the ability to communicate in both English and Kiswahili

The Dealer will be required to demonstrate a flair for business and aggressiveness in marketing The Dealer must be able to demonstrate ability to inspire his team to meet targets

The Dealer must have a minimum of 2 years’ experience in Service Station Management The Dealer will be required to give evidence of financial muscle and stability.

The Dealer must not be in any dealership agreement or contract with any other Oil Company. Full time availability to operate the Service Station.

Applicants shall be required to indicate geographical preference of retail sites in their applications.

Interested Candidates should forward their expression of interest accompanied by a brief business plan on how they intend to run the service station to: [email protected] on or before Monday 15th December 2014.

Only successful shortlisted candidates will be contacted

Download Independent Petrol Station Business Plan in Kenya PDF➥