A better strategy for Irish distributors

Having read January’s Irish column ‘with interest’, a concerned Irish distributor sent the following tongue in cheek comment.

We Republic of Ireland (RoI) distributors are currently experiencing something of a bloodbath in terms of heating oil – this has been on the horizon for several years.

Reduced demand because of coal, turf and wood burners plus, of course, gas is all having an impact; as indeed is the ridiculously high price of kerosene. Neither the RoI wholesale suppliers nor distributors are positioning themselves for lower volumes, so basically oversupply is the problem with too many pursuing the same reducing custom.

Under the subject Tackling low margins, some comments are pure genius – ‘sell smaller quantities without a premium’ – not many mainland UK distributors would agree with this logic!

Scraping the bottom of the barrel

Another distributor has found a niche market in selling 20ltr drums at its retail sites. Absolutely brilliant – what next? Forecourt pumps dispensing kerosene?

Many independent retail sites already have such pumps in addition to 20ltr drums now being sold at discount rates from many hole in the hedge operations across Ireland. The next development from this is the plague of unlicensed, non-ADR milk-float type vans that are now delivering and transferring drums into customers’ tanks. We’re now scraping the bottom of the barrel or 20ltr drum!

Another RoI distributor revealed – ‘it costs less to run a mini-tanker’. Anyone in fuel distribution who is unaware of this fact should not be in the logistics business.

Too many oil distributors

As businessmen we all appreciate basic economics – over supply + falling demand = poor margins and return on capital employed (ROCE)

The RoI heating oil market is oversupplied – simply put, there are too many oil distributors. This equilibrium imbalance can only be resolved by a reduction in supply options as demand reduces for heating oil.

This reduction in both supply and distributors is already taking place naturally through mergers, acquisitions and regrettably closures. I predict much more to come before there’s any good news for those left in the business. Several key large operators must lead the way; DCC is the obvious candidate but there are others.

A decent mergers and acquisitions strategy

In mainland UK, GB Oils, Watson, WCF, NWF, Goff, WP Group  etc, have all shown market leadership aspirations by acquiring both weak and strong competitors in what was an oversupplied market. Shaped by GB Oils, the seismic changes in UK supply options have steadied a few independent distributor ships that were otherwise sinking rapidly!

Maybe someone is cooking up a decent mergers and acquisitions strategy for RoI – we need it! My tip for Irish oil market participants in 2013 is that the market leaders need to act or the blood bath will continue.

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