It has recently been reported that Shell PLC based in London is reducing their ‘deal making’ staff by 20% without many further details. This apparent shift may be a reflection of a change resulting from a newly appointed CEO, who quickly announced a renewed focus on ROI return on investment, likely including a review of past investments.
This week they did announce they plan to sell 1000 corporate owned retail sites over the next two years, which might include sites in the U.S. Over time, the integrated oil companies have a history of investing and divesting retail locations, which are very labor intensive and quite different from finding and developing crude oil reserves. Of late, joint ventures have proven popular where the oil company partner is not the operator. We do know that demand for gasoline needs peaked in 2019 and declined sharply during Covid mostly due to work from home and from more fuel-efficient automobiles and trucks. Overall demand may be slowly improving, but likely to not see 2019 levels again at least in developed countries with low demographic growth prospects.
Fortunately, U.S. retail fuel margins reached record levels three years In a row, offsetting not only lower volumes, but also rising labor expense for stores and maintenance plus rising interest and rent costs for many operators. So far, Q1 2024 fuel margins are trending lower than prior year, so we’ll see how 2024 progresses. Companies with strong foodservice sales and those that can effectively use AI tools to reduce labor and optimize market mix and profit centers may be better positioned going forward.
Shell has been considered a progressive company that also tries to keep up with new fuels, etc., and has mentioned using funds provided from store sales for new EV charging stations. And, after all, they could tie a sale contract to the purchase of fuel from Shell and retain that benefit.
The other potential sign of the times is that quite likely there are a number of industry sites that will have difficulty achieving a return in their current method of operation. That may also explain why NRC has had steady success selling individual units or clusters of units for 7-Eleven, Circle K, Global Partners, BP, and more, often companies that have grown through acquisitions. Our auction process of sealed bidding for ‘one, some, or all’ is the key for sales of stores or clusters of stores or business segments that no longer achieve their expected ROI, especially important in today’s world of higher interest rates.
Please contact me or another NRC representative to discuss this subject further.
JEFF KRAMER
Managing Director
(303) 619-0611