BPCL's Petrol Pump Retail Revolution: 

The
Pioneer
Petrol pumps in India have come a long way from
being dusty, poorly lit places manned by shabbily
clothed and indifferent personnel, to the shopping
malls of the early 21st century.

Bharat Petroleum Corporation Ltd. (BPCL), a leading

player in the Indian petroleum industry, received wide
acclaim for having brought about this change in the
Indian fuel retailing business.

In the mid 1990s, the oil industry felt the need to

establish strong brand identities; until then, the
industry seemed to have adopted an indifferent
approach towards customer service.

With the deregulation of the oil industry due in April,

2002, Indian players realized that they needed to
become more customer focussed.1 BPCL's pioneering
efforts in creating brand awareness for its products
were thus a welcome change. Till the mid 1990s, a
typical petrol pump owner seldom interacted with the
oil company whose franchise he held.
However, with the new found retail focus of the late 1990s, companies started taking
immense interest in the retail outlets. BPCL's first foray into petrol pump retailing was
through Bharat Shell Ltd. (Shell), its joint venture with Shell Overseas Investments of
Netherlands. Shell launched the first convenience store (C-Store) 2 stocking over 1,000
different items. The store, offering eatables, soft drinks, stationery, newspapers,
magazines, frozen foods, light bulbs audio cassettes and CDs, came as a pleasant surprise
for Indian consumers.

By mid 2001, petrol pumps at almost all major locations in the metros had set up retail
outlets. However, BPCL was reported to be much better positioned than its competitors,
Indian Oil Corporation (IOC) and Hindustan Petroleum (HP) to meet the MNC onslaught
after deregulation. BPCL was also reported to be fine-tuning its marketing and retailing
strategy.

The Background
BPCL's history dates back to 1951, when the Government of India entered into an
agreement with the UK based Burmah Oil Company and Shell Petroleum Co. (Burmah-Shell)
for establishing an oil refinery in Bombay. In 1952, this agreement led to the incorporation
of Burmah Shell Oil Refineries Ltd. In January 1955, the refinery at Bombay went on
stream, and in 1962, the refinery started processing crude oil from Ankleshwar in Gujarat.
In December 1975, following the passing of 'The
Burmah-Shell (Acquisition of Undertaking in India)
Bill,' the Government of India signed an agreement
with Burmah-Shell. Subsequently, the government
took over the operations of the company and changed
its name to Bharat Refineries. Initially, the company
sold only kerosene, but later it set up service stations
to sell petrol as well. Bharat Refineries became the
first Indian company to introduce LPG for domestic
cooking purposes.

In January 1976, the Government acquired 100%

shares in the company, and in August, 1977, the
company's name was changed to Bharat Petroleum
Corporation Ltd. (BPCL). The economic reforms of
1991 paved the way for major changes in BPCL. The
company entered into marketing contracts with Indo-
Burmah Petroleum (IBP), Madras Refineries Ltd.
(MRL) and Cochin Refineries Ltd. (CRL). In 1992, the
government disinvested 30% of its stake in BPCL in
favor of financial institutions and mutual funds. The Rs
10 share created a record on the bourses when it
opened at Rs 1,275, the highest ever opening among
public sector companies.
In 1993, BPCL tied up with its erstwhile partner Shell, to form Bharat Shell Ltd. (BSL), with
the latter having a 51% stake. In 1994, BSL launched lubricants under the Shell brand.
These were marketed by BPCL as well as BSL. By the late 1990s, BPCL had emerged as
India's second largest oil company in terms of market share.

In April 1994, 3.8% of BPCL's equity was disinvested in favor of its employees. In 1998-99,
the Government decided to further divest 26% of its stake in BPCL. The Government
identified BPCL as one of the nine 'Navratnas'.3 This move gave BPCL greater freedom to
develop employee policies. It also enabled the company to take decisions regarding capital
project expenditures without government interference. In 1999, BPCL acquired a 32% stake
in Indo British Petroleum (IBP).
BPCL's Mumbai refinery consistently operated at over 120% of its 6.9 million metric tonnes
per annum (mtpa) installed capacity. It had the ability to process a wide variety of crude,
and its proximity to the Bombay High oil field enabled it to meet most of its crude demand
domestically (only 15% was imported). To make up for its limited refining capacity, BCPL
formed a strategic alliance with Chennai Petroleum Corp (which was later taken over by
IOC) to sell the products produced in the latter's 6.5 m mtpa Manali refinery.

Also, the government transferred its entire shareholding in Kochi Refineries (KRL) (capacity
7.5 mtpa) to BPCL. BPCL also acquired IBP's 19% stake in Numaligarh Refineries (NRL)
(capacity 3 mtpa) in West Bengal. These acquisitions, and the 9 mtpa refinery being set up
at Bina in Madhya Pradesh, were expected to address the limited refining capacity problem
in the future. By mid-2001, BPCL's nation-wide retail network comprised 4,500 outlets, 60%
of which were company-owned or leased - the highest percentage among the oil PSUs.
Next >>
The Background Contd...
Retail sales accounted for around 60% of the company's sales volume, with the average
sales per outlet being 223 kl per month. In 1999-00 its market share was 32% in petrol and
27% in diesel. The company was particularly strong in the western and southern regions.
However, its share in lubricants, the most profitable product, was relatively low, partly
because of its dependence on other oil companies for the base oil needed to make
lubricants.

The Retail Initiatives - Phase

I
The petroleum business can broadly be divided into
three parts: the production of crude, the refining the
crude into saleable products like petrol, diesel,
kerosene etc., and retailing. Though margins were
usually high in crude production, it was a high-risk,
long-gestation business. As far as refining was
concerned, there was excess capacity worldwide and
margins were rather low.

It was only in marketing was that companies could get

the maximum margins, and hence the rush to
renovate the retail outlets. Also, add-on services were
expected to help the oil companies increase the extent
of non-fuel businesses around their outlets. (Globally,
non-fuel business accounted for a substantial portion
of petrol pump margins.) As part of the nationalization
drive in the late 1970s, BPCL took over Shell's
marketing network. This acquisition gave BPCL a
strong marketing network and choice locations in
cities.
In 1992, BPCL began its customer service improvement efforts with a market survey for
identifying the needs of its customers at retail outlets. The survey revealed the need for a
good and accurate air gauge and the facility to pay by credit cards. The survey also
indicated that customers would like to be able to purchase soft drinks at these outlets.

In response to the above findings, BPCL tied up with Apollo Tyres and installed 'accurate'
tyre gauges (provided by the tyre company) at most of its outlets. BPCL also signed an
agreement with the soft drinks major Pepsi Co. and made the entire range of Pepsi soft
drinks available at its outlets.
BPCL was the first oil company in India to issue a co-branded credit card in a tie up with
Bob Card Limited in August, 1995. The card was launched in select cities to enable
customers to purchase fuel on credit from any of its outlets in those cities. The vehicle
owners could even authorize their drivers to purchase fuel using this card. This facility was
particularly useful for fleet operators and truckers who would otherwise have to carry huge
amounts of cash on their long-haul routes.

BPCL took special attention to avoid the problems an average petrol pump owner associated
with the usage of such 'petrocards,' e.g. the long time taken by oil companies to collect the
card slips and reimburse petrol pump owners. Also, the transaction fee (below 1%) offered
to them was considered to be very low.
The Retail Initiatives - Phase I Contd...
BPCL gave the cardholders pre-embossed slips so that the pump attendant did not have to
run the card and slips through the embossing machine. The company made arrangements
to collect the charge slips of the day the same evening, and depositing them at the BoB
cards office - where the cheque for each dealer was prepared immediately for delivery the
next morning.
During 1998-2000, BPCL took the help of consultants
Arthur D. Little to make itself more 'market savvy.'
BPCL CEO, U Sundararajan, said, "If our staff had to
be geared to satisfy the customers, we needed to
change our organizational structure."

The company was split into six strategic business units

(SBUs) and efforts were taken to reduce bureaucracy
and increase interaction between senior managers and
the customers. The six SBUs thus identified were retail
outlets, commercial users, lubricants, LPG, aviation,
and refinery.

This classification helped the managers focus on

specific customers and cut bureaucratic layers,
speeding up decision-making. For instance, while
earlier a sales officer typically serviced customers from
30 retail outlets, 12 LPG distributors, six kerosene
dealers, and 10 bulk customers, now he talked to
customers from a specific SBU. Earlier, only General
Managers had the right to decide on discounts offered
to BPCL customers. Under the new regime, even sales
officers were authorized to take such decisions.
BPCL also set up cross-business councils that functioned across the six SBUs in areas like
strategy, human resources, and brand building. This restructuring gave special emphasis to
marketing: BPCL initiated a series of steps for taking the company closer to its customers.
The 22 divisional offices were replaced by 61 branches in smaller territories, based on
smaller geographical areas, resulting in closer interaction with the customers. For instance,
earlier a division office at Jaipur looked after the entire state of Rajasthan. Now, four
territory managers in the state managed the smaller geographical areas.

The most important change on the marketing front was the renewed focus on retail outlets.
In the early 1990s, BPCL identified 1,234 new outlets that would be strategically critical
after deregulation of the industry. The company then appointed a 'site procurement team' to
acquire these outlets. The team had the authority to talk to the owners of the sites and take
decisions on their own. Within a short period, the sites were acquired.
BPCL then started modernizing individual petrol pumps throughout the country and
launched the 'Bazaar' range of stores on the lines of Shell's 'C' stores. To complement the
launch of the first few 'Bazaar' outlets, BPCL released an advertising campaign as well. The
five advertisement press campaign carried the baseline: 'Each pump has a story to tell - a
story of care & commitment.'

The Retail Initiatives - Phase II

By July, 1999, 35 of BPCL's retail outlets across the country had the 'Bazaar' stores running
successfully. In October, 2000, BPCL pioneered another revolutionary concept by launching
a McDonald's fast food outlet at a petrol pump near Mathura (UP) on the Delhi-Agra
highway. The 4,000 sq.ft., 180 seat outlet was set up at a cost of Rs 40 million. McDonald's
paid a fixed rent, besides a percentage of its sales to BPCL, for using the facility. The outlet
was expected to pull in foreign and domestic tourists headed to and from Agra, besides the
residents of surrounding areas.
The Retail Initiatives - Phase II Contd...
The company closely monitored the performance of these retail outfits and through
customer feedback. Based on its findings and the recommendations of consultants Dhar &
Hoon, BPCL realized that it needed to further modify and improve the 'Bazaar' stores.
BPCL's research on these outlets across the country revealed that most of the customers
arrived between 8 pm to 11 pm, usually on their way back from work. So, the company
decided to keep the stores open till at least 11 pm. BPCL realized that a lot of the products
being stocked, like soft toys were not really selling. As a result, the company reduced the
range of products being carried and focussed on impulse products like chocolates and
essentials like milk.
In January, 2001, BPCL further upgraded the 'Bazaar'
stores and, a month later, launched the 'In & Out'
stores at around 40 outlets in Bangalore, Mumbai,
Delhi, Kolkata and Chennai. A BPCL spokesperson said
that the stores intended to offer all the 'top of the
impulse' items to customers. The company planned to
convert the complete 'Bazaar' network into this new
and larger concept in a phased manner. Around 600
outlets were targeted in the first phase of expansion.
After the metros, BPCL planned to launch these stores
in north Indian cities like Chandigarh, Amritsar,
Ludhiana, Jammu, Jaipur, Udaipur, Lucknow, Agra and
Meerut.

To offer enhanced services to its customers, BPCL tied

up with various companies from a number of different
industries: fast food, photography, music, financial
services, ISPs, e-commerce portals, document centers,
ticketing, greeting cards, ATMs, and courier services.
The companies involved were McDonald's, Tata
Internet Service Ltd., Pepsi, Kwality Walls, DHL,
Skypak, Essar, Kodak, HMV, Sony, Qwiky's, Canon,
ITC, UTI Bank, Standard Chartered Bank and Kotak
Securities.
These companies were all given counters within the stores for selling their services. The 'In
& Out' stores remained open till around midnight and reopened around 4 am. The company
was closely watching the traffic at each outlet and was planning to extend the working
hours if needed. The 'In & Out' outlets offered Internet browsing facility, along with
assistants to guide the customers with their online shopping. BPCL also proposed to use the
Internet facility to deliver products to consumers in a timely and cost-effective way.

While products could be sent to the customer's geographical area easily, it was not always
easy getting them to their houses when the customers were home to receive the goods.
BPCL proposed to use the solution developed by a US based company Peapod, which used
the local petrol pump as a delivery point. The products were delivered to a BPCL outlet so
that people could come and collect them. The customers could even call the outlet when
they were home for the goods to be delivered. Thus, the petrol pump acted as a convenient
channel between the companies and the customers.
One of BPCL's innovative plans concerned the distribution of LPG cylinders. A company
source said, "For couples who are both out of the house on work, getting the gas cylinder
delivered is a big problem." This prompted the company to implement a Fixed Time delivery
system, where arrangements were made with the local dealer, or even over the Internet, to
have the cylinder delivered at a particular time, rather than in the course of the delivery
man's rounds.

With an investment of around Rs 6,00,000-9,00,000 per 'In & Out' store, BPCL expected the
convenience stores to break even by February 2002. The company was expecting daily
revenues of Rs 25,000-30,000 from the bigger stores and Rs 8,000-10,000 from the smaller
ones. BPCL's rivals, IOC and HPCL, had also begun refurbishing their petrol pumps - IOC's
stores called 'Convenio' were running very successfully across the country. The one who
gained the most from this new found retail focus of the oil companies, was the customer.