Malaysia is a significant producer of oil and gas, so much so that the petroleum and natural gas mining industry contributed 7.3% of the GDP in 2017. With average oil prices at a 6-year high ($82 per barrel at the time of writing), you might think petrol station owners are rolling in the dough. 

But the business model of petrol stations is a bit more counterintuitive than you might think. 

The Petrol Station Dealer Program

• First, there are two types of dealer programs: Company Owned, Dealer Operated (CODO) and Dealer Owned, Dealer Operated (DODO)
• CODO is where the company builds, equips and maintains the petrol stations while the dealer takes ownership of fuels and the convenience store products 
• Dealer also needs to pay a license fee to the company
• The second programme, DODO is where the petrol stations are owned and built by the dealers. They also take ownership of fuels, convenience store and inventories
• Dealers would also receive additional margin over and above the government's regulated dealers' margin

The Profit Pipeline

• If there is one thing that is ever changing in Malaysia, it is the price of our petrol
• We started off with the Automated Pricing System (APM) in 1983 then the government implemented the Managed Float System based on APM till now where we have a Weekly Fuel Pricing System
• Let's say you buy one litre of petrol for RM2.05 at your local station. Here's a breakdown of where that money goes:

• As you can see, the commission rate for dealers is already determined by the government. And after factoring in overhead - labour, utilities, credit card transaction fees, the average profit is slimmed down to ~5 sen to 8 sen per litre
• That would mean that petrol stations make an average net margin of just 3% on their fuel
• Assuming daily sales of 15k litres at RM0.08/litre, your typical station might only bring home RM1200/day from petrol

The Real Money is Made Inside The Store

• Usually, customers do more than just refuel their car when visiting a petrol station. Chances are, they will head inside the convenience store and end up buying some treats
• The goods inside these stores only account for 30% of the average petrol station's revenue, yet bring in 70% of the profit
• But most modern pumps have card readers, negating the need to go inside and pay, lowering down the average time a customer spends at a petrol station

The business environment for petrol stations in Malaysia is very difficult. The way I see it, if you want to make it, you'll need to take a page out of IKEA's playbook - make your customers come for the petrol but stay for something else.

Battling small margins, cutthroat competition, and the looming threat of electric vehicles, many petrol stations will be more reliant than ever on these secondary revenue streams.

Before you go...

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