The Gazpromneft gas station network

Gazprom magazine

zoomInterview with Gazprom Neft Director of Regional Sales Alexander Krylov

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— How is the Gazpromneft gas station network doing on the Russian market?

— I will say without exaggerating that at present, our company is running one of the most efficient and highly developed retail networks in Russia. Over the past year, Gazprom Neft has become the largest supplier of light oil products on the Russian market, having acquired a 21.6 percent market share. One of the company’s key business objectives is to grow the Gazpromneft gas station network, which consists of 1300 stations in Russia and the CIS.

The global research and rating company Nielsen recently conducted a survey of several thousands of motorists in dozens of Russian cities. In response to the question, “What is your favorite gas station?” a quarter of survey respondents named Gazpromneft, which became the most popular gas station network according to that poll. The number of customers who participate in the “Nam po puti” [“We’re going the same way”] bonus program, which has already reached 3.3 million, also speaks to consumers’ trust for our brand name.

It’s not just the results of various surveys that testify to the successful development of the network. It’s also the significant growth in sales, which reached 6.6 million tons throughout Russia over the last year, representing a 34 percent rate of growth. Other operational indicators have also gone up. Gasoline sales reached 4 million tons, while diesel fuel sales reached 2.4 million tons, representing respective increases of 26 and 51 percent.

As a result, we had already practically reached our strategic goals for 2020 by the end of 2012, and we found ourselves faced with the question of reconsidering our strategy. We previously had sought to expand the scale of our business and build a strong brand name for the Gazpromneft gas station network. We’ve already completed that phase. The new strategy is built upon improving the efficiency of each individual gas station and the network as a whole. In order to reach our new, ambitious goals, we have put together a project for restructuring the company’s sales business.

— Please tell us in more about the restructuring project and its objectives.

— The restructuring process has already begun, and it involves separating wholesale and retail business. Instead of sales enterprises registered according to their location, there are eight new subsidiaries. Instead of covering a specific geographic area, each of them covers a specific type of business. This includes separate enterprises for wholesale and retail sales, quality control, transportation, fuel storage, and servicing of corporate customers.

The main purpose of the restructuring is to raise the efficiency of sales and corporate management. We are planning to achieve that effect by simplifying and fortifying our sales structure. Furthermore, it will be easier to track the financial results and efficiency of each type of business. Separating wholesale and retail also corresponds to Russian Federal Antimonopoly Service initiatives, and Gazprom Neft is the first oil company to undertake such a reorganization. Ultimately, we are planning to achieve even higher results both in the Gazpromneft gas station network and in the wholesale business.

— What will the new structure look like?

— Gazprom Neft has registered LLC Gazpromneft Regional Sales in Saint Petersburg which will run the retail side of the house. This company has four cluster branches: a central cluster in Moscow, a Ural cluster in Tyumen, a West Siberian cluster in Omsk, and an East Siberian cluster in Kemerovo. Gazpromneft Regional Sales sells petroleum products to small-scale wholesale customers, and provides regional logistics services. The central wholesale cluster was the pilot cluster, and it began operations in April 2013. The Ural and Siberian clusters began operations on June 1, 2013.

Reorganization of wholesale sales began in June 2013, when petroleum product supply enterprises were combined into three clusters: a central cluster in Saint Petersburg, a Ural cluster in Yekaterinburg, and a Siberian cluster in Novosibirsk. This way, retail sales throughout the country, including the Gazpromneft gas station network, will be managed by just three enterprises: Gazpromneft Northwest, Gazpromneft Ural, and Gazpromneft Novosibirsk. The reorganization will go unnoticed by Gazpromneft gas station network customers. For them, only the name of the enterprise on the receipt will change.

— Has the rebranding of stations completed?

— Practically all of our gas stations carry the same retail brand name, Gazpromneft. We built a total of 95 gas stations, renovated 255, and rebranded 462 gas stations in Russia from 2009 to 2012. This year, we are continuing renovation of the networks that previously operated under the brand names MTK, Mosnefteprodukt, and Korimos, and we are planning to finish this by the end of 2015. We are renovating 68 gas stations, 33 of which will begin operating as automated stations, i.e. without the constant presence of personnel.

Not just a sign

— It’s important that rebranding means more than just a change of sign. Modern process equipment, which makes it possible to ensure a high level of environmental and industrial safety, is being installed at all new Gazpromneft gas stations. We monitor air quality and soil conditions at the stations. They are equipped with automatic fire alarm and fire sprinkler systems, rain water treatment facilities, vapor recovery systems, and double-walled tanks that prevent petroleum products from entering the soil.

— How is the gas station network doing in the CIS countries?

— Our gas stations operate in Tajikistan, Ukraine, Kyrgyzstan, Kazakhstan, and Belarus. Each market is unique. For example, a network is already up and running in Kyrgyzstan. One hundred sixteen stations are operating there under the Gazpromneft brand name, and we are committed to raise the level and quality of services to the greatest extent possible. The network is doing pretty well in Kazakhstan too. Forty-one stations have been acquired or built there. We have 25 gas stations in Tajikistan, and 40 in Belarus. The number of gas stations will grow in those countries, too.

Last year, we entered the Ukrainian petroleum product retail market using a franchising system. Four gas stations that comply with our network’s unified standards and requirements are currently operating on the Kyiv-Odesa highway under the Gazpromneft brand name. Our specialists regularly inspect fuel quality and the level of services at the Ukrainian Gazpromneft gas stations. Furthermore, we are looking at ways of creating our own sales enterprise and our own gas station network in Ukraine.

Convenience stores

— By the way, since we’re talking about development of the network, I’d like to know how successful are your convenience stores.

— Speaking as a whole, producing things under our own trademark and selling them at gas stations is one of the important tendencies in developing this line of business. Such products are becoming a tool for the promotion of our retail brand names. At the same time, the company can strictly control the quality of those products, ensure that they are constantly in stock, and provide optimal retail prices.

Gazprom Neft produces goods under its own two trademarks: the Gazpromneft gas station network and the G-Drive premium fuel brand. I want to specially emphasize about this that Gazprom Neft has developed a strategy under which the sale of such products at gas stations not only makes the gas station network more attractive to customers, but also becomes an effective retail business. The share in sales of non-fuel goods and services is expected to increase by several times by 2020, while income from the convenience stores should cover a significant amount of retail operational costs. There is a basis for this strategy. In 2011, our revenue from convenience stores sales and services at Gazpromneft gas stations in Russia grew by 65 percent, and it grew by another 49 percent in 2012.

Fuel

— How successfully are you promoting your brand-name fuel?

— G-Drive premium grade gasoline is now being sold throughout Russia. At those gas stations where it is sold, its share in 95 octane gasoline sales stands at 30 percent. The great results of promoting this fuel has allowed us to lauch 98 octane G-Drive fuel on the market, sales of which began in March 2013 in Yekaterinburg and Sverdlovsk Oblast. The G-Drive premium fuel trademark also won the Effie 2012 Brand of the Year award this year. The Effie award is given to the most successful projects in the creation and promotion of brand names in individual product categories. Another important stage in the promotion of G-Drive fuel was a strategic partnership agreement with Nissan. This was an important decision for us, as a result of which Gazprom Neft become the exclusive supplier of G-Drive fuel for the first fueling of Nissan automobiles. Just this year, we will fill up approximately 50,000 cars produced at the factory in Saint Petersburg with our new-generation fuel. And when the new owner opens the gas tank, he will immediately see a sticker saying “Nissan recommends G-Drive fuel.”

— What was the volume of natural gas sold as motor fuel in 2012? And how many of your stations are currently offering natural gas?

— As for liquefied petroleum gas (LPG), we sold over 93,000 tons, and we sold about 8000 tons of compressed natural gas (CNG). At present, the share of LPG and CNG in the structure of motor fuel consumption is relatively small, less than 4 percent of total consumption.

Consumption of LPG has the prospects to grow between now and 2020 at approximately the same rate as consumption of liquid motor fuel. As for CNG, its main potential is concentrated in the major cities, especially Moscow and Saint Petersburg. Consumption of CNG may grow ten times from its current level by 2020, i.e. about 4 billion cubic meters per year.

Within the Gazpromneft gas station network, LPG is sold in Moscow, Tver, Nizhny Novgorod, Omsk, Sverdlovsk, Kemerovo, and Novosibirsk Oblasts, in the south of Tyumen Oblast, in the Northwest region, and in Krasnodar Krai. Eighty-nine stations have facilities for fueling cars with natural gas. Eighty-five stations sell LPG, and four sell CNG. We are planning to commission multi-fuel automotive fueling complexes that provide gasoline, diesel fuel, and natural gas. The first Gazpromneft multi-fuel automotive fueling complex opened in late 2012 in Saint Petersburg. Several more multi-fuel automotive fueling complexes will open in the Central and Northwest regions, including stations along the M1 and M10 federal highways.

Interviewer: Alexander Frolov