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In South Africa, there are several different petrol station franchises. According to BusinessTech, the most popular petrol stations in 2017 were Sasol, Shell, Engen, BP, and Caltex. While Engen has the largest network of fuel stations among these, Sasol attracted more customers as they drove past the station. It was noted that petrol stations with food retailers and/or fast food brands present in the forecourt consistently attracted more consumers.
The fuel industry has remained resilient throughout economic difficulties including recession. For the purpose of this project, I have chosen to research the strategic alliance between Engen and Woolworths. Woolworths Foodstops have been present in Engen fuel stations since the early 2000’s and have grown substantially.
Engen began as Vacuum Oil in the 1880’s and was renamed Mobil in South Africa in the 1960’s. This soon became a household name, however, after many years operating under this name, the company rebranded to Engen in 1993 and has since become one of the most recognizable petrol brands in South Africa. The energy company has presence in more than 20 countries in Sub-Saharan Africa and the Indian Ocean Islands with approximately 1500 service stations of which 600 have convenience stores.
Currently, PETRONAS, Malaysia’s national oil company, owns 80% of Engen & the remaining 20% is owned by Pembani, an empowerment firm which contributes to the essentials of Engen’s BBBEE compliance. While the company is based in South Africa, their products are exported to more than 30, the majority being in Africa and the Indian Ocean Islands. Both Engen’s refinery and lubricating oils blending plant are located in Durban and produce 135 000 barrels and 320 000 litres of product per day respectively. Their product range consists of various fuels and lubricants including automotive, industrial, aviation, and marine fuels and lubricants. They also produce and sell hydrocarbon solvents, as well as various polymers and bitumens.
The company believes in acting in a manner that is King Code Compliant and has embraced an ethical business culture to provide top quality petroleum products and convenience to their customers. Through their core values, Integrity, Ownership, Teamwork, Empowered and Performance, Engen aims to achieve while remaining a responsible corporate citizen. They believe that all employees should commit to these values.
Woolworths is a well-known food and clothing retailer in South Africa. It has operated successfully for many years. Their underlying values that guide all operations mean that the company will always put the customer first, be inspirational, responsible & collaborative while committing to quality to be a responsible retailer and add quality to the lives of consumers. The company has over 1500 stores spread across 14 countries, 12 of which are in sub-Saharan Africa. This illustrates the breakdown of Woolworths Holding Limited and shows basic statistics around their operations and sales processes. From this, it is evident that African spending makes up a large portion of the companies’ turnover. Woolworths Holdings Limited listed on the JSE in October 1997 and the share price at the close of the JSE on Friday the 5th of October 2018 was R47.
Woolworths opened its first 2 Foodstops at Engen in Cape Town in 2000 to test the viability of a forecourt model for the company. After a successful 3 year trial period, it was decided that Woolworths and Engen would expand the concept. The Woolworths Foodstop concept was innovative and the non-traditional location allowed Woolworths to reach consumers 24-hours a day. After the successful trial period, 3 stores were opened in Gauteng and by 2013, 50 stores were opened nationwide with 45 more expected to be opened by June 2016. There are currently 50 Woolworths Foodstops countrywide, of which 31 are in Gauteng.
In 2009, Engen and Woolworths partnered with Nampak to offer recycling facilities to their customers. This initiative highlighted the companies shared goal of reducing wastage and their commitment to being more environmentally friendly by reducing landfill waste. Recycling facilities for paper, cardboard, glass and plastic were installed at select Engen garages with Woolworths Foodstops. In 2014, Woolworths extended its Wrewards programmes to Foodstops at Engen garages. They were the first major retailers in the country to extend their loyalty programme to strategic alliance stores at fuel stations. This was done to learn more about consumer behaviour to improve their service delivery at these stores.
This strategic alliance has been successful because it provides convenience to consumers. Woolworths Foodstops have a variety of prepackaged meals, snacks and basic food items such as bread. Many consumers purchase these products on the way to work and on the way home in the evening. This location saves consumers time and thus builds brand loyalty. It has also served as marketing to new consumers.
The porter’s analysis is used to assess the attractiveness of a market and its profit potential. It consists of the following 6 forces:
This force assesses the ease or difficulty with which a new competitor can enter the market based on entry barriers. Currently, it would be difficult for a profitable strategic alliance to form between a fuel station and a food retailer as the top fuel stations either have their own food retail brand (Shell Select) have strategic alliances with food retailers (BP and Pick ‘n Pay) or have both their own food retailers and a strategic alliance (Engen with QuickStop and Woolworths). This effectively limits the opportunity for strong strategic alliances that could be a threat.
Existing strategic alliances have also built high levels of customer loyalty with both the fuel station and the food retailer. What this means is that a new entrant would have difficulty in building a customer base. Because of this, it is unlikely that new entrants would pose a large threat. It is however suggested that Engen and Woolworths ensure consistent consumer satisfaction. By extending the Wrewards programme to fuel stations, Woolworths has shown customers that they value their purchases at these Foodstops. This could be utilised to offer customers better deals and discounts at Foodstops to encourage them to continue shopping there. The convenience provided by the “delivery service” at Engen Edenburg is attractive to parents. This service allows parents to buy from the store without having to leave the car with their child. Petrol attendants bring purchases to the customers car while fuel is filled into the tank. By extending this service to other fuel stations, Engen can build a stronger consumer base, specifically with parents, and thus also a future consumer base with their children.
These strategic alliances can be costly to form due to legal costs when drawing up the contract. It is in the best interest of both parties to have legal assistance when drawing up this contract to ensure the fair treatment of both parties as well as to provide a clear understanding of terms within the contract. This acts as a barrier to entry for smaller retailers and fuel stations wanting to form strategic alliances. It is important for both Woolworths and Engen to understand the possibility of ending their strategic alliance at the end of the current contract term. For that reason, while each party wants to remain in the strategic alliance, they should maintain a good relationship. This will mitigate the risk of being replaced by other fuel stations or retailers. Woolworths and Engen have become related in the consumer’s mind and thus are when one acts in an irresponsible manner, both are affected. This could lead to the above risk of being replaced by another company. Therefore, both companies should act in a responsible manner to maintain a good relationship thus mitigating the risk new entrants pose.
There are currently many competitors in the market. Most fuel stations have forecourts with convenience stores making it increasingly difficult to differentiate from competitors. However, both Engen and Woolworths have are established in the market thus it is easier to maintain a loyal consumer base. It is important for both businesses to draw on this and continually market their products to both existing and potential customers. This will somewhat mitigate the risk of losing market share.
Due to fuel price regulation, price cannot be used as a competitive advantage over competitors. However, fuel stations have differentiated themselves through service and product quality as well as their forecourts. Engen and Woolworths are known to have service and products of high quality. This needs to be maintained for the companies to maintain the market share they currently enjoy. To do this, it is important to empower and grow employees in a manner that makes them feel valued. Employees should be trained and given opportunities to improve themselves including their earnings. It is also important to have employee benefits such as discounted meals and paid leave.
Woolworths food can often be quite expensive compared to that of its competitors, SPAR and Pick ‘n Pay among others. While the quality is often considered to be better, it is not always affordable and thus a large portion of the market is shut out. In order to gain a larger market share, Woolworths could consider introducing a more affordable range of food or having sales on products at the end of the month. Because consumers have the most money during this time, they are more likely to spend and in conjunction with the sales, Woolworths would become more attractive to the average consumer. Sales could include regular markdowns on products as well as promotions based on the amount of fuel you buy to attract consumers to Engen as well. By ensuring loyalty to both brands, they will be able to build a stronger and more loyal consumer base.
Specifically in this market, there is large potential for growth which Engen and Woolworths could use to their advantage. Utilising more technology to make sales both in the fuel station and the convenience store more efficient and enjoyable for consumers could build a stronger consumer base. Most consumers fill up their cars before or after a long trip or on the way from or to work. This means that most of the time consumers are in a hurry, tired and often frustrated. It is therefore important for Engen and Woolworths to make the entire transaction as seamless and efficient as possible. This can be achieved through ensuring technology is up to date as mentioned above as well as through ensuring employees are properly trained. This empowers employees which increases productivity and satisfaction but also mitigates the risk of mistakes and makes the consumers experience much more efficient. By empowering employees, employees happiness also increases which reflects in the way they interact with consumers.
A concern in the fuel industry at the moment is the effect on the environment. With more consumers becoming environmentally conscious, it is important for Woolworths and Engen to be as environmentally friendly as possible and ensure this is visible to the public. This can be done by expanding the recycling project with Nampak to more fuel stations. This will also create a convenient space for consumers to recycle their waste and thus creates a competitive advantage.
Engen has both a refinery and a lubricating oils blending plant in Durban as well as its own fleet. This means that Engen produces and transports its own products thus mitigating the risk the power of a supplier can pose on a company.
Woolworths however, is dependent on suppliers to deliver raw materials to factories. This poses a risk to the quality and pricing of products as well as Woolworths’ ability to produce food. What this means is that suppliers have power over Woolworths’ ability to produce products which will then be sold in the Foodstops nationwide. In the event that a supplier is unable to deliver the correct quality and quantity of raw materials, Woolworths operations will be compromised. For this reason, it is important to carefully choose reliable suppliers and build a relationship with them to ensure a reliable supply of raw materials at all times as well as to avoid being overcharged.
Another solution that can much better mitigate the risk suppliers pose to the company is backward integration. Backwards integration refers to internally producing some or all materials necessary for production either through a merger with suppliers or the creation of own supply mechanisms (such as factories or farms). This would mitigate the risk because Woolworths would produce its own materials and thus would no longer be dependent on suppliers to operate.
In the fuel industry, buyers have a large power over stations. Due to price regulations, all stations have to charge the same amount for fuel. What this means, is that it is easy for buyers to switch fuel stations with little to no additional cost. It is therefore important to ensure all Engen fuel stations provide excellent service and convenience to consumers. This can be done through basic CSR initiatives that motivate and empower employees thus increasing their satisfaction and drive to perform well. Examples of this include compulsory paid leave days, employee training, discounts in convenience store and for fuel among other initiatives. It is important to make employees feel valued to increase productivity and service quality.
Because it is very difficult to differentiate the fuel station itself, it is important to use the forecourt to gain a competitive advantage and grow a loyal consumer base. This can be done by offering exclusive deals at forecourts which incentivise consumers to choose Engen and Woolworths over other fuel stations and forecourts. South Africa is currently in a technical recession which combined with inflation has caused consumers to retract from spending and save more. Thus, by offering exclusive saving opportunities, consumers are more likely to buy from the fuel station and forecourt.
Caltex Oaklands currently hosts “pop-ups” on certain weekends. During this weekend, different food and beverage vendors pay to sell their products at the fuel station. Not only does this serve as an extra source of income, but it also creates a unique selling point and draws more consumers to the fuel station and forecourt. By utilizing a similar model, Engen can host smaller events with influencers as well as markets at bigger stations which would draw in more consumers and serve as marketing for the brands.
There are several other fuel stations in the country that can provide substitute products to consumers. For this reason, it is incredibly important for Engen to differentiate itself from competitors. This can be done through the quality of products, the quality of service and CSR initiatives.
To differentiate from competitors, it is important to ensure that Engen’s fuel quality is superior than that of its competitors. It is therefore important to ensure that fuel is transported and stored in the correct manner to prevent water getting into fuel and damaging the engine of a consumer’s car. It is also important to continually research and improve the fuel being produced to be better for both the consumers car and the environment. This will create a positive reputation for Engen and thus allow the company to build a loyal consumer base.
It is of utmost importance to hire employees that do not have criminal records and that are qualified (or can be trained) to do the job they are hired to do. This will ensure the company the ability to operate in a productive and efficient manner. However to ensure that the company does operate in a productive and efficient manner, it is important to empower employees and make them feel valued as mentioned before.
The fuel company already runs several CSR initiatives such as the recycling project with Nampak, Engen maths, science and computer schools as well as mobile libraries. Engen also runs a KlevaKids campaign which educates children on paraffin safety and screens all forecourt attendants for health issues to ensure their health and wellbeing. Through growing existing CSR initiatives, Engen will be able to gain buy-in and thus loyalty from the community and grow the community around them thus fulfilling the people portion of King Code.
Woolworths currently differentiates itself from other forecourt stores through its product quality. It is therefore important to uphold this quality to avoid losing market share because of consumers opting to buy from alternative stores. The food retailer should also ensure good product and service quality and invest in CSR & CSI initiatives to increase market share as mentioned above for Engen.
Currently, the Woolworths Foodstop serves as a complementary product to the fuel. This is because consumers often buy their fuel when they are going to work or on a journey and returning from either. This means that most consumers are either in a rush or tired. Therefore, the convenience store serves as a good place to buy a meal, snacks or essentials such as bread. Thus, the products in the convenience store serve as complimentary products due to the convenience of being able to fill up your car and buy food at the same time.
Other complementary products Engen could consider are car washes and fast food brands. These could attract more consumers and thus create a competitive advantage. Because the consumer would then have more choice while still having the convenience of being able to do more things at once, the fuel station is more likely to draw more consumers. Well known fast food brands would also already have a loyal consumer base. Thus, the fast food store would attract consumers to the store and as an extension, the fuel station and Foodstop. This serves as marketing and in the long term can be used to build a loyal consumer base.
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