Shell’s move to run its own convenience stores spurs 7-11 expansion plan

Expansion expected to counter any impact from end of Shell ties.

Convenience store chain 7-Eleven is confident that its expansion plans will offset any hit it might take when its 11-year partnership with oil giant Shell comes to a close.

The partnership has allowed 7-Eleven to place stores in Shell petrol stations across the island, but that arrangement ends this year. Shell intends to run its own convenience stores within the stations.

7-Eleven, which has 422 outlets here – including 56 under the partnership with Shell – said its plans to open 30 standalone stores island-wide by the end of this year, along with 50 more next year, remains “on track”.

7-Eleven Singapore CEO Steven Lye said yesterday: “With our store growth plans… the impact to 7-Eleven from (the conclusion of the partnership) will not be material.”

The Straits Times reported that Shell will end its partnership with 7-Eleven as part of a move to rebrand its petrol stations to be in line with its “long-term business strategy”.

The rebranding exercise has already started, with the launch of its Tampines Avenue 2 station in June. Shell Singapore retail general manager Aarti Nagarajan added that a “national revamp will take place gradually in phases with the introduction of Shell Select and Deli by Shell”.

Shell had engaged the 24-hour 7-Eleven chain to run its network of petrol stations here back in 2006, saying the move would allow it to focus on more profitable activities.

Mr Lye told The Straits Times that 7-Eleven has had “a good synergistic partnership with Shell” over the past years, contributing to the growth of Shell’s business with “positive outcome and increase in sales, profitability and customer count”.

He stopped short of providing figures, but noted that the Shell-7-Eleven stores have seen double-digit profit growth on average over the past decade.

“There were no contentious issues nor expressions of dissatisfaction with our performance from Shell,” added Mr Lye.”We respect their business decision not to renew the alliance arrangement.”

Dairy Farm International Holdings, which operates 7-Eleven outlets here, posted US$34.4 million (S$47 million) in operating profit for its convenience store segment – including stores in Singapore and the region – for the half year ended June 30. This was up from US$27.2 million in the same period a year ago.

It said sales were lower in Singapore as a number of stores were closed, although earnings benefited as several had been unprofitable.

Shell now has 57 petrol stations, down from 68 some 10 years ago, and as many as 74 in 2003.

The drop reflects an industry-wide cutback, with the total number of stations here falling from 222 in 2003 to around 170 today.

Rival ExxonMobil has 62 Esso stations, all of which are operated by its alliance partner FairPrice. There are 26 Caltex stations, and around 40 SPC stations, based on its website.

Several sites were assigned for other uses by the Government when their leases expired, while others were deemed security risks as they were too near high-rise residential or commercial developments.

Dr Seshan Ramaswami, associate professor of marketing education at Singapore Management University, noted Shell’s move to launch its own brand of convenience stores spells great potential for differentiating the business, and in turn, possibilities for upside.

“Where a petrol station sits right amid a bustling residential neighbourhood, it may also attract many walk-in customers who come in only for non-petrol purchases,” he said.

“As Shell already has a lot of choice retail locations or stations across Singapore, it makes a lot of sense for them to take over the non-petrol retail business – so they generate an additional controllable source of cash flow.”

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