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The Warsaw Voice » National Voice » October 26, 2012
Britain in Poland
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Play Fair Please
October 26, 2012   
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Bogdan Kucharski, chief executive officer BP Europa SE, Polish Branch, talks to the Voice’s Ewa Hancock.

The economic situation in some European Union countries is very difficult now and there are growing fears about Poland’s ability to cope with the consequences of the crisis. Meanwhile, BP has accelerated the development of its chain and plans new investment projects.

A crisis and a downturn are parts of economic reality just as expansion and output and demand growth are. Building a large business is impossible without thinking long term—without creating a long-term strategy, one combined with the right product and service line and offering the potential to generate satisfactory profits. When we started operating in Poland 20 years ago we considered it to be a very attractive market. We have already invested here over $1 billion and now—in connection with our plan to significantly increase our market share—we are spending tens of millions annually because we think that Poland is still an expanding market. The number of cars is on the rise, new roads are being built and new opportunities resulting from integration with the European Union are emerging. Despite all these changes, people in Poland still consume less than half of the fuel products consumed per head by people in Western European countries. We should exploit this potential because it opens attractive prospects.

Of course, we should be aware that there is still much to be done and that the fuel sector is waiting for solutions to several important issues to enable even more rapid growth.

What is the biggest problem of the sector now?
One of the main problems is the informal economy, which is still growing. In this context, it was with concern that we received the news that the Economy Ministry is planning to abolish fuel trade licenses. To operate in the fuel sector, an organization would only need to be entered into the register kept by the Energy Regulatory Office, which is just a formality. This would mean pushing the door wide open for the illegal economy. Meanwhile, as an example, unregistered business accounted for 6-7 percent of the diesel fuel market in the first half of 2012. Dishonest suppliers are able to offer products at lower prices because they do not have to bear the financial costs or operate in keeping with quality and safety standards. It is a very bad situation on the market. It is harmful for the government, which loses billions of zlotys in unpaid excise tax and VAT, for consumers because they refuel their cars with smuggled fuel, which in fact is subject to no quality controls, and for the fuel companies, which operate in a fair way and want to expand. Please remember that the Polish fuel sector provides employment to around 50,000 people and that in 2011 receipts from VAT, excise tax and fuel tax exceeded zl.50 billion, or around 20 percent of Poland’s total tax revenue.

We are not demanding preferential treatment. What we want is to be able to compete under free market rules.

In Poland, the costs of accepting credit and payment cards by points of sale range from 1.6 to 2 percent and are the highest in the European Union. Sometimes, the amount is reportedly higher than the fuel margin.

It is true. This is another problem. If solved, the profitability of gas stations would improve and at the same time they would be able to offer lower prices to customers. The huge costs associated with accepting card payments, especially the interchange fee, which accounts for around 90 percent of the total costs involved in payment card transactions, mean high business expenditure and consequently higher prices for customers. We support the development of non-cash transactions, of course, but we expect that they will be based on reasonable rules and principles of market competition. This is why we support trade organizations, such as POPIHN and FROB, which work to solve this problem. Despite many efforts, we have not managed to reach a compromise with all the interested parties, mainly because of the decision by the MasterCard company, which refused to join a program worked out under the auspices of the central bank (NBP). It seems that the only way to solve the problem is for the government to adopt appropriate regulations. There are at least several potential benefits resulting from reducing the interchange fee: electronic payments would become more popular, the cost of cash money handling born by the state would go down, and the informal economy would be significantly curbed, meaning higher receipts for the national budget and an obvious benefit for all Polish people. It is also important that, on a market as highly competitive as the fuel sector, the savings resulting from a reduction in the interchange fee would definitely be passed, directly or indirectly, on to the end consumer in the form of discounts, bonuses, higher spending on loyalty programs and so on.

The development of the network of freeways and expressways that we have seen in the past several years is associated with the need to ensure appropriate service to drivers and other travelers in rest areas. You already manage such facilities and you have been awarded contracts to develop them in several new locations.

Companies which want to be a force to be reckoned with on the Polish fuel market have to be active along the freeways. The rest areas have a potential and can generate much higher sales than the average for the market as a whole. It comes as no surprise then that the largest operators present in Poland are competing for them. The same is the case elsewhere in the world—this is good business for both road operators and gas station owners. However, there are several conditions that have to be met: a logical and complete road network, the regulatory requirement for heavy vehicles to move on such roads, and tender terms designed to encourage the operators to continue to invest. When it comes to road projects in Poland, there are still only individual road stretches under construction. Freeways are being built in fits and starts and the freeway network is fragmentary: it is still impossible to travel across the country using exclusively freeways. There are many roads which cannot be used to their fullest potential. The best example is the S7 expressway linking the coastal city of Gdańsk with Warsaw and Cracow. Drivers have an opportunity to use several modern stretches on this road, but get stuck in traffic jams on the remaining stretches.

In this situation, too much is being expected from the operators. The short project deadlines and the excessive, in my view, requirements regarding the range of rest area facilities may result in a deterioration of their economic performance and consequently produce the opposite effect from what is intended—a drop in government revenue and a deterioration in traveler service standards. The lease rates are so high now that if a location has a relatively smaller potential the question arises whether it is worthwhile, from the economic point of view, taking part in the tender.
We still hope that the situation will change so we make decisions to take part in tenders and invest in new facilities. At present, the BP chain includes six locations by freeways: two on the A4 freeway in Żarska Wie¶ near Zgorzelec, two on the A2 near Nowy Tomy¶l, one in Kołbaskowo, and one in Olszyna—and five locations by expressways: two on the S3 between Gorzów Wielkopolski and Szczecin, two on the S1 in Cieszyn, and one on the S7 in Grójec.

All these facilities are large, modern and have rich infrastructure, and the same will be true of the new stations, which will be built on the A1, A2, A4, A18 and S17.

And what about budget gas stations? They will be no competition to you on freeways, but in cities they may take away customers from you. Especially now that the fuel prices are high.

Our global experience of over 100 years shows that there is room on the market for both budget stations and premium stations, such as those operated by BP. The budget segment has lower fuel prices, but it also has its weaknesses—the range of services offered is limited as is the time for customer service. This service line is positioned in a totally different way and does not meet the expectations of the premium customer and the business customer, who value service quality, convenience, versatility and comfort, and who come to a gas station not only to refuel their car. But getting back to lower prices, it is worth noting that we are speaking about a discount of zl.0.05-0.10 per liter. When the absolute fuel prices ranged from zl.3 to zl.4 per liter the price discount of several groszy to over zl.0.10 per liter was significant in percentage terms. But as product prices grow while the rebate remains unchanged, the savings are increasingly small percentagewise. Will it be enough for budget gas stations to be real competition for premium stations? This is a question that the budget stations have to answer.

How then do premium stations attract drivers?
They attract them with their high service quality and a wide range of non-fuel services. Many of our customers are very active and busy people. When they come to our station to refuel their cars they also want to do some shopping, have their car washed and drink some coffee. At BP we have the most modern and largest chain of automatic and touchless car washes, which we are still modernizing. Our fleet product, BP Plus cards, is the most modern and most comprehensive fleet management solution, as the opinions of its users show. It is very important to carefully monitor the market, notice the changes which are taking place and new trends, and finally not to be afraid of innovative solutions. When in 2005 we were launching our Wild Bean Café stations, many looked at us with surprise. Why invest in high-class coffee machines? Why have a café at a gas station? But it turned out quite quickly that we were right—customers welcomed the new service and the whole sector followed in our footsteps, opening eateries under their own logos. Today, Wild Bean Café is a well-known and highly valued brand with a large menu. It is no longer only freshly brewed coffee, but also French bread pizzas, hot snacks and breakfasts. The menu enables us to compete with the popular food chains present on the market. The same is the case with our stores – what they offer depends on the needs of the location. Some of them are small stores with a basic range of products where people drop in to buy cigarettes or something to drink. Others are in the form of a supermarket or a convenience store where one can buy a whole range of everyday products.

However, while building our product and service line, we do not forget that our main mission is to provide drivers with top-quality fuels.
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