Date
25 September 2017
Sinopec's convenience store network is more than 10 times the China operation of 7-Eleven. Photo: Bloomberg
Sinopec's convenience store network is more than 10 times the China operation of 7-Eleven. Photo: Bloomberg

Sinopec’s convenience store move leaves room for imagination

China Petroleum & Chemical Corp. (00386.HK, 600028.CN), also known as Sinopec, has formed a subsidiary – Sinopec Easy Joy Sales {易捷銷售} — to operate its convenience stores. The move came just a month after the oil refining giant announced that it is inviting private capital to come aboard.

Sinopec has been running the convenience store business since 2008, but without a team of retail professionals, its performance has been lackluster.

Still, CLSA industry analyst Simon Powell notes that Sinopec’s convenience store network is more than 10 times the China operation of 7-Eleven, indicating the vast distribution channel could bring huge business opportunities if managed properly.

Sinopec has 23,000 stores across 30,000 petrol stations, or a presence in 76 percent of its gas distribution network. Sales reached 13.3 billion yuan (US$2.15 billion) last year.

Investors will watch with keen interest how Sinopec is going to unlock the value of its non-oil retail business. Some even speculate the move marks a step towards a separate listing for its convenience stores arm.

Sinopec’s brick-and-mortar gas stations have been cooperating with fast-food chains like McDonald’s and KFC to generate additional income. Introducing more fast-food brands into the network is likely to speed up once the unit is spun off.

Not many are aware that Sinopec also has its own e-commerce platform, ejoy365.com, as well as an online oil cards platform, but without the right expertise, both businesses have been struggling.

Rumors have it that Alibaba is talking with Sinopec for some sort of cooperation, or the e-commerce giant may even buy a stake in Sinopec’s oil and gas distribution business. It won’t be surprising if this happens. And if it’s not Alibaba, there always will be someone else.

When asked if Sinopec will join hands with Alibaba to develop its e-commerce business, spokesperson Lu Dapeng admitted that the firm is not very good in that department. “We are more than happy to work with professionals to explore the market together,” Chengdu Business Daily quoted Lu as saying.

Sinopec chairman Fu Chengyu {傳成玉} once told media that boosting sales in its non-oil business is a key to improving profitability, and is a major step towards reforming the conglomerate. 

So convenience stores could just be the beginning. Looking at the experience of petroleum firms in developed countries, we would learn that some of them make as much as 50 percent of their profit from non-oil business such as catering and selling products like chocolate bars, bottled water and chewing gum which generally have high profit margins.

Automotive engine repair and carwash services are also popular non-oil income sources for major oil retailers. Spain’s Repsol, for example, has doubled its non-oil business, and it now contributes 37 percent of the overall profit, according to its official website.

– Contact the writer at [email protected]

CG

 

EJ Insight writer

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