Independents being squeezed out of Moscow fuel market

Filling stations are among the most profitable businesses in Moscow. The city has about 850 of them, but growth has been slow in the last couple of years, with virtually no space in town to build new ones. The secondary market remains the only opportunity

The availability of land is a key issue in the Moscow retail fuel market, and this is leading to intense competition for existing space.

About 40% of Moscow stations are owned by major oil producers like TNK-BP, Rosneft and Lukoil. The rest are owned by independent traders.

With operating costs rising by as much as 70% over the last two years, cost minimisation and economy of scale are becoming an increasing issue and smaller players are feeling the pinch.

“Each petrol price crisis, like the one that we witnessed in October-November, leads to the disappearance of small traders from the market, who are being forced to sell to the big players. I'm sure that the crisis will not be the last as we traditionally see the growth of wholesale petrol prices in autumn each year,” pointed out Evgeny Arkusha, Vice President of Russian Fuel Union .

In the face of expansion by large players,  the independents, protected by the Federal Anti-Monopoly Service, are banding together. Whereas one station can sell just 500 tonnes of fuel per month, larger groupings enable economies of scale when negotiating with suppliers. Nevertheless, analysts are seeing the smaller players coming under increasing pressure.

“I think that in the near future we will see that vertically integrated companies will enlarge their share in the market and independent operators will be squeezed out of the market,” predicted oil and gas analyst Vitaly Kryukov from Kapital AG.

TNK-BP is the current leader in Moscow with about 130 stations, but with Gazpromneft recently bringing Moscow refinery under its control and Lukoil believed to be interested in purchasing the Association Grand filling stations network, indications are that competition in the retail fuel market will intensify.