Profitable Fuel Companies: Is That Possible in Mexico?
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Profitable Fuel Companies: Is That Possible in Mexico?

Photo by:   Santiago Arroyo
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By Santiago Arroyo - Ursus Energy
Director

STORY INLINE POST

Currently, there is a great deal of uncertainty surrounding the gas market in Mexico, but what industry is exempt from being in a similar environment? To this end, let us answer one of the big questions for those who invest or want to invest in retail fuel sales: Is it profitable to have a gas station in Mexico?

To answer, it is necessary to understand the value of fuel sales in Mexico in recent years, as illustrated in the following table:

Table 1. Value of oil sales in Mexico 2019-2022, with data from the Ministry of Energy

It is important to note that both the volume and value of oil sales, despite the COVID-19 pandemic, have increased substantially, which means potential investors and entrepreneurs with intentions to enter or expand in Mexico’s  retail fuel sector can consider it a positive business environment.

However, it is worth mentioning that this considerable increase in the value of oil sales is not evenly distributed across the various economic levels of the sector (midstream and downstream), nor among all the activities regulated by the Energy Regulatory Commission (marketing, distribution, dispensing, storage and transportation). Despite this, the fact is that the condition of high demand and price increase has produced an increase in company profits.

These gains are found mainly in the midstream, specifically in the activities of import, marketing and distribution, which, it should be noted, is not at all negative, since it is necessary to understand in depth this important economic item, which, by its very characteristics, allows you to have more efficient processes from a financial perspective. Therefore, this economic level of the oil market will be one of the most profitable, but at the same time, one of the most competitive due to the presence of large companies with a significant level of financial strength, coupled with the fact that the mobility of profit margins is less flexible, which leads to more complex strategies to provide a sustained expansion of the company.

In the case of the Mexican downstream, specifically in the area  of retail and  gas stations, margins remain limited, but unlike other activities. such as marketing and distribution, the mobility of margins is more flexible and with a complex diversity to achieve sustained growth of companies. Even so, this is the fuel business area with the greatest growth prospects, since the plurality of competitors, the breadth of the geographical areas of influence and the new technologies available for the management of offices and business administration are extremely broad.

In this way, we can observe that companies and investors in the gas sector face very defined challenges and that they can be overcome with a factor of great importance: planning.

It might sound redundant and, perhaps even reiterative, to point out the need for proper planning in business in general and, especially in fuels, but the usefulness of correct regulatory, risk and financial planning is a great reality. 

The foregoing, especially in the face of the regulatory hostility fostered by the Mexican government with delays in the granting of permits and authorizations as well as subsequent inspection visits that cause closures, become financial risks to be addressed with timely economic and legal diligence.

Achieving profitability in the midstream entails maintaining not only strength in the financial, legal, regulatory and risk areas but also a commercial team with enough experience to get the best prices and contractual conditions from suppliers. In this area, it is crucial to have a highly qualified human team, with knowledge and experience to apply the best criteria for the benefit of the company and, obviously, to properly value the remuneration of each of the members of that team.

Finally, in the downstream segment, technology plays a preponderant role in maximizing profit margins.

It is very common for Mexican gas stations to have extensive facilities and huge human teams to attend to tasks; however, all that is dispensable. Huge human teams can be replaced with management, monitoring and dispatch systems, just as facilities tend to be more efficient, reduced, and even environmentally sustainable.

In short, in service stations, technological substitution plays a very important role in expanding the company's margins, although this does not completely remove the human factor from the equation. On the contrary, it allows the human element to  specialize. This means that the associates in a service station will be able to handle more complex processes with technological support, which, in turn, implies an improvement in the activities of the human component and the possibility of increasing their salaries as a result of the specialization of the workforce.

Finally, this text is an invitation to learn more about our businesses, adapt them to the new realities we live in and continue with the growth of companies that, without a doubt, are also necessary for the improvement and development of the living conditions of the people around us and who collaborate with us.

Photo by:   Santiago Arroyo

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