Paul Augé
Vice President of Business Development for Latin America
BP Downstream
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View from the Top

Downstream Focus on Market Share

Wed, 01/18/2017 - 13:53

Q: Why did BP focus on downstream for Mexico?

A: One reason we put a strong focus on downstream was the 2014 drop in oil prices. That showed us the importance of having a balanced portfolio, which helped the company weather hard times. We have restructured our business to include a larger number of assets in the downstream area, making us more efficient and strategy-oriented. We now consider downstream to be a critical business segment.

When the Energy Reform was enacted in 2013 we thought it was the perfect opportunity to tackle an important market that had been on our radar for a long time. We were quite cautious at the beginning. Our business development team here held talks with government agencies, asking whether deregulation was going to happen, creating close relationships and developing feasibility studies for our entrance. We now see the bones of a structured reform and the will of the government to keep pushing it.

BP’s goal is to achieve a material market share so the strategy regarding the number and location of the stations it manages varies greatly depending on the country. In Mexico, we expect our planned 1,500 stations will lead to a 15-18 percent market share. Our goal is to be among the top three brands in Mexico during the next five years. BP is working hard to build local capabilities that can handle that growth and also provide local expertise. Locations are determined by several factors such as demand, competition intensity and expected customer growth but of course regulation will remain a strong external factor.

Q: What will differentiate BP as it competes against PEMEX and other brands that also enter the market?

A: We really wanted to bring a differentiator and concluded that the best differentiator would be our technology. We are extremely proud of our investment in technology and how to improve our additives. Bringing that technology to Mexico was no easy task because it involved plenty of negotiations with PEMEX and other regulatory institutions that in the end allowed us to put the additives in their assets and transport them to our locations. This has really proved to be a key asset for us because consumers in Mexico are used to regular fuels that do nothing to improve their cars' performance. Market reaction has been extremely encouraging. We have seen lineups to fill up at our stations and that will allow us to further invest in the network.

how to improve our additives. Bringing that technology to Mexico was no easy task because it involved plenty of negotiations with PEMEX and other regulatory institutions that in the end allowed us to put the additives in their assets and transport them to our locations. This has really proved to be a key asset for us because consumers in Mexico are used to regular fuels that do nothing to improve their cars' performance. Market reaction has been extremely encouraging. We have seen lineups to fill up at our stations and that will allow us to further invest in the network.

We are working on apps that will make the entire customer experience friendlier and faster. One solution we already have in other markets is the BPme app, with which customers can pay, receive invoices and manage other services. In a place like Mexico City, where there is always a rush, this will be another key differentiator for our brand. We consider Mexico to be an excellent market for our digitalization services because it has more mobile phones per person than any of our markets. BP wants to implement the digital experience as soon as possible, maybe even as soon as the third quarter of 2017.

Q: How do BP’s additive technologies impact the environment?

A: From a regulatory perspective, allowing the inclusion of additives will enable Mexico to easily reach its goal of contamination reduction and fuel efficiency. For the additives to have a real impact on contamination and efficiency levels, consumption must grow. For that to happen infrastructure is a must. Mexico has a clear lack of infrastructure in the midstream sector that breaks downstream market flexibility. The solution requires a significant amount of investment. Even if the refining sector does not get revamped and companies decide to increase imports, the infrastructure cannot handle it. That is a big problem Mexico must focus on and plan for the short, medium and long term.

Q: What other innovative concepts will BP bring to the Mexican market?

A: BP is always looking to the future. It is interesting that every time we hold global meetings all the developers want to implement their technologies in Mexico because of the openness and potential that exists in this market.

We are looking for partners to help us develop the convenience segment at our stations. We are thinking of also adding cross-loyalty programs that would have many different companies participating. These crossloyalty programs have a strong global presence because they provide plenty of benefits to the consumer and BP is getting ready to implement them.

We have many ideas and projects in the pipeline awaiting implementation. It would be great if we could do it all but we have to pick our battles and really understand where the customer is expecting more from the company.

Q: How does BP see competition developing?

A: We can see some companies making a strong entrance here. The local competitors have the advantage of havingWe have many ideas and projects in the pipeline awaiting implementation. It would be great if we could do it all but we have to pick our battles and really understand where the customer is expecting more from the company.

Q: How does BP see competition developing?

A: We can see some companies making a strong entrance here. The local competitors have the advantage of having an entrepreneurial mindset that allows them to react quickly to any challenge through innovation.

In order to face our competitors, BP’s strategy is to have a national presence in all the important urban areas in Mexico. That of course depends also on infrastructure and the regulations settled by the government. Our strategy will include ownership of locations in important urban areas and offering franchises to local partners in other regions, allowing us to really scale up and expand without having to spend too much capital and time.

Q: How does BP measure success?

A: In several meetings, we have discussed pricing and we have concluded that our customers do not come to BP stations because of price but because of convenience, innovation, loyalty and the experience overall. Being a consumer-oriented organization, it is a really good result to see customers lining up to come with us. The fact that we have finally opened our first location and the success it has had points to the excellent future we have in the Mexican market. It involved a lot of work and an investment of over US$50 million in technology but after all this we are certain that no other company can replicate our achievements in the short run.

Return to shareholders will also be an important factor for measuring success. Given the number of customers we have and growth expectations, we believe it will not be hard to offer our stakeholders positive results. We see Mexico becoming one of BP’s strongest businesses.