The pushbacks and showdowns among promoters of different excise rates, counteractions against illegal market, issues of fuel procurement to gas station networks, analysis of hotline calls are the routine of any fuel retailer. To distract oneself from that routine, to weigh current state of things, and look broader into the market, one sometimes does not enough time. NefteRynok managed to snatch an hour and a half from the busy schedule of the owner of the BRSM-Nafta’s petrol station network  Andrei Biba only on Saturday to talk about the company's team, passion for grocery retail, competitors, pricing and company plans. And, of course, about the Italian wines, which BRSM has been carrying at their convenience stores for three years.

I remeber our last talk was at times when the company was going through a difficult period: BRSM lost more than 60 petrol stations of the network. One should admit that some stations leaving the network were the  best fuel retailers in their regions. Today we see that the network has replenished its fuel retail assets and continues to expand further. How does BRSM-Nafta’s petrol station  network in Ukraine look like today?

Today the network consists of 167 plazas, we are represented in all regions of Ukraine. Yes, we lack our presence  in some cities. In Kharkiv we have just 10 petrol stations,  7 petrol stations are  in Dnipro , and only   2-3 stations in other large cities. This is certainly not enough. We have deployed our petrol stations alongside main  highways, however, we do not cover secondary highways and roads amid a wide spread of electric vehicles domestically and worldwide. You know, secondary highways become less attractive, if they do not bypass let a small but a settlement.

But now our main goal is not the quantity, though I would say we are lucky with that too, while currently considering about 20 forecourts for purchase or rent. Our current priority is the quality of services at petrol stations, training of personnel, expansion of the range of services for motorists . New locations we refurbish at once into beautiful forecourts to entice more clients. We do quarterly regional promo sales with  accuracy in fuel filling, focusing primarily on fuel quality and service variety. We honed our  client communication, I personally review the complaints coming to our hotline and guide feedbacks by our directors to such complaints, track them to properly address and resolve such complaints. I must say, the hardships we passed through two years ago united our team, making everyone diligent in duties and an integral member of the BRSM team.

BRSM is the leader in the retail of LPG with its petrol stations. Why is the company not involved in wholesale, given its high competence in it?

We won’t enter the wholesale until we solve the current bulk storage cspacity. Currently,  BRSM is a 100% fuel retailer. Moreover, it is not so easy to enter the wholesale market, given solid positions  in this segment of Stanislav Batrachenko [CEO of Nadezhda LLC, a large LPG trading company- Ed.] and other major stakeholders. Given the current margin in the wholesale, I think we would rather focus on fortunes in profitability of our fuel retails for now.

How do you handle gas storage deficits?

Not without losses, but we manage it somehow. We resort to services of other LPG depots, in particular, periodically store at depots of Nadezhda company, but strategically  we will  need our own LPG storage depots.

We had, let's call it,  a technological delay in construction of LPG depot in eastern Ukraine, it is connected with obtaining permits form local authorities. Now we have gone through the longest procedures, and the dynamics of our development will be at the rapid pace.

This LPG storage depot will be similar in volume to LPG depot storage located  in Pereyaslav [4 thousand tons LPG storage depot near Pereyaslavskaya railway station, Pereyaslav-Khmelnitsky district, Kiev region – Ed], and will allow us to solve important logistical issues of LPG supply to our retail network. We have about 20 LPG retail stations in Kharkiv region, and from those locations it will be convenient to channel LPG to Poltava and Dnipro.

Once we finalize the construction of LPG s depot torage, then our logistics will be just perfect: the LPG storage depot will be within 10 kilometer from a railway station.

You are not yet among the LPG buyers of Kazakh and Lukoil . What are your plans for this year?

With Kazakhs we agreed for 2020 on a long-term LPG contract for 3 thousand ton a month, now we are at the final stages of negotiations. I belive the final correspondence will be though shortly and we sign the contract. This early March, I think, the first Tengizchevroil’s railway tank cars will go to our LPG storage depot.

We also signed with Ukrenergy a long-term LPG contract for 2000 ton. The first deliveries will start February 2020.

I see, you have solid partners in LPG supply. What about your partnerships in supply and storage of  light petroleum  products?

We do not buy from or store at outsourced oil depots. This is the policy of our company. We periodically buy light oils from Ukrainian manufacturers, say from Ukrgasvydobuvannya ...

Why don’t we see your company among the buyers of Kremenchug gasolines?

We are trying to establish a dialogue with Privat, but their management is not that proactive. We’ve been  requesting a meeting with them  for the second month in a row. They know that we are buying quite a lot, and they have management issues with the sale of both gasoline and diesel from time to time at some periods. I think we will sooner or later start cooperating. It’s just a matter of time.

How does a BRSM’s order cart look like today?

Today our purchases are as follows: 35% - LPG, 36% - diesel, 29% - gasolines. I think purchases differ from the common ones in market, because a lot of cheaper alternative fuel brands are somehow disregarded. In general, the trend is that the share of LPG is increasing, conversely, the one of gasoline is declining.

What is your attitude to the initiative on changing excise rates, in particular, to reduce the ones on  gasolines and charge more excise for LPG? How may such changes affect your fuel retail network?

It will not affect us at all, it will affect buyers. Obviously, if one levels the rates, then the transition to LPG will cease, and one remains on the same sale level.

I am not a supporter of the excise leveling, but at the same time it is necessary to understand that excise on LPG in Ukraine is really small, and we need to stop this ramping switch to LPG, since it causes imbalance in  fuel production in Ukraine, as well as worldwide: gasolines  are in surplus, and LPG is in deficit. I can’t figure out how we could procure our sales this summer. None of LPG trading companies have guarantees for ordered volumes to meet the annual 10 % increase in demand for LPG.

There should be a balance, and if possible, such a balance should be built up today, rather than waiting for a contingency. Should that happen, one will have to raise excise on LPG. If today one raises the excise on LPG or reduces it on gasolines, buyers will not be affected. Rather, the country will become less dependent on imported LPG, since we can not quickly increase LPG production locally, though can do that expediently for diesel or gasolines.

Today, the basic market rule is neglected: the price of LPG should equal 50-55% of the price for gasolines. We now have 40% , and even less, ratio, which has not been changed for several years. To establish balanced sales, it is necessary to return gasolines and LPG into to their usual price corridors.

For a long time, for many operators, the benchmark for fuel retail prices was the quotes by "Privat", until the latter made a gift a year ago, "forgetting" to lower their  prices, thereby leaping from the low cost segment to the premium one. How do you determine your price ceiling, what is your benchmark?

I would split the benchmark into two segments: one for LPG and the other for petroleum products. The fact is that LPG price determination is the most difficult task, since a lot of participants, and not all of them are adequate to reality characters. Sometimes their pricing depend on their mood or whim [this moment the interlocutor laughs up sleeve-Es.]. Moreover, price depends on the mentality of the region or town. It happens that in one part of the city all retailers are at the same price level, and in another one they are just in price wars, which cannot be explained by logic. Take "Privat", for example: they keep high prices on their gasolines and diesel, which are abundant in the market, but lower their prices in the scarce LPG segment, provoke price plummeting, quickly followed by everyone else, including us.

Of course, we understand one has a customer loyalty policy, discounts, including hidden ones, so one works out price ranges accordingly. For example, compared with "Privat",  we can not differ by more than 80 kop / liter, otherwise it causes an immediate outflow of customers. And considering that LPG is the product in demand primarily among buyers with little money, one needs to quickly adjust prices. Should one overlooks the downward trend, one immediately has losses in sales and revenues.

As for the light petroleum products, especially in non-cash [in coupons and fuel cards sales – Ed.] sale of brand fuels, the sale price there is almost the same, with a difference of less than 1% (± 10 kop / l). It might surprise you, but if you remove all the discounts, brands will have a 1.5% difference with the non-brand competitors. We screen all competitors: whoever sells fuel is a competitor to us. We watch, respond, adjust, and treat everyone with respect.

You are knowledgeable about the domestic market like nobody else in Ukraine, and you might have seen what is ongoing  in Europe. In your opinion, don’t we have a lot of petrol stations: 9 million cars account for about 7000 petrol stations?

Yes, Ukraine has definitely overdone in that regard. In any other country, the state looks to ensure there is no oversaturation in the market. For example, in New York it was determined in 60s that it should be 13 thousand taxis, issued just this very number of licenses, and not a single license more. It has been just recently, that they has come to the need to revise that number of licenses. New York decided on a certain amount of restaurant and foodcourts, so no extra facilities can be opened. Should one want to open a restaurant, one is welcome to buy it out from a competitor, or find a defunct dining room. But one won't be able to build a brand new facility for that purpose.

The same rule applies to petrol stations. I remember our travel in Italy: at the distance of 20km-25 km there is only one gas station amid a large, and in comparison with Ukraine, a crazy flows of cars  in 3-4 lines in one direction.

There is a shortage of sane people in Ukraine, no clear regulation, and, most stupid, no punishment for violations. At the departure of one gas station one may see the entrance to next on. I remember NefteRynok did research of the Odessa highway. At the distance of about 460 km they spotted 108 gas stations. For comparison, between Florence and Milan is about 300 km, and only about 25 gas stations, I may repeat, amid crazy flows of cars.

In Ukraine, it’s a gas stations galore, I think, by two-fold at least.

How can we change the situation, taking into account illegal dispensers? Is this a clear threat to the market ?!

Illegal dispensers is a separate story. We see that raids against them do not solve the problem. I would estimate that the program to counter the illegal fueling market is fulfilled by 30%, as the barrel dispenser owners are simply warned in advance about planned raids, and they simply suspend their work at the time of the raid. We help to track them, but I must say that the percentage of enforced dismantles is not that numerous. Upon implementation of the raids, we have seen a temporary slight improvements only in diesel DT, and only in some regions. And according to our monitoring, in Chernihiv region they did not dismantle a single illegal fuel dispenser! All of them remained intact.

I think its high time for introduction of quotas on construction of new petrol stations. It is necessary to define clearly what is a fuel retail station: that it is a car refueling point with such a minimal area site, a forecourt, a toilet, other definite minimal set of facilities, and give operators a time to complete unfinished construction, to commission that facilities. Then, it is possible to issue these quotas based on the estimated need of the region, taking into account the number of inhabitants and number of cars in the region. I am sure that legal market participants will only benefit from this. Warehouses with those barrel dispensers, who work without a cash register, without a concept of investment, social responsibility, taxes make evil to legal and transparent business, for consumers, for Ukraine as a whole. Barrel dispensers should dissolve, they are shame and nonsense of Ukraine, and, believe me, for Europe as well.

In 2019, several new-format stations appeared in BRSM’s network, for example, a gas station in Podgortsy (Kyiv region) with a spacious shop and a cafeteria area. What are the results of your food retail? Will you pay more attention to set up of convenience stores at your petrol stations?

Co-located convenience stores and fast food have become extra income generators for every petrol station over recent couple of years. For every liter of fuels poured into the car tank a motorist spend extra UAH 1.3 on goods or food offered at the co-deployed convenience store or fast-food counter. Moreover, at our petgrol stations we put up for sale many products of our own production, packaged goods. We do not pattern prices for goods sold by our competitors at their convenience stores, rather than adjust our prices to the ones of nearby discount supermarkets of the region.

We try where possible to broaden our trade halls, put trade equipment, place coffee-makers and beverage dispensers.

In Podgortsy, this is our experiment, but we understood that the area of the trading hall did not allow us to make a fully-fledged convenience store, since there are only 300 m2. But, we move on further and we are doing two 400 m2 trading halls  in the Dnipro and Odessa, that will allow us to increase the variety of food products on counters there. In Uzhgorod, we are dismantling a CNG filling unit to free 500 m2  for a convenience store and foodcourt, though across the road there are  famous and popular Silpo supermarket and ATB discount store. But, that does not discourage us, we will try to overcompete them. I always say, the one who does anything is the one who succeeds.

Suppose it turns out that convenience stores yield more, would you give up the fuel sales?

Of course, not! How can I abandon that.  As of recent, it was the 28th anniversary, when I for the first time put on a jacket and opened the first two car fueling facility, and during all those years, I’ve just been living for that.

How do you evaluate the prospects of the AdBlue market in Ukraine?

By our actions you can understand that we believe in this product. We are one of the first fuel station network operators to deploy AdBlue dispensers. Since we believe in future demand for that, we have now installed the first multi-fuel dispenser unit  with 10 Gilbarco nozzles , with two nozzles hooked to AdBlue underground five-barrel tank .

 We buy AdBlue from Ukrainian manufacturers and are preparing a project of our own production, which we plan to implement in the coming months.

Do you have a preference forany particular fuel dispenser brand?

We always give the manufacturer the opportunity to fight for us (laughs). I believe that BRSM is one of the largest customers for dispensers, nozzles, and related petrol station equipmen. Besides, I am a supporter of reliable operation of the equipment, and we do not overutilize dispensers. Whatever stations we open, even rented ones, we replace old dispenser units with new ones. This is our approach   policy to that.

Let me share my observations that I made 20 years ago:  a customer sees that you are refilling his car with even the best fuel, but from a depreciated dispenser unit, but still mistrusts you. When a customer sees brand-new new equipment, he or she has do not even doubt the quality of the fuel you are filling and their car tanks with.

Recently, by the way, Czechs from Adast visited us. Our engineers will go shortly to them for training. Previously we worked through a dealer, but now we will work directly with Adast as an equipment manufacturer.

You broke the living principles by pioneering  wine sales at petrol stations. Petrol station  is normally associated with fuels, but its operators have gradually instilled a coffee culture among motorists. But it’s only you who "glued" together  petrol stations and Italian wine sales. How did you get Ukrainians to shop for wines at BRSM?

It was my sporting interest to change the mentality of our compatriots. And, thank God, it really worked out. When I ordered the first trailer full of Viticcio wine to be sent to Ukraine in mid-2016, there was a complete misunderstanding among my top executives. They used to panic and write to me that “ Only 100 bottles of Italian wine were sold on the whole BRSMpetrol station network during the last month. What will we do with your batch of 16.5 thousand bottles?”

But more interesting, we made a wine presentation by installing wine cabinets, motivated the sales staff that the best ones will receive bonuses, including free trips to a winery near Florence. We convinced the buyers that this is real wine and, importantly, we quoted a really reasonable price! Now, the bottom line is: in December 2019, we sold 43,000 wine bottles through our petrol station outlets! In January 2020 we sold 35 thousand bottles!.

We have completely disrupted the mentality of Ukrainians. I am negative about alcohol, but wine, real wine from Europe, the one made in Italy, in France, in Spain - is not considered a liquor, it is classified as food. If there are points where the sale of alcoholic beverages is forbidden, there will be no brandy or whiskey, there will be no fortified wine, but for sure there will be dry wines. Dry wine is not considered something dangerous to health. In Italy and France they drink from the 14-year-old age a glass or two every day, and stay healthy until 90-100- year age. I set myself the goal to accustom Ukrainians to drink quality and inexpensive Italian wines, and we made it available at our petrol stations. I think, we are getting it achieved very soon.

You have also been supplying Viticcio to BVS (Nadezhda LPG and gasolines wholesaler and retailer) exclusivity? Aren’t you afraid that you may lose your exclusiveness?

No, not in the least that I’m afraid of. First, they lack the zest we have in our wine sales,  as I judge  from BVS’s wine assortments and order volumes. Second, they do not place wine bottles into separate sale cabinets. Third, our wines are sold not only at BVS, but at KLO , at Glusco  petrol station networks. But  its only BRSM  who sell wine with dedication and passion!