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Pumped up competition

Released at: 15:14, 01/01/2018

Pumped up competition

Photo: Viet Tuan

The opening of the first IQ8 gasoline station in Hanoi marks a new stage for Vietnam’s retail gasoline sector.

by Ngoc Chi & Lan Ngoc

Different to the usual chaos found at gasoline stations on the streets of Hanoi, the Idemitsu Q8 (IQ8) station at the capital’s Thanh Long Industrial Park, the first 100 per cent foreign-owned gas station in the country, is orderly and professional. Local netizens fawned over the new gas station after photos appeared on Facebook showing a man, identified as General Director of IQ8 Hiroaki Honjo, standing in the rain and greeting every customer with a bow. Motor car drivers who have paid a visit to the gas station noted that staff also clean their windows and rearview mirrors while their vehicles are being filled.

Change in business culture

Mr. Honjo’s bow and IQ8’s commitment to accuracy within 0.01 liters caused a degree of debate on social media. According to experts, the presence of the first 100 per cent foreign-owned company in Vietnam’s retail gasoline sector is expected to create a more competitive market, where the sector has long been dominated by State-owned monopolies like Petrolimex, PVOil, and Saigon Petro. 

IQ8 is a joint venture between Japan’s Idemitsu Kosan Group and Kuwait Petroleum International Ltd (KPI), established in 2016. Each partner owns 50 per cent of charter capital. The joint venture aims to develop a professional gasoline business in Vietnam in the years to come. Following this first gas station in Hanoi, IQ8 will expand to certain provinces in the south. It is equipped with a system of automated station management software that allows card payments and the accurate management of its gasoline inventory, and provides detailed reports of transactions. Mr. Honjo said the joint venture strives to become the leading retail gasoline brand in Vietnam.

A few days after news and images of IQ8 hit local media, consumers saw some changes at PVOil’s gas stations, owned by the PetroVietnam Oil Corporation. Dummies depicting a gas station attendant saying “Hello and Thank You” have been placed at a number of its gas stations. Mr. Cao Hoai Duong, CEO of PVOil, told local media that the idea is one part of its strategy to better approach customers. “The idea of placing the dummies at gas stations to attract the attention of customers is not related to the opening of IQ8, because we have done this for some time,” he said, while acknowledging that the arrival of IQ8 will put pressure on domestic gas stations, including PV Oil. 

Similarly, Petrolimex has launched a marketing campaign in preparation for the upcoming competition. Mr. Nguyen Quang Dung, Deputy CEO of Petrolimex, told VET that IQ8’s arrival has given customers more options. Petrolimex and IQ8 are competitors in the market, he said, but those in the industry should work together for common development. “With IQ8 now open, we need to focus on improving the quality of our services at all our gas stations,” he added. “We are currently discussing specific strategies.” 

The retail gasoline market has long been considered “private land”. Although there are 29 petroleum retailers, most of the market share is in the hands of Petrolimex, PVOil, and Saigon Petro. According to many experts, the arrival of IQ8 will spur competition. “Having a lot of foreign energy giants keen on Vietnam’s gasoline market is perfectly normal and local businesses will be forced to change,” said economic expert Mr. Ngo Tri Long. The idea of placing dummies at PVOil’s gas stations, he went on, is a good example of the changes needed by domestic retailers ahead of the competitive wave.

No easy task

Idemitsu Kosan has actually been present in Vietnam’s oil and gas industry since the 1990s, with contracts to purchase oil from Petrolimex. The company is the first foreign-invested enterprise in the country to have a presence in the three major sectors of the oil and gas industry: exploration, refining, and retail. Last year, Idemitsu Kosan cooperated with PetroVietnam to invest in the Nghi Son Oil Refinery, so as to take part in the distribution of oil and gasoline. Its intention to engage in petroleum retailing was revealed more than a year ago, when it partnered with KPI to set up the IQ8 joint venture. 

Over the past 15 years, gasoline consumption has risen and fallen in parallel with GDP growth. From 2002 to 2010, consumption grew an average of 9 per cent annually. It then fell in 2011 and 2012, due to economic difficulties, but has recovered over the last four years, as has Vietnam’s economy. 

According to estimates by research organizations, consumption could also increase sharply because it comes from a low base. Industry specialists Globalpetrolprices reported that gasoline consumption per capita in Vietnam was 0.21 liters a day, or 67 per cent of the figure in neighboring countries such as Thailand and Indonesia and less than 20 per cent of consumption in Malaysia. 

IQ8’s arrival in the local gasoline retail market comes at a favorable time but experts believe challenges lie ahead. There are some 14,000 gas stations around Vietnam, so it will be difficult for IQ8 to gain a handy market share. A report from Viet Capital Securities (VCSC) shows that a large distribution network is an advantage for consumers, who prefer convenience. “The tough competition in the market will be in increasing the number of distribution points,” the report noted.

Petrolimex leads the way in this regard, with 5,200 gas stations in the country, or 48 per cent of the total, followed by PVOil, the Thanh Le Import-Export Corporation, and Saigon Petro, with 3,000, 1,150, and 1,000, respectively. When Idemitsu opened its first station in Hanoi, its rivals also opened many new gas stations nationwide. In the first six months of 2017, for example, Petrolimex opened 36 new gas stations under its direct management. 

Another challenge for IQ8 is the price of raw materials, which will affect its cost of goods sold (COGS) and profit. COGS in the gasoline sector includes the cost of importing or purchasing gasoline, taxes and transport, import taxes, excise taxes, VAT, environmental taxes, and contributions to Vietnam’s Petroleum Price Stabilization Fund. Of this, taxes and fees account for approximately 50 per cent of COGS. IQ8 being the first foreign entity licensed to participate in Vietnam’s gasoline retail market is due to it owning 35 per cent of the Nghi Son Oil Refinery, from where it secures its gasoline. In other words, Idemitsu will be limited to supplying products from Nghi Son rather than diversifying its sources, as other distributors do.
IQ8’s arrival is, nonetheless, good news for foreign investors looking at Vietnam’s retail gasoline market. Traders have long wanted the market to be opened up and regulated by market mechanisms. “The government is opening the door equally for all economic sectors,” Mr. Dung from Petrolimex said. “In terms of legal corridors and mechanisms, it has done well given the number of stakeholders.”

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