Applegreen Business Strategy
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APPLEGREENStrategic ManagementChrissy Dini Josaya: 250127Majid Yusuf: 250237Due: 24-Apr-17ContentsIntroduction 3Company Overview 3Competitors 4Competitive strategy 4Cost leadership 4Differentiation 5Growth Strategy 7Conclusion 8References 9Introduction The fuel industry is considered to be the biggest sector in the world in terms of dollar value, the fuel industry is a global powerhouse employing hundreds of thousands of workers worldwide as well as generating hundreds of billions of dollars globally each year. The purpose of this report is to carry out a detailed strategic analysis of Applegreen, and describe the tools that they use as their competitive strategy and growth strategy and whether the tools are sustainable.Company OverviewApplegreen is a retail company established in 1992 as Petrogas and then created the Applegreen brand in 2005, which sells convenience goods and discount fuel to the consumer market. Fuel sales make up for 80% of its core product offering, while fuel may account for the majority of their turnover in relation to sales they attribute their profit margins to the sale of convenience goods as there is little margin if any on fuel. It was set by current chief executive Bob Etchingham and chief operations officer Joe Barrett. Applegreen is a major petrol forecourt in the republic of Ireland with a significant and growing presence in the United Kingdom. Applegreen provides “low fuel prices, always”, and a range of high quality “food-on-the-go” products. From an operational base of 64 sites at the end of 2009, the group has grown to 243sites as at 31st December 2016, across the republic of Ireland with 153sites, United Kingdom with 77sites and United States with 11 sites, and has employed 2300employees in Ireland. Applegreen is the number one motor way service area operator by number of sites in the republic of Ireland. (Irish Times, 2016) Ireland and UK 2016 financial results show a 16% increase in gross profit, and adjusted EBITDA increased by 11% from €28.9million in 2015 to €32million in 2016. Growth in the non fuel gross profit (Food and Store) at constant currency of 9%, Revenue upto 9% to €1,178million and net date position at 31st December 2016 of €19.4million and with a turnover of €1.2billion.Bob Etchingham, CEO said he was pleased with the strong set of results for the business. And their food and store sales were particularly strong in the republic of Ireland during the year while UK had a good performance the second six months. (Applegreen, 2017)
CompetitorsThe company operates in a highly competitive market, comprised of petrol stations that are owned and operated by a mix of local and large scale multi-national corporations. Applegreen competitors include Maxol with €569.8million turnover, a profit of €11.1million and 1200 employees, Topaz with €3billion turnover, €2.2million profit and 1564 employees and Texaco with €1.25billion turnover and profit of €24.3million. Applegreen has children play areas in most of its stations, which is very good for families. The facilities are clean, modern they have plenty of selections It’s not just one little outlet. Applegreen has numerous different things – coffee shop, Burger King in most of its stations, it has good clean toilets including bathroom showers which is good for truck drivers. Applegreen has its stations in the motorways; you don’t have to veer off into towns, which make it easier for HGV’S to stop on the motorway services stations, they also have big parking area available for trucks. (Top100. 2016)Competitive strategyCost leadershipApplegreen uses “Cost leadership”, one of porter’s generic strategies to achieve a competitive advantage. Cost leadership involves increasing profits by reducing cost, while charging industry average prices or increasing market share through charging while still making reasonable profits. (Wittington .J. 2008).In Ireland, Applegreen is one of the fuel companies with lower prices. Applegreens focus is on being the biggest discounter of fuel in their market, with a low cost promise to be the lowest priced fuel in the geographical area, hence driving customers into their retail business. The price per liter charged for fuel is set by management and, in order to maintain its position in the market and have a competitive fuel price, price per liter levels may be adjusted downwards in certain cases. If the volume of fuel or other products sold does not increase suffiently as a result, this downward adjustment can lead to a negative impact on the company’s results of operations. For Applegreen to keep its “lower fuel prices, always” policy they check the price of fuel in each of their stations’ local area regularly. They then set their pump prices to ensure that they are always at least as low as the lowest competing site in this area. ( Irish examiner. 2016)Like any business they have to take into account the cost of their fuel when setting their prices. They track the international price of refined oil products on a daily basis. These prices are quoted by brokers in US $ per tonne. An industry standard tonnes-to-liters conversion factor is used to convert to liters and the current €/US $ rate of exchange is applied to arrive at cost per liter. If the price is CIF it includes carriage insurance and freight and is effectively a price landed at a post in Ireland. In addition a cost for Port duties and storing it in the importing terminal together with transport to the service station and a retail margin make up the balance of the fuel cost excluding taxes and duties. (whatgas.com 2016).