Saturday, July 2, 2022

How to start a petrol station business in Kenya.

Starting a petrol station business in Kenya, or any country is highly capital intensive but very profitable in the long run. By capital intensive, we’re talking about an initial cost of over Kshs. 8 Million to set up and run a fully operational petrol station. There are a lot of factors to put under consideration before venturing into the petrol station business in Kenya. An ideal business plan needs to be formulated before anything else. Some of the factors to consider in the business plan include;

  • Land
  • Capital
  • Licenses
  • Fuel suppliers
  • Petrol station business setup
  • Pieces of equipment for the Station
  • Insurance cover(s)
  • Fuel prices
  • Revenues and marketing
  • Employee workforce
  • Vehicle services
  • Competition from other stations

The list is long, however, these are some of the few major factors one ought to factor in before investing rightly so into the business.

  1. Land

Land plays an important role, in determining how much profits one will earn from the business.

It is important to buy/rent/lease land for the sole purpose of constructing a petrol station. However, buying the land is the better option as the fuel proceeds will translate to higher marginal profits in the long run.

It is important to note that for a petrol station business to flourish, it has to be near the main road or a junction where it can serve many motorists. This is the geographical aspect to consider in establishing a petrol station.

The land’s topography should also be looked at. One cannot set up a petrol station business with the land sloping. The land has to be flat. Consider the underground fuel tank that has to be put in place. The storage tanks are buried underground and their sizes determine how many thousands of liters of fuel can be stored, and how many different grades of fuel, whether petrol, diesel and/or kerosene.

  1. Capital

Once the land has been identified and all legal relevant paperwork obtained showing land ownership then comes the financial planning part. In Kenya, the cost of establishing a petrol station ranges between Kshs. 8M to Kshs. 15M. One constructs a petrol station according to their preference and how they deem fit appearance-wise but it has to meet certain set standards otherwise the business venture will fail. Other than the petrol station, one could establish a side business such as a building with numerous shops, a shopping avenue such as a mini-mall, or an eatery, like most petrol stations do so in Kenya.

  1. Licenses

For one to legally operate a fuel station in any country, they must have all the necessary business permits from various organizations and agencies, fuel and government-related of course.

The business will be deemed as registered if there is a business permit, a fire permit license and a health permit license. A business permit in Kenya costs Kshs. 15,000 depending on the nature of the business. When applying for a business permit in Kenya, it is important to take note of the following required documents;

  • A registered business name
  • The physical address of the business
  • A copy of the certificate of incorporation
  • A copy of National ID/ Passport/ Alien ID
  • Business ID number
  • An inspection document by the ward licensing officer determines the licensing fee.

A fire permit costs Kshs. 5,000 to obtain.

  1. Petrol Station Business setup

The appearance of the petrol station is very important in luring motorists to one’s station. Proper planning and construction are important. Laying down bricks on the ground rather than leaving the bare soil exposed always has a psychological impact on the driving motorists. Lighting is also a factor to consider as the petrol station needs to be well-lit, especially during the night.

The number of fuel pumping stations is important too but more fuel pumps mean more capital invested.

As mentioned earlier, aside from the petrol station business, it is also a very good idea to construct a building which can be rented/leased out as this helps improve the businesses profits, not just depending on the petrol station alone.

10 things nobody will tell you when you’re starting a business (biznakenya.com)

  1. Equipment for the petrol station.

The pumping machines in a petrol station are quite expensive. There are several types of fuel dispensers on the market however the recommended dispensers are;

  • Intelligent Multi-media fuel dispenser
  • CS20 Series Fuel Dispenser
  • T Man Series Fuel Dispenser
  • Marve Series Fuel Dispenser
  • Pioneer Series Fuel Dispenser
  • CS46-Legend Fuel Dispenser
  • CS46-Classic Series Fuel Dispenser
  • CS42-Legend Fuel Dispenser.
  • X-Man Series Fuel Dispenser
  • RT-HY224 Fuel Dispenser with LED

The fuel pump prices are different depending on the types of fuel they pump;

Duo Nozzle – Kshs. 480,000 and above per unit

Single Nozzle – Kshs. 270,000 and above per unit

Twin Nozzle (Both Petrol and Diesel) – Kshs. 480,000 and above per unit

Take note that an underground tank is important to construct before laying the foundation for the petrol station.

How the pumps work

The fuel dispensers defy gravity to pump fuel that is underground with the dispenser being above ground. The gas pumps have a motor/ impeller inside the dispenser which forces the fuel upwards from the underground tank and into your vehicle.

  1. Fuel suppliers

After the construction of the station, it is vital to reach out to at least three different fuel suppliers who shall be restocking your petrol station with fuel when the underground tank starts to run dry. However, it is also important to get into business with trusted and reputable fuel suppliers who will supply the correct quantity and quality, according to how much comes from your pocket. Be wary of some suppliers who mix fuel/ supply low amounts/poor quality fuel all for malicious gains.

  1. Obtain Insurance cover.

Insurance is very important in case a lethal crisis befalls your petrol station premises. One should choose a policy in which the risk of the policy occurring is potentially high as compared to other risk policies. Fire cover is mandatory as well as an accident cover. There is a total cover package called Petrol Station insurance/ forecourt insurance/ fuel station cover/ petroleum retail and convenience insurance/ filling station insurance. This covers all the risks associated with the petrol station be it fire, accidents, injuries while at the station, etc.

  1. Revenues and marketing

After establishing the business, one can begin marketing the petrol station. The best way to market oil currently in Kenya is by giving promotions and offers such as discounts. This is sure to get more customers after the spike in fuel prices with the subsidy struggling to keep the prices low. Other marketing options include social media advertising.

The business will do well provided that the station provides quality fuel and good services hence an increase in revenue. On average, a mini-petrol station that operates daily with frequent customers can earn an annual profit of about Kshs. 9,000,000.

  1. Employee workforce

The petrol station attendants working at a petrol station have a great influence on how the business will succeed. There must always be employees on standby near the fuel pumps waiting for vehicles to arrive and fuel in the station. Otherwise, motorists may assume that there is no fuel in the station and the place is deserted.

The attendants also have to be courteous and respectful to the motorists. They ought to learn how to serve customers well, as this not only builds a good reputation for the petrol station but it also increases the numbers of new customers and loyal customers.

They should avoid trouble with motorists as this will not only drive customers away, but they may also end up losing their jobs in the long run. Attendants can show their value to the customers by offering to check accessories in the vehicle’s hood such as the engine oil, coolant and the transmission fluid and wiping clean the windshields

  1. Vehicle services

Other vehicle services that are optional to have in the petrol station premises are car servicing, wheel alignment and a Tire center. These days, it is very common to find that most petrol stations have air pressure for the wheels and in the spirit of competition, it would be good to have one.

Final Thoughts

Is a petrol station a good business to invest in? Yes, it is. Think about the number of motorists on the road daily; they need fuel for their car engines to travel and they get their fuel from somewhere. With strategic planning, a petrol station can very easily make one a multi-millionaire.

Due to the high initial capital required to set up the petrol station, it is best to explore all avenues that will help finish constructing the station to meet customer expected standards and be competitive, the best being having few shareholders in the business.

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