From Fuel to Foodservice: West Oil Group’s Success in a Challenging Ukrainian Market
Challenging economic and political conditions are making these tense times for consumer foodservice in Ukraine. The number of outlets declined by 12% in 2014 and by 10% 2015, while the market shrank by 3% in US dollar value terms in 2014, with a further 7% decline in 2015. Lot of companies experienced negative performances. However, there has been one recent example of a successful player within the consumer foodservice market – the West Oil Group (WOG) nationwide chain of gas stations. WOG, with its core fuel stations business, began by serving coffee, then added larger café-style outlets with a broader food menu, before starting to open standalone outlets.
Challenging business environment in Ukraine
Over the last three years the Ukrainian economy in general and the consumer foodservice market in particular were hit by consistent political and economic turbulence, which overlapped with the dramatic currency depreciation (from UAH8 per US$1 in December 2013 to UAH27 in February 2016). Many outlets went bankrupt due to an inability to meet all their commitments as the number of visits to foodservice locations dropped from “regular” to “occasional”. Even some of the international operators, despite having a strong financial background, left the market during the current crisis – for example Foodmaster TOV with such brands as TGI Friday’s, Il Patio, Yakytoria, Costa Coffee.
Fuel station market leader expands presence in consumer foodservice
Due to rising consumer price sensitivity and consumers trading down to cheaper fuel, the company was faced with a need to find new areas for expansion. In order to extend its core business and generate ancillary revenue, during the cold winter of 2014 WOG Retail TOV came up with an extensive marketing campaign offering coffee as a complementary product for consumers when refuelling their vehicle. A major focus on the “supreme quality” of its coffee, safe, simple and well-designed cups, innovative coffee machines, user-friendly services and wide variety of products offered combined to enable WOG to become a trendsetter in Ukraine.
Further expansion in terms of geography, menu and positioning
Selling over 25 million cups of coffee annually, WOG Retail TOV then took the next step in the foodservice business with the introduction of WOG Café, a separate foodservice brand, initially established on the premises of its fuel stations – with 111 outlets operating in December 2015. Establishing the separate brand also saw the development of a broader food menu. Although the core focus was in line with the growing trend of burgers, a wide choice of desserts was also used to help attract people with a sweet tooth. Offering a range of high-quality grilled meat, buns and fillings, the WOG burger line-up has become a market benchmark. For those consumers looking for healthier options, it also offers a range of salads, pasta etc. As a result, WOG Café had already captured a share of 13% in chained convenience stores fast food in value terms in 2015, ranking it third in the category.
Entering new segments
In December 2015, the first standalone outlet (independent of a fuel station) was opened, although all the pricing/menu strategies remained the same as at a regular WOG Café. WOG Retail TOV announced plans to develop a chain of 200-300 independent outlets nationwide within the next few years, intending to establish its own niche of being a “Ukrainian Starbucks”. Simultaneously, in order to reach an even bigger potential audience, WOG Café launched the delivery of meals and coffee in cooperation with delivery services companies such as ekipazh-service.eda.ua. At the same time, due to the nature of the business, WOG Café outlets are operating 24/7, making it a serious competitor for the McDrive services operator.
In February 2016, WOG Café won the tender to start offering full catering services on the 14 express trains operating in Ukraine, a first trial for a public-private partnership. The WOG Café railway operational model encompasses pre-ordered meals, a foodservice desk at the bar and catering services with a trolley/menu (a la carte).
Consumer and company benefit from online development
Integration of the “Pride loyalty programme”, which already has more than one million subscribers, with the WOG PRIDE mobile app (launched six months ago; 65,000 downloads by 15 March 2016) allowed consumers to pre-purchase fuel and coffee at slightly discounted prices or purchase products using special offers.
In an environment with a highly volatile business climate and quickly changing prices, any WOG customer can prepay for any desired volume of gasoline or number of coffee cups and redeem them at any time in the future. In such a way, the company managed to generate advance sales of both fuel and coffee, thus improving its cashflow and capitalisation as customers took advantage of this opportunity to make savings, showing a greater level of trust in WOG’s corporate health than the banking system or the national currency. Other advantages it offers are that the consumer can benefit from using the nearest location, other discount campaigns and a convenient method to pay, while the company can analyse consumer behaviour data and further tailor its services and offers to individual needs.
For now, it is difficult to predict which new market or business niche WOG Retail will enter next. However, for the moment, it seems clear that, whether on the highway, in the city, on a train, online or elsewhere, the WOG Café name stands out for its recognised standards of service and quality among consumers. As a result, the company doubled its sales during 2015. This is a great example of a successful story against the backdrop of the challenging economic conditions in Ukraine.