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Mexico fuel reform brings new retail options

19 Apr 2017, 4.05 pm GMT

Mexico fuel reform brings new retail options

Mexico City, 20 April (Argus) — The opening of Mexico's fuel market to floating prices and outside competition may finally give the country's drivers what they have long wanted: a full liter of gasoline.

Consumers have criticized the former monopoly of stations under the state-run Pemex brand for charging but not selling full liters of gasoline and diesel. Mexico's federal consumer protection agency Profeco said in 2015 that 30pc of stations supplied incomplete liters.

New strategies to promote certainty in fuel quality and volumes, as well as new services such as flexible payment options and customer loyalty programs, could challenge the dominance of Pemex-branded retailers.

One sign of the demand for better service may be seen in the long lines of cars that snake out from BP's new flagship retail fuel station on the outskirts of Mexico City. Drivers there say they trust that the first foreign-owned station to open since the reform will sell a full liter of gasoline, and are willing to wait 10-20 minutes to fill up their cars.

"More than anything, I come here because the liters are well served. In many other stations they put air in the gasoline," said Maria Fernandez, who lives about 8km (4.9 mi) away but is on her third trip to the BP station since it opened in March. "It is worth the wait."

Profeco's head attorney, Rafael Ochoa Morales, said the agency aimed to verify up to 7,200 stations in 2017, up 13pc compared with 2016 and up 136pc from 2015.

Between January and March, the agency checked 2,047 stations, of which 796 — or nearly 39pc — had irregularities. Profeco fined 169 of them for a total of 50mn pesos ($2.7mn).

Even Pemex is now advertising its battle against incomplete liters. This week the company said Mexican authorities temporarily closed six stations for alleged irregularities in the supply of fuel in the state of Puebla.

"The objective is to offer certainty to consumers of fuel supplied by Pemex through its franchise owners," Pemex said in a statement.

Although Pemex still supplies fuel to all retailers in the country, including BP, marketing strategies have emerged since the break-up of the state monopoly to distance brands from Pemex.

Mexico's Hidrosina and OXXO Gas, a division of local beverage retailer Femsa, have started re-branding some of their Pemex franchises, often offering more modern payments options.

RendiChicas, part of Mexico's RendiLitros group, is advertising for gender equality, promoting women as workers at its 62 stations in the states of Baja California, Sonora and Chihuahua. RendiLitro, also a Pemex franchise, was launched in 2010 with seven pilot stations and one primary objective: selling full liters of fuel.

"We firmly believe in a free and healthy competition in the sector, and that to attract clients, we must have the best offers and services," said Antonio Caballero y Fernández, president of the board of Grupo 500, a 54-member fuel retailers consortium created after the reform.

But as of today BP remains the only non-Mexican brand. It has plans to open 1,500 stations over the next five years.

BP still buys its fuel from Pemex but it does not exclude importing its own fuel in the future, once the market is more stable, executives said when presenting the brand last month. Only two types of gasoline, regular and premium, are available, but diesel is expected to follow in a few months.

Drivers lined up at the Mexico City BP station, including taxi drivers and transportation services such as Uber, cite other reasons for their enthusiasm.

"They say the gasoline comes with an additive that helps maintain the motor in perfect conditions," said Mario Hernandez, a local taxi driver, referring to what BP advertises as its "dirt-busting fuel for petrol engines."

One Uber driver, Rodolfo Brena, who was coming for the first time, says he hopes to save up to 200 pesos per tank.

Drivers also mentioned the quality of the service as a reason for choosing BP. "They treat us with a lot of respect … they will not take tips and they bring the [payment] terminal to us so we know the credit card is not being cloned," said driver Maria Fernandez.

Other foreign companies such as Gulf Mexico, the local affiliate of Indian conglomerate Hinduja, and Chevron-Texaco have talked of entering the Mexican fuel market. But the sector's slow opening and lack of infrastructure has delayed some companies' launch plans.

Learn more about Mexico's rapidly changing fuel markets by subscribing to Argus Mexico Fuel Markets, or request more information.

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