CALTEX OIL (THAILAND): Building on its new image and a recovery in sales, Caltex is looking beyond the currently shrinking market

Customers can easily slip away in a fiercely competitive oil market. Thailand is a prime example, where twenty-nine retailers are trying to expand their networks despite shrinking demand

‘We don’t do anything with the view that it will grow progressively year after year: We expected troughs when we started our expansion but had not expected these would come so soon’
BARRY ASHMAN
Marketing director

Unlike some companies that are giving tip the fight, Caltex Oil (Thailand) wants to build on its
half-century of investment in the country and is bullish about the prospects for growth when the economy improves. In its latest move, the company acquired 48 service stations from British Petroleum, increasing its retail network to more than 600 nationwide.

Caltex has committed eight billion baht to expansion in Thailand over three years starting 1997.

"The acquisition provides an excellent opportunity to accelerate our growth plan," said chard Abrams, managing director of Caltex Oil (Thailand).

It reflected Caltexs long-term confidence in the economy which, in the short-term, had been a little rocky, he added.

Caltex Oil (Thailand) is a subsidiary of Caltex Petroleum Corp, an industry giant with operations spanning 60 countries across Asia, Africa and the Middle East. A joint venture between American oil giants Chevron Corp and Texaco Inc, Caltex was established in 1936.

As Barry Ashman, marketing director of Caltex Oil (Thailand), explained: "Chevron had the resources but lacked the marketing skills in Asia, while Texaco had the marketing skills for is region but lacked the resources. So this was the perfect marriage for both the companies that are on a head-on collision in North America."

With the objective of becoming the brand of first choice in all countries in which it operates, Caltex has embarked on heavy investment in Thailand, including an intensive media campaign
costing five billion baht to promote its services and products as the best.

The operations of Caltex Oil (Thailand) are divided into three main areas: lubricants, retailing, and serving industrial and commercial needs. It is among the biggest suppliers of petroleum products, including liquefied petroleum gas, petrol, jet fuel, diesel oil and lubricants for the automotive, aviation, marine and other industries, and a range of services.

Thailand's total oil sales industry is worth about 40 billion baht a year. The company's subsidiary, Caltex Trading and Transport Corp, has a 64% stake in Star Petroleum Refining Corp, with an investment exceeding 43 billion baht.

Caltex is the fourth-largest oil company in Thailand in terms of sales volume. With its new
acquisitions, it will control around 13.5% of the domestic retail market. Its market share in Bangkok is about 16%. In the lubricant segment, the company is ranked third with 18%.

We take a long-term view and, if investments are made with this in mind, there are times when companies make large returns and others when you have negative returns," Mr. Abrams said of the local market, where profit margins have been falling.

Mr. Ashinan added: "We don't do anything with the view that it will grow progressively year after year. We expected troughs when we started our expansion but had not expected these would come so soon."

The five billion baht earmarked for promotions includes 200 millionth become an official sponsor of Asian Games this December, as well as 71 million. for the three-year right to sponsor the Thailand National Football League, which will be called the Caltex Premier League.

The company is delighted with the results of its campaign so far Almost 50% of sales are being made through "re-imaged" stations. The company believes a new image was essential as sales had been plummeting.

"The market is down by 11-12 % but our sales are up by 14%," Mr. Ashman said. "We are also looking for selective acquisitions. There are companies looking to sell during these times and we will look for oportunities, but these have to make economic sense."

Caltex is also helping the economy by introducing cleaner petrol and takes pride in saying it was the first oil company in Thailand to introduce 0.05 low-sulphur diesel fuel two years ahead of the deadline set by the Thai authorities.

That reflects a new emphasis: Caltex wants to be driven more by market research than pure market share; to be the leader in innovative products-and marketing techniques.

Modernising its operations is the only way to attract young consumers, according to Mr. Ashman.

"We have research teams working all the time. They keep track of consumer needs, look at ways of modernising services, ways retailers could be more progressive by using high technology.

"Many current retailers will not survive and therefore, the company is going to introduce new measures to ease the burden on them soon," he said.

To stay competitive, the company had invested in Star Petroleum Refining, which has one of the most advanced plants of its kind with the capacity to refine 130,000 barrels per day.

Star can produce a wide range of petroleum products, including liquefied petroleum gas, unleaded and regular petrol, 0.05 low-sulphur diesel, polymer-grade propylene, fuel oil and asphalt.

The current oversupply would eventually be absorbed when regional demand recovered, Mr Ashmaii said.

Caltex was moving slowly on opening new stations as the market was saturated, with 13,200 service stations in operation but demand for only about 8,500.

Even so, if an opportunity opened up at the right location the company would not shy away, he said.

Caltex believes it has an advantage over its rivals because of its complex shareholding. The presence of Texaco and Chevron creates many options in tailoring strategies to suit each country. Both parent companies can provide support ranging from technology to finance.

Caltex Oil (Thailand) Ltd
Established: 1948
Major shareholders: Caltex Petroleum Corp (joint venture between Chevron Corp and Texaco Inc)
Registered capital: 1.34 billion baht
Main activities: Marketing petroleum products and convenience store operations.
Subsidiaries: Star Holding Co Ltd, Star Petroleum Refining Co Ltd
Number of employees: 606
Assets at end-1997: 14.61 billion baht
1997 gross revenue: 35 billion baht

Worldwide
Headquarters: Dallas, Texas
Number of countries: 60
Number of employees: 7,600
1997 gross revenue: US$16.8 billion