STARTING A RETAIL BUSINESS

Making Mega Bucks Retailing Kerosene

By Adewale Sanyaolu 

The release of the National Household Kerosene recent Price Watch for May 2017 by the National Bureau of Statistics (NBS) had sent jitters down the spines of consumers of the commodity across the country.

The price watch indicated that average price per litre paid by consumers for kerosene increased by 8.01 per cent month-on-month and by 30.49 per cent year-on-year to N303.29 in May 2017 from N280.80 in April 2017.

States with the highest average price per litre of kerosene include Anambra (N334.52), Kwara (N323.81) and  Bauchi (N321.67) while states with the lowest average price per litre of kerosene were Osun (N273.96), Oyo (N271.15) and Sokoto  (N261.90).

Similarly, average price per gallon paid by consumers of  kerosene decreased by 10.10 per cent month-on-month  and  increased by 45.11 per cent year-on-year to  N1,036.71  in  May  2017  from  N1,153.12 in April 2017.

States  with  the  highest  average  price  per  gallon  of  kerosene  were  Adamawa  (N1,212.50), Borno  (N1,208.33) and Sokoto (1,157.14) and states with the lowest average price per litre of kerosene were Akwa Ibom (N920.42), Anambra (N915.77)  and Abuja (N902.00).

But despite the soaring price of kerosene, the product still remains in high demand in the petroleum products chain, indicating that it is a revenue spinner for those in the business and for new entrants as well. It is so lucrative that you can make your entire investment capital back from your first month sales.

One basic reason for the profitability of kerosene is the high demand for the product caused by the very high population of low-income earners in Nigeria. 11,000,000 litres of kerosene is said to be consumed every day and the demand can only get higher with the ever-increasing population.

Venturing into kerosene retail business

Nigeria (and other countries where kerosene is in high demand) lack stable electric power supply. In addition, this explains why most people depend heavily on it for cooking and other domestic purposes.

Secondly, Nigeria has a large population comprising majorly of low income earners who buy kerosene because they cannot afford other costlier energy sources. Therefore, the market for kerosene in Nigeria (and many other countries in Africa) is very large. The profit margin for kerosene is so mouth-watering that any smart entrepreneur would not mind going into.

Starting the business/registration

If you are interested in starting a kerosene supply business, then you need a haulage truck of about 13,800-litre size minimum. If you want to become a large-scale supplier, you can get a 30,000, 33,000 or 45,000 litre truck size.

However, if you are starting with below 10,000 litres of kerosene, the law excludes you from obligation to obtain a license for kerosene storage and marketing because it is regarded as a small-scale business.

If you do not have the required capital to purchase a truck or tanker outright, you can lease a truck. If you choose to go this route,  it is advised you get a lawyer to review the lease agreement properly.

It is equally advisable to partner a reputable oil and gas consultant or someone experienced in the business to help crosscheck the truck details (picture, calibration meter, logo, transporter’s name, among others). This will be needed during the registration of the truck with the Department of Petroleum Resources (DPR) to obtain the peddler’s license requirements.

It is also important that you register the driver with the PTD (Petroleum Tanker Drivers), which is a sub-branch of NUPENG (National Union of Petroleum and Natural Gas Workers). To obtain the necessary licenses, you need a tax clearance, VAT certificate, a sponsor and your certificate of incorporation.

Once you have obtained the DPR Peddler’s permit, you can then proceed to register with the Kerosene Peddlers’ Union. All these processes and licenses are important, to avoid your truck being impounded.

Once you are through with all the registrations, you can take your truck and money to any of the depots where they have products and start your business. You can choose to lift products either from the NNPC terminals, PPMC terminals or from independent marketers. In Lagos, most of the independent marketers’ depots are located at Ibru Jetty, Apapa, Tincan and Coconut.

When it comes to running a kerosene supply business, the profit is made based on volume and this can be achieved via regularity of supplies. You should strive to lift at least three truckloads of kerosene per week or more. This is better than increasing your profit margin per litre.

Location

To succeed in the kerosene retail business, you need to be strategically located. A good place to site your mini kerosene depot is within residential areas with high population density. It will be preferable if majority of the residents are middle or low-income earners as they are the ones that purchase kerosene more. Research shows that high-income earners prefer cooking gas to kerosene.

Since you will be selling kerosene using a surface tank, you will need space large enough to accommodate one. If you have some space right in front of your home, then that would be just fine since you will not spend extra costs on rent. However, if you do not, you will have to pay rental fees either monthly or annually.

Construct a surface tank

In Nigeria, the regulatory body for kerosene requires that your surface tank must be placed at no less than 200 meters from that of another kerosene dealer. This is to avoid stiff competition. In addition, the body requires that surface tanks be painted blue and taped with white lines in the middle. This is to indicate that the tanks are used for storing kerosene and not another commodity.

To get surface tank, you can approach a welder to help you construct a very good surface tank. You may also decide to buy an already built tank; this can be either new or used. The cost of a surface tank depends on the capacity. You can decide to start with either a 5,000 or 10,000-capacity tank.

You must ensure that the tank is well painted on both the exterior and interior to avoid rusting. In addition, make sure the welding is properly done to prevent leakage. It is also important that your tank quality meet the minimum specification, as petroleum task force officials regularly conduct inspections and checks.

Arrange with suppliers

While independent marketers of petroleum products control about 60 per cent of the kerosene sales in Nigeria, the Nigeria National Petroleum Corporation (NNPC) also controls up to 40 per cent of kerosene sales in the country. This means that as a Nigerian marketer, supplier or retailer, you have two options to source your kerosene from. You can either buy from NNPC mega-stations spread across the country or from any of the independent marketers.

Profitability/start-up cost

It is observed that the selling price of kerosene varies from time to time and place to place. The forces of demand and supply determine the price of kerosene and the profit potential. The profit potential is usually estimated per litre.

Currently, kerosene profits range from N10 to N35 per litre or even more depending on availability. You can make between N10 and N35 per litre. If you get it at N140 per litre, for example, you add an extra charge of N5 per litre to get it to your location. Let’s assume you bought 1,000 at N140 per litre (price is subject to change reflecting the oil prices at the current time); N140 x 1,000 liters = N140,000 plus N5 per litre transport cost on 1,000 litres, which is N5,000 making a total of N145,000. You can add N20 on each litre though; depending on the area, you are situated. In all, you would have made a profit of N20,000. Depending on your location, you can sell 1,000 litres in a day.

To start a kerosene business, some people decide to build storage tanks but it is not necessary. Depending on the size of the tank, it could be between N150,000 and N200,000 litres. However, to reduce your capital, you could get 200 litre drums. They cost about N3,000 to N3,500 depending on where you are buying them from. Starting with 1,000 litres means, you need just five drums. In this case, you only need to get buckets and measuring cans.

In addition, you need to know someone or a petrol station that has constant supply of kerosene or a trader in oil and gas that can supply you regularly, and you are in business. You can store up to 10,000 litres in your residential house.

So, roughly with N200,000, you can start kerosene business on a small scale.

This post was syndicated from The Sun News

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