There is something about fast food restaurants and fuel stations the world over. It is not a coincidence that over the past two decades there has been an increase on the number of fast food restaurants located on fuel stations. Burger King has a solid partnership with Sasol in South Africa, so is Shell with Steers. There must be a mutually beneficial relationship that comes with such an arrangement. Puma Energy and Chicken Hut are no exception. They recently rolled out a partnership where Chicken Hut restaurants will be opened at Puma Energy fuel stations around the country. We explore a few business lessons to be learnt from such a marriage.
Increase in footprint
It is clear that Chicken Hut are on a rapid expansion drive. They are targeting to open 20 outlets by the end of 2019. This needs a quick solution considering that they currently only have 3 outlets to date. By partnering with Puma Energy who already have more than 50 outlets across the country, they will enjoy fast brand growth . Even in terms of market share, Puma Energy has covered a lot of growth and it is this market that Chicken Hut will look to exploit.
Management of capital costs
This partnership can also be seen as a strategic way to manage the capital costs associated with opening a new shop. If Chicken Hut were to build new shops altogether, it would probably cost them a whole lot more. Imagine the cost of the land (and we are talking of prime locations) and construction. This is all before they buy all their cooking equipment and interior design. Now the shop and related infrastructure is already there, all they need is to pay their rentals, purchase their equipment and interior design and they are in business. The nature of the fast food business is such that it needs to be located where the people are, and that would be in the towns and cities or on major highways. Land there is very expensive and would have doubled or trebled Chicken Hut’s capital costs. The good thing is the existing fuel station, Puma Energy in this case, is already located there. The whole arrangement becomes capital cost-efficient.
Co-branding will save time
Both Puma Energy and Chicken Hut are likely to benefit from co-branding. Businesses are there to solve customers problems and in this case, Puma Energy and Chicken Hut will take care of time stressed customers by providing a one stop shopping environment. While filling up their tank, the customer might grab a quick meal and rush back to work or continue with their journey. There is a pitfall associated with this though. If one of the partners is not doing their part, this might affect the other partner. For example, if the fuel station continuously experiences stock outs, this may consequently lead to fewer customers visiting the fast food outlet. In short, both parties run the risk of being affected by non performance of the other party.
It is believed that such arrangements increase sales for both parties. The presence of Chicken Hut will help increase traffic to Puma Energy and vice versa. Again this is an interdependent relationship where each partner needs to do what they do best in order to increase their profit and that of their partner. Some customers come for fuel alone, or fast food alone but others come for both.
Efficient shop floor utilisation
For Puma Energy, or the owner of the building, roping in Chicken Hut increases their income through collection of rentals. This is floor space which was already there and making decent money from it makes good business sense. However, Chicken Hut will not mind the rentals since they are running away from the idea of having to build their own shop from scratch.
There is no arguing that Puma Energy and Chicken Hut are looking to complement each other as partners in this arrangement. Both partners are certainly looking to outwit their competition through this move. Imagine how much sales Chicken Hut will enjoy during fuel shortages where hundreds of people spend the whole day on fuel queues. Food for thought.