‘Marketing expenditure’: Union Gas CEO on how Cnergy is drawing petrol queues even as prices climb

[SINGAPORE] As the global oil shock pushes pump prices at major petrol retailers well past the S$3 a litre mark, Cnergy’s stations continue to undercut the competition in what its management says is a calculated move to gain market share.

By keeping its prices significantly lower than the market average – up to S$1 lower than the competition when excluding discounts – the upstart Singapore brand has triggered localised traffic jams, gained social media fame and generated a surge of about 40 per cent in the share price of its parent company, Union Gas Holdings .

But Union Gas is not relying on hedging strategies, where companies lock in oil prices months in advance to protect against market shocks, to keep pump prices down.

Instead, it is absorbing the rising wholesale costs directly, engaging in an aggressive customer acquisition play that relies on volume to offset tight margins.

“We make a very, very marginal profit… there are days that we really go without profits,” Union Gas chief executive Teo Hark Piang told The Business Times in an interview on Friday (Mar 20).

Acknowledging that the company treats the difference in cost as a “marketing expenditure”, Teo added that Cnergy is aiming to keep overheads low, so long as it does not suffer losses.

Operational bottlenecks

Even so, this hyper-aggressive pricing has introduced operational bottlenecks. At Cnergy’s Dunman Road outlet, the sheer volume of bargain-hunting drivers has caused localised congestion and blocked bus lanes, forcing the company to incur unexpected operational costs.

“I know the queue is terrible… we have deployed some of our guys to the site to control the traffic,” Teo said, acknowledging some responsibility.

Furthermore, the viral success of the petrol pumps is temporarily slowing down Cnergy’s electric vehicle (EV) ambitions. EV chargers, which are mandated at the stations, are underutilised as “EV (drivers) don’t want to be in the queue to come and charge”, said Teo.

Teo also revealed that he would advise tenants to delay opening planned snack bars at the Dunman Road and Queensway stations to prevent the queues from building further.

Still, Cnergy’s “loss-leader” strategy appears to be paying off on the trading floor. Professor Lawrence Loh of the NUS Business School calls the resulting queues an “effective publicity stunt” that has massively boosted Union Gas’s brand equity.

“Being a new player against a competitive field of energy retail giants, its offer of knockdown prices is the surest way to gain consumer attention,” Prof Loh noted, adding that investors are clearly looking past the short-term margin compression. “It’s… no pain, no gain.”

However, he cautioned that “the super-low prices cannot last forever”.

The Union Gas chief executive acknowledged that Cnergy will have to adjust prices upwards if the next cargo shipment is more expensive, but said the petrol station operator will try to maintain a gap with the majors.

Ultimately, Teo said, Union Gas is banking on customer goodwill to outlast the current oil shock.

“A partner in need is a partner indeed,” quoted Teo. “During difficult times, we stand by you. So maybe during peacetime… just come back and support us.”