SINGAPORE - As the global oil shock pushes pump prices at major petrol retailers well past the $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 said Cnergy is aiming to keep overheads manageable to pass on savings to consumers. “So long as the business doesn’t lose money, we just let it go.”
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Even so, this hyper-aggressive pricing has introduced operational bottlenecks at Cnergy’s three petrol stations.
At its 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”, he said.
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 called the resulting queues an “effective publicity stunt” that has boosted Union Gas’ brand equity.
“Being a new player against a competitive field of energy retail giants, its offer of knock-down 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.”
Nevertheless, he cautioned that “the super-low prices cannot last forever”.
Teo acknowledged that Cnergy cannot sustain a fixed price indefinitely, and will have to adjust it based on the purchase price of their next cargo.
“If the next shipment is expensive, then we’ll move up a little bit,” he said. However, he stressed Cnergy will “try (its) best to maintain the same distance” in price from other industry players.
Ultimately, Teo said, Union Gas is banking on customer goodwill to outlast the current oil shock.
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This article was first published in The Business Times. Permission required for reproduction.
