Extensive Study on Sasol and Burger King 

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Sasol is one of the primary companies of fuel. It is an integrated, energy and chemical company founded in Sasolburg, South Africa. They have three business units in which they apply to their stations:

  • Convenience stores and bakery
  • Car wash and fast-serving restaurants, now Burger King. These may be added under certain conditions.
  • Forecourt – according to Lightstone (data and research group), Sasol is the most successful and effective fuel station company that ensures drivers to pull in at their forecourts. Regardless of their few stores that they own (294 fuel stations countrywide). Sasol’s conversion ratio sits at 6.2% (November 2017) with an average of 4 221 visits to each of its fuel stations within a space of three months. Fast food outlets play an important role of the fast-serving convenience that is offered. This is where the partnership between Burger King and Sasol arouse.

Burger King, brought to South Africa in May 2013 is known to be a worldwide brand of high-quality, great-tasting and inexpensive food. Founded in 1954 it is renowned to be the 2nd largest burger chain worldwide. Burger King South Africa was first brought to the Western Cape and has partnered with an investment company, Grand Parade Investments. They plan to expand nationwide.

Burger King (Pty) Ltd has signed an undivided agreement with Sasol in July 2013. This agreement has allowed both Sasol and Burger King to be able to intensify the experience of the customer, in the fuel retail environment of South Africa. This deal has allowed Burger King South Africa to “position their brand across new channels and therefore expand their number of guests and restaurants in South Africa, as well as offering a new way of enjoying Burger King’s products to clients across the country” – Josè Cil. Burger King’s president worldwide for Europe, Middle East and Africa. This is able to reinforce their point of view in the merit of their partnership. Reason being is that they both hold great understanding of the sector they utilize. This helps and ensures that Burger King is able to strengthen their brand positioning within the market. This kind of fuel and fast food brand collaborations allow and give the fast food retailer, Burger King, to provide a substantial footprint in South Africa itself. It also allows for the fuel station, Sasol to distinguish themselves from competitors.

Sasol’s ability to partner with one of the prime global Quick-Service Restaurants (QSR), Burger King, works in line with Sasol’s calculated vision, which also allows them to increase their retail footprint in South Africa. This alliance will allow the two main brands to influence each other’s capabilities and strengths. The vision behind this partnership is to be able to continually meet the needs and wants of the customer in a swift changing business environment.

This relationship is seen as a symbiotic relationship between these two companies as they both focus on creating future opportunities for the franchises and South Africans. Operating losses at R1.4 billion since 2014 for Burger King has been due to bonuses worth R26 million which have been paid to directors in the last two years, this distribution occurred while Grand Investment Parade (GPI) were suffering from their losses. GPI’s main investments generally focus on two main groups, food and gaming.

SWOT Analysis of Sasol

The strengths of a company plays a dual role, as it helps to shield the market share in existing markets, but also helps to penetrate into new markets. Sasol has several strengths, which works in correlation to their success. They have an exceedingly skilled workforce through effective training and learning projects. They invest huge resources in training and growth of their employees resulting in a labour force that is not only particularly skilled, but also motivated to achieve more. Good returns of capital expenditure – Sasol is known to be comparatively successful at implementing new projects and generating high returns on capital expenditures by building new income methods. A recent example includes: Sasol’s R13.6 billion FT Wax Expansion Project (FTWEP). This is the production of waxes, liquid paraffin and waxy oil, making Sasol one of the leading countries of wax production. Although, this may not be a completely brand new, innovative project, the logic behind an expensive project being successful brings out a great example of a strength.

The weaknesses are areas where Sasol can improve by means of strategies. It enables them to rise on competitive advantage and strategic fundamentals. Sasol comes across as a mature company who brings out products based on a previously tested feature. Therefore they have not been able to compete with the leading competitors in the market in terms of innovation. This is because the fastest growing competitors in the industry are investing massive amounts in research and development in order to generate new ideas. Sasol is largely dependant on the South African state-owned company, Eskom. However power productions and supplies from Eskom are once too often interrupted.

Opportunities are favourable external factors that Sasol can use as a competitive advantage. In the fuel market there is a growing requirements for coal conversions that can create opportunities in growth for Sasol internationally, mainly because of its notable capabilities in this field. Namely, its proprietary Coal-to-Liquid and Coal-to-Gas technologies. One of Sasol’s prominent and higher revenue earner, is the order for oil, it has also become a growing worldwide demand for energy. This kind of need is able to assist Sasol by supporting all its oil operations.

The threats to Sasol are potential harm. Exceptional competition – pressure from competitors in the industry over the year is capable of putting pressure not only on overall sales, but also profitability. Sasol gets a remarkable portion of its revenue from abroad. There are several risks, such as higher transactional costs, currency volatility and liquidity risks that Sasol could face.

Analysis of Sasol’s Porter’s 6 Forces:

Threat of new entrants – the fuel industry is highly appealing, this is due to one simple motive: major profits. There is a low chance of threats of new entrants due to the fact that there are high obstacles and challenges faced when seeking entry into a business like Sasol, this includes high fixed costs that are demanded by this kind of investment of starting up an resource energy company. Therefore, it is not easy for new companies to start up around strongly established brands such as Sasol, who have apprehended a bigger share of the market.

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Availability of Substitute products – renewable resources as well as biofuels can be referred to as substitute products. The threat is less, as it would take longer for new establishments to exchange oil resources. Making the threat moderate.

Bargaining power of suppliers – these include the suppliers from the oil fields in with Sasol has a domination over their suppliers. They are able to bargain with suppliers. The suppliers often compel with the demands of Sasol as it decreases their chances of losing business. Sasol operates in many different countries, in which some have supplies of fuels and oils, making them a supplier too. Therefore Sasol’s bargaining power is high and strong.

Bargaining power of buyers – globally, the price of fuels is dependant on the global demand. Consumers don’t have much bargaining power over Sasol’s prices as they are fixed and government dependant. However, they do have a choice preference in where they choose to fill up fuel. This is purely based on the convenience of where Sasol’s petrol stations are situated, as well as the customer service provided.

Level of rivalry – Sasol has major competitors, such as Shell, BP and Engen. These petrol station brands contend with each other built on different factors, such as economies of scale, fixed costs, product differentiation and variable costs. Factors like these are able to determine the profitability of these companies. Sasol in terms of its economies of scale has improved drastically. They have been able to invest approximately R681 million for skills as well as socio-economic development (February 2018). Sasol however, were constrained, as the economic conditions weren’t too great in South Africa, as this caused a decrease in the demand for Sasol’s other products.

Sasol’s PESTLE Analysis:

Political factors play an integral role to determine Sasol’s profitability. Sasol operates in Major Integrated Oil & Gas in more than a dozen countries. They are exposed to different political environment or political systems and political environment. Sasol can look at factors such as: the level of corruption in South Africa, in the Basic Materials Sector. Sasol needs to examine current trends as well as: the level of corruption in South Africa, this ties in with the regulation levels in the Basic Material Sector. Sasol needs to examine current trends as well as new elections, as decision change in the government body occurs. South Africa’s pricing regulations are exceptionally high which results in the level of affordability being low, therefore there is extra commodity in terms of monthly payments for people.

Economic factors - The Reserve Bank has the capability of influencing the Rand, as the interest increases the rand continues to weaken. The currency is subject matter to market forces. In South Africa the economic performance is stable. Sasol can use the country’s economic elements these include, the growth rates, inflation and the economic indicators of the industry. South Africa’s unemployment rates are exceptionally high, it sits at 25%. This is a problem for Sasol, as a higher population of South Africa, are unemployed, resulting in no salaries / wages, resulting in the buying power being low. The unemployed are unable to purchase a car, therefore the need to purchase fuel is not there, resulting in a lower profit.

Social factors – society’s lifestyles and manner in which things are done. One of Sasol’s major social challenges is employee strike. In September 2018, discrimination between white and black employees of Sasol. Sasol had distributed and offered majority of their black employees, share ownerships, which was a new scheme that Sasol had introduced. However, it was said to be that none of these share ownerships were offered to the white employees of Sasol, resulting in three-week strike. A strike like this is detrimental to Sasol, as it results to high settlement costs as well as in some cases, shutdown of the station due to lack of staff.

Technological factors – the advancements of technology, results in a decrease in profits due to the production of more electric vehicles and less production of petrol- hungry cars. In South Africa however, the importations of bringing in electric cars are a lot slower. When this does happen, the use of fuel and petrol demands will decrease over time. Companies like Tesla, already have fully fledged electric cars, which are the dominating vehicles abroad, these companies aren’t available in South Africa yet.

Legal factors – September 2018, Sasol was suspended by the National Bargaining Council, their license was taken away due to employees working overtime. This was an issue, as their health and safety was at risk. In Secunda, near the township of Embalenhle, is where the Klienspruit River reaches. Pollution into the waters in which livestock drink from, fishing and baptism has increased and the water quality decreasing. This is brought about a worrying concern for the locals’ health who are living around the area.

Environmental factors – November 2018, Sasol was known to emit a lot more greenhouse gases than any other company on JSE. It has been noted and linked to one of the many fossil fuels companies that collectively produce 71% of industrial gas. This is risky for employees and investors. South Africa as a whole emits more carbon emissions than the rest. It is known to be the 14th biggest emitters in the world. Three-quarters of South Africa’s emissions come from Sasol’s fuel plant coal-to-liquid which is situated in Secunda, Mpumalanga.

Strategic Plan for Sasol’s Future:

In the last few years, businesses worldwide have been hit drastically at a geopolitical level and financial markets. Usually the external market has an incredible impact of Sasol’s potential to generate use for their stakeholders. It is assumed that by 2025, almost 11% of global cars sold, will be electrically powered. Meaning they will be running on batteries rather than petrol or diesel. On average, an electric vehicle takes about 8 hours to charge as well as a quick-charge which takes 2,5 hours. In South Africa currently the whole ideal of electric vehicles are seen as “unattractive” and has a low demand mainly because it still serves as an inconvenience, as there is a shortage of charging stations. Sasol needs to prepare for electric vehicles which have already come into the country. Car dealers such as BMW and Nissan have successfully set up their electric cars in South Africa. Technology is moving at a rapid pace and in order for Sasol to keep up and remain in one of the highly rated fuel brands, it may be a better idea to start investing in setting up charging stations in order to accommodate electric vehicles.

There are some investments that Sasol has invested millions in. R25,5 million towards infrastructure development in a municipal district can rather be spent on setting up charging stations to accommodate. While there will still be a demand for petrol and diesel in South Africa, Sasol as well as other petrol station brands are starting to feel the pressure with regrards to adjusting to demographics that are changing and technology that is advancing. Sasol can look at many new opportunites to start working on. The purpose of a forecourt is easy access to fill up fuel into wells, the more electric charging stations there is, the smaller the area of the forecourts. Instead, management could rearrange the layout, by being able to cater for customers who are waiting for their cars to be charged. The electric charging units as well as new inventions of biofuel will bring about an alternative to petrol or diesel pumps. Advancing in the direction of green energy, Sasol will eventually start adding wind turbines, solar panels and various other sources of power generations. By doing this, Sasol secures itself in the market as well as keeps their profits stable, as they are adhering to what the consumers want as well as keeping up with technology advancements.

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