Capital, Process and Equipment
Licenses
To start a LPG Retail business the following licenses are required:
i) ERC Retail License
The conditions to be met before issuance of this license are stated above. Among the key conditions is that the retailer should have a supply contract with a licensed LPG wholesaler. The license costs Kshs. 5000 and takes an average of 30 days to process. You can apply online through the ERC website: http://www.erc.go.ke
An agreement with the wholesaler means you have to get in touch with a wholesaler already licensed by the ERC. This could be an independent wholesaler or an oil company. If an independent then he must have authority from the oil company marketing a particular brand to refill on its behalf.
Again as noted many gas retailers operate comfortably without this license. The ERC does not seem to have the capacity legally and in terms of manpower to enforce the rule.
There are also plans, though still in the early stages, to establish a body to specifically regulate
ii) Fire License
This license is meant to ensure that you have taken necessary measures to avoid the outbreak of a fire, and in case of one you are able to control it. At the minimum you should at least have one fire extinguisher which is inspected and certified. The fire license is acquired from the Fire Department of the county government.
Price averages Kshs. 3000. It’s advisable to acquire the license for failure to do so will mean constant harassment by county officials.
iii) Local Authority Business License
This is the normal business permit issued by the local authorities. The price will depend on the location, size of business and county. Prices average Kshs. 8000.
iv) Weight & Measures Certification
This is certification from the Weights & Measures department that your weighing machine is properly calibrated. Price averages Kshs. 1200.
Equipment Needed to start
- Gas Cylinders
Gas cylinders are the property of the oil marketing companies that brand and Issue them. The companies import cylinders from countries like Thailand or buy locally from cylinder manufacturing companies like East African Spectre, they brand, fill with gas and then release them to the market. The price of empty cylinders is usually at a premium of between Kshs. 800 Kshs. 1000 of the alternative second hand, unstructured market.
Types of Gas Cylinders in Kenya
Gas Cylinders for the retail market in Kenya comes in 3 common sizes:
3 kilograms – This is popular in the low income areas and those going for camping.
6 kilograms – This average quantity is the most popular overall
13 kilograms – Preferred by those of middle and relatively high end income.
There are other sizes though not very common; 15kg, 25 kg, 35kg, 45 kg, 50 kg
The 3kg and 6 kg cylinders were a late entry in the mass market which was previously dominated by the 13kg.
The 6 kilogram is the fastest moving in neighborhood gas retail shops . You can start with a little of each but with a bias towards the 6 kilogram.
- Metallic Cage
This is the cage used to place and display the gas. There is no standard price or single source for the structures. Gas retailers order from local welders and negotiate price depending on the preferred size.
iii. Fire Extinguisher
Fire extinguishers can be bought from leading supermarkets, some hardware and motor vehicle spare shops or specialized fire equipment companies like Nimrod Kenya and Dragon Fire. Prices depend on the size. Standard extinguishers range in prices from Kshs.3500 to Ksh. 7000
iv. Digital Weighing Scale
There are a variety of digital weighing machines dealers. Some supermarkets and hardware shops stock them. Prices start from around Kshs. 15,000 all the way to Kshs.50, 000 depending on the features and make.
LPG Suppliers
There are two kinds of suppliers:
- a) Legal Suppliers
- b) Illegal Suppliers
Legal Wholesalers
These are fully licensed by the ERC to conduct business of LPG in wholesale. They include oil companies who market their own brands of cylinders and also independent wholesalers. The oil companies largely operate through petrol stations and where those are not available through depots, distributors and agents.
Illegal Wholesalers
These are illegal either because they are dealing with smuggled fuel or because they are filling cylinders without the authority of the brand owners. Illegal refillers operate from various spaces sometimes even within private homesteads.
What to Consider in order to enjoy the competitive Advantage
- Location
Location is in two forms:
i) Location where there is a critical number of potential customers. This could be in an area where the population is growing due to upcoming buildings, economic attractions such as new company setting up, social attractions such as security or a completely new estate.
ii) Location in relation to the convenience of the customer – Gas often ‘finishes’ without any notice. A customer could be cooking now and the next hour, even before the meal is fully cooked, the gas is over. In such circumstances she will want to purchase the gas soonest possible and from the nearest location. Gas cylinders are also bulky and relatively heavy items. This means few customers want to carry it around especially if they don’t have an own means of transport. Thus there are gas retail outlets which try to locate as near the customer as possible. This could be on the ground floor of a flat, along a path to a shopping center or near a market.
2. Reliability and Trust
Among consumers there is already default skepticism about neighborhood gas retailers. Largely this based on whether the gas is of the right quantity. Although many retailers have a weighing scale on which a consumer can confirm the true weight of her filled cylinder, many customers believe that the scales have been tampered with and are not giving a true reflection of weight. The only proof that the Weight is correct is if the gas lasts for the duration she expects it to.
Reliability is also in terms of opening and closing hours. Why carry a 13kg to a shop only to find it closed? Then if I want gas at 9pm or 7am in the morning can I get it? Consistency in opening and closing hours adds value to the business. If a retailer has erratic working hours then he loses he trust of the consumers.
In addition Reliability has to do with the availability of various brands. There are customers who want to use only particular brands. So if they have a K-Gas then they will want to exchange with a K-Gas although a Totalgaz can work as fine. Thus a retailer who has a variety of the most common of brands always will have an edge.
3. Service
Service involves the courtesy and attention that the customer receives. It’s also about such practices as picking and delivering the gas where applicable. The latter is increasingly becoming a crucial consideration when making purchases especially in locations where the retailer is located a distance from the customer’s house or if the customer lives on an upper floor of a flat. Staff of some retail shops go ahead and help the customer connect the new cylinder. These simple things are noted not just by existing customers but by potential customers.
4. Marketing
Although marketing may involve all the above efforts we focus on direct marketing efforts like advertising and efforts at branding. Advertising in the business takes some common easily replicable forms. One is to use small billboards pointing to the existence of the gas retailer. Two is the use of stickers in shops, gates, matatu, toilets and any available public spaces. Often such advertisements commonly highlight location, affordable and free delivery.
Other forms of advertising include leaflets, posters and in a few cases online classifieds either through free classified websites like OLX or Facebook. The effectiveness of the latter depends on whether the retailer is able to narrow down to the target customer. As well it depends if through the ad the retailer offers the potential customer.
5. Pricing
Price is an important consideration when purchasing gas. This is more so in low and mid income areas. Price based competition is common is some locations. Price differences tend to range between Kshs.20 and Kshs. 100. Where the price is too low as compared to competition customers could be skeptical about the quantity. On the other hand higher prices do not instill confidence that the gas is of the correct amount this is because of the skepticism that already exists.
Feel free to contact us if you have any questions or help. [email protected]
