Entrepreneur interview with: David Penny, Penny Petroleum

Posted on the 13 September 2016

Entrepreneur interview with: David Penny, Penny Petroleum

From an inconspicuous start at a service station in rural Northumberland, Penny Petroleum is a fuel and retail empire that now spans the north of England and Scotland. We spoke to managing director David Penny about the company’s journey, his experiences, and plans for the future.

How did it all start?

At university, I did a Business degree at the University of Liverpool; it was a course with a sandwich year, during which I worked for BP. In that time I spent six months in head office and six months on the road, managing a BP petrol subsidiary called Sealand Petroleum. This often meant running sites with no staff, and it was during this time I caught the retail bug.

I finished university and returned to BP, working as an area manager. In 1985 I was sent to the North East, I’d never even visited the area before, but I soon fell in love with it. I was promoted to UK Car Wash Manager, and recalled to head office in London, to write a business plan for the whole of their car wash operation in the UK.

I much preferred to be out on the road; corporate office life didn’t rest easy with me. Because of this I left BP and moved back to the North East to work for an old customer, Philip Richardson, who was President of the Petrol Retailers Association. It was a bit of a jump between leaving a multi-national firm for an independent retailer in the North East, but I learned a lot.

After two years in that job I left, to spend three of the next four years backpacking around the world. I travelled through South America, Indonesia, Australasia, and most of South East Asia. I did two outdoor leadership courses in Canada, learning how to be a mountain guide. This gave me a lot of knowledge of the world, and I learned to be very independent. After four years I returned to the North East, moved back into my house in Jesmond, which I’d been renting out, and got married. At this point I didn’t have a job, we had a baby on the way and I was volunteering at the Haymarket Oxfam. I’d been looking for a business to buy, and in summer 1994 I mortgaged my house to buy Hedgeley Services, near Powburn in Northumberland.

So tell me about your first site

There was a house with this site, so the family moved up. Spending six months on the same service station site in rural Northumberland took a lot of adjustment, having travelled the world not so long before. This site took a lot to get it going, trade was very seasonal and it needed a lot of development money, which I didn’t have, so I kept my head down. After a couple of years I managed to raise enough money to turn the old car showroom there into a café, bar and function-room. We got an off-license for the shop, which was probably the first granted to a petrol station, it was certainly the first in Northumberland, and we got an on-license for the old car showroom.

We hosted gigs and events at the site, I remember people travelling from as far as Glasgow to see some of the bands. In 1997 the Referendum Party booked it for a fundraiser with James Goldsmith and Jules Holland, who played the piano there.

How did the business grow from there?

I didn’t want to run that site full time, so I rented it out and was able to buy two more in the North East. It turned out they were too small and didn’t really get going. In 1999 I ended up buying the site on the Holy Island turn off on the A1, which I still have. At this point I realised that I needed some more urban sites, with an income in the winter, as my rural ones were far too seasonal. By 2003 I had two sites in Yorkshire, near York and Selby, bringing the total to four. The banks made this difficult, but eventually I was able to raise the necessary funds. From here the business started to mushroom, and I acquired two more sites in Newcastle and Gateshead.

How did the recession affect you?

It made things difficult, but despite the banking crisis we were able to expand. This meant leaving the bank we’d been with for ten years, and changing again when necessary.

So did this change how you did business?

Not really. My business model is quite simple; acquire older sites that are in need of investment, some of which hadn’t had anything spent on them in a generation. We take over sites on leasehold, with a freehold option; we build up their value, and then go to the bank to finance getting the freehold at the agreed price. Picking the right location is essential, as there is a trend towards smaller numbers of larger sites now.

How has the market changed since you started?

When I first started the business there were 21,000 petrol stations in the UK, there are now between 8,000 and 9,000. A lot of this is down to Esso Pricewatch, which people may remember, and increased competition from supermarkets selling fuel at low prices.

What would you say your Unique Selling Point is?

From a strategic point of view I’d say it’s our business model, on the forecourt it’s our branding and making visits to our sites a unique experience, we like to be quirky rather than corporate. The off licenses in our petrol stations are branded as Penny Blacks, with black fridges and stamps on the floors of the stations leading customers to them. We also try to use every inch of space, which makes some of our sites unique. We have 15 tenants renting space we wouldn’t be using. These include an artist in Scarborough, a sound recording studio in Marske, antiques showrooms and tea rooms.

How do you keep your staff motivated?

We aim for our staff to proactively up-sell an extra 10p worth of items from the point of sale display to each customer, as this can yield a significant boost in profits; we processed over five  million individual transactions last year. We have competitions and league tables to encourage this; the site that does the best in terms of sales each month earns rewards for its social fund. Some have put this towards their Christmas party, one bought a radio and PRS license to provide music for the staff and customers.

What about you, how do you keep yourself motivated?

I call it the 5Ps. It’s not just about my own motivation, it for the business as a whole, I’ve got the senior management team involved already and we’ll be rolling it our company wide soon. The five Ps are perseverance, positivism, partnership, passion and pride. Perseverance goes right back to the start of the business, working through the tough winters at Hedgeley Services, and not letting the banks get me down when we needed funding to expand.

Positivism works in two ways, you have to surround yourself with positive people, as I’ve done with my management team, and being positive for them. Partnerships is about building good relationships, internally and externally; with your staff, suppliers and even the banks.

Passion, you’ve got to be passionate about what you do, so it helps if you do something you’re passionate about. Pride, you have to be proud of your staff, and what you have achieved with them. Pride in a job well done, however small it may be, is a strong motivator for continued success.

So what does your business structure look like today?

We now have 33 sites across the North of England and Scotland, and we have the freehold on more than half of them. Our turnover is over £100m a year, compared to less than £1m in our first year of trading, and we now employ over 300 people. We’re the seventh largest independent operator in the country, and this size gives us a strong bargaining position when dealing with suppliers; I’m never afraid to switch to get a better deal.

Any plans for expansion?

The short answer is yes, you’re never the finished article, there’s always more that can be done. By the end of 2016 I’d like to have 40 sites, 50 the year after that, and over 100 in the not too distant future. We’re also got plans to develop our existing sites, I can’t go into too much detail, but we’ve been part of some marketing workshops with Saatchi and Saatchi, and we’ve got some big ideas to improve customer experience.