By Morgan Phrasaddha Naidu Puspakaran
Pupil, EzriLaw Firm (Commercial & Banking Division)
Imagine you are on a long drive back to your hometown for a short break. You notice that your fuel bar is blinking so you pull over to the nearest petrol station. You get off the car, pay the fare for a full tank and continue your journey. During your stop, you would have seen a number of attendants diligently doing their jobs, the cashier attending customers while humming a happy tune and children buying their favourite tidbits from the mini mart to savor during their journey. But what we all do not see through our bare eyes is the type of dealership model the whole station is striving on and how the model works, which who knows, might help you some time in the future.
Generally, many of us might not know the terms DoDo, CoCo or CoDo as they are not layman terms that we frequently come across with. However, they play a prominent part in our lives especially towards the petroleum industry that governs the automotive arena. These terms are used to describe the dealerships that later construed to become legal agreements such as a DoDo, CoCo or CoDo agreements which seal a contract towards the operation of various petrol service stations throughout Malaysia and not to forget, these dealerships are indeed lucrative ones if dealt with in an efficient manner.
Firstly, DoDo stands for “Dealer-owned-Dealer-operated” model. In such dealership model, the legal agreement involved will be known as a DoDo Agreement which enable the parties to be bound to their duties adequately. DoDo agreements allow the dealer to perform as both the owner and the operator of the petrol service station in question.
In DoDo agreements, the dealer would be most likely an open dealer who owns the site where the petrol service station is located. The fuel company involved keeps control of the underground tanks, petrol pumps, company signs, and other required equipment.
In DoDo agreements, the dealers may have to sign a supply agreement with the company or may be supplemented by a branded reseller. Upon expiration of the DoDo agreement, the dealer is allowed to switch to another source of supply, including another fuel company. Under DoDo, the dealer will be required to sign on a Retail Trade Agreement with the company for an extended period of roughly between 10 to 15 years. Around 70% of the petrol service stations throughout Malaysia are based on this DoDo model.
Next in line to DoDo dealership are CoCo, which stands for “Company-owned-Company-operated” model. A CoCo legal agreement ensures that the distributing fuel company or any of its subsidiaries owns and operates the petrol service station. Once a CoCo agreement has been signed, the company will be the owner of the real estate or the operating site accompanied by salaried or commissioned staffs. CoCo powered petrol service stations stand to be company-operated stations which can be supplied directly or through a branded reseller supplying fuel-based products. The CoCo personnel are often to be on a varying payroll model compared to the fuel company’s staffs.
Similar to CoCo, a substitute model under the same function is the CoFo dealership. CoFo is defined as a “Company-owned-Franchise-operated” model and closely resembles the CoCo model, with a slight change in the term where it operates with franchising instead of a dealer-based ownership. This model is adopted by fuel companies when they want to reduce their operational expenditure and lease the operations of the business to an interested franchisee. The franchisee will take over the operations of the business alongside the former holding trainings and other standard operating procedures (SOPs) to ensure standards are adhered to. The business ownership would still lie solely with the company and the franchise can be changed when the Company identifies a much more profitable and efficient franchisee.
Another prominent model for the petrol service station is the "Company-owned-Dealer-operated" model also known as CoDo. A CoDo legal agreement is signed where the distribution company or any of its subsidiaries owns the property on which the petrol service station is located whereas the dealer operates it. According to recent statistics, CoDo is one of the least used models throughout Malaysia as most of the dealers tend to be the owners of the petrol service stations in the current fuel market. The dealer in certain situations may lease the petrol service station site and land, including underground tanks, petrol pumps, company signs and other equipment from the company.
For CoDo models, the agreement ties a dealer to the lease terms for a facility, and also the strict requirement to buy fuel only at the “dealer tank wagon” (DTW) price set by the fuel company. On whole, this type of model represents about 30% of the petrol service stations in Malaysia.
In a nutshell, a well-grounded understanding on the models of retail fuel dealership and legal agreement will determine how beneficial these long-term DoDo, CoCo, CoFo or CoDo contractual relationships continue within strong fuel companies such as Petron, Shell, Petronas and Caltex. Such fuel companies who own the facilities and supply the fuel would want to ensure that all duties are fulfilled between parties and this is where a proper guidance of all these models comes into play. As both the dealer and the company solely intend to optimize revenues, it is crucial to understand the ultimate concept of DoDo, CoCo, CoFo and CoDo legal agreements which would serve to benefit both parties involved.