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How to start a profitable gas business in Kenya?

A big gas industry operating at night in Kenya, someone built a good gas business.
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Liquefied petroleum gas or LP gas is one of the most utilized alternative fuels used in the world. Moreover, in countries like Kenya, gas business isn’t even an alternative at all as it is the mainstay for heating. And cooking in most households in the country. For those unfamiliar with what it is, liquefied petroleum gas {LPG} is a flammable mixture of hydrocarbon gases used as a fuel in heating appliances.

The gas burns cleanly, releasing very few sulphur emissions, and posing no ground or water pollution hazards.

Hence the popularity as a business opportunity in Kenya that caters to industrial, commercial, and household consumers.

The cooking gas business in Kenya has created lucrative opportunities for resourceful entrepreneurs.

If you have been searching for a profitable venture to sink your teeth into.

Then a cooking gas retail business in Kenya might just be the best option for you.

Market Segmentation

The LPG business market in Kenya involves buying huge quantities of LP gas, storing it in tanks, and supplying it to individuals that use it for domestic cooking.

The benefit of this distribution business is that it’s a low entry venture with fair capital requirements.

And can be completely customized to fit your budget needs and the various personal requirements of your clients.

Not to mention, anybody can start a cooking gas sale and delivery business irrespective of educational background.

In Kenya, the use and supply distribution of LPG is dominated by two primary end-use applications; cooking and lighting fuel in residential and commercial establishments and as process fuel in industrial manufacturing operations.

It is estimate that the domestic sector uses about 65%, while the commerce and industrial business sector accounts for the other 35%.

In the Kenyan market, most of the distributors of cooking gas lack the necessary market information about the rural and remote areas that need their business solutions most.

And as with every successful venture, information on the market size, existing and competing alternatives, supply, and LPG distribution channels, willingness and ability to pay.

And also, current and projected demand are all important factors needed to inform business and investment decisions.

However, only a few have the resources to carry out the needed market assessment to advise or improve their service offering.

Here in lies the opportunity for any determined entrepreneur.

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As a result, there are a number of important factors and important information that you need to take into proper consideration for those interested in starting a gas distribution business in Kenya.

1. Get all the necessary information about the industry

  • How is cooking gas measured?
  • Where do you buy it from?
  • What are the common business challenges sellers in the LPG industry face?
  • How do you identify quality LPG?
  • And how do you handle your cooking gas cylinders?
  • How do you refill a customer’s gas cylinder?
  • What are the various types of gas that can be sold, and which is the best?
  • What factors affect the local retail price of cooking gas?

You must take all these questions into deep consideration as you need to answer them before starting a cooking gas retail business in Kenya.

After all, knowledge is one of the keys to success in any business.

You definitely cannot jump into an unknown business market and expect to find success easily.

So you must invest time to get the basic insider knowledge about this business.

If possible, you should learn from some of the locally established LPG gas business operators in Kenya.

2. Put together a good business plan

No matter how lucrative a business idea or opportunity might seem, a well-written business plan is an important tool because it will allow you to track your goals as the business starts to grow.

Evaluating business models involves an analysis of various operational aspects required for the success of a business.

These may range from product selection, identifying a customer base, sources of revenue, and financing details.

Formulating a business plan should be the first thing done when starting a new cooking gas business Kenya or any business venture.

It’ll help you see the bigger picture, plan, make important decisions, assess the competition.

Also, potential threats to progress well in advance and improve the overall likelihood of success.

Moreover, a good business plan is very valuable for the future because it helps when trying to attract investors.

So they can determine if your Kenya LPG distribution business in on the right path and worth putting money into.

3. Get the necessary licenses

Before you dive into Kenya’s LPG retail business, you must start to get the necessary licenses for you to operate your LPG distribution business legally.

This is because the LPG regulations that came into force in Kenya this year outlined tough requirements for cooking gas traders, prompting mass closure by retailers.

An excerpt from the regulations passed by parliament in June 2019 states,

“A person who wishes to undertake an LPG business shall make an application for a license to the Authority or its licensing agents in the prescribed manner…”

Moreover, among the new regulations by the energy regulator is that cooking gas cylinder traders must have permission from brand owners.

Failure to which they will be fined Sh10 million ($100,000) or more, a five-year jail sentence or more, or risks the invalidation of their operating license.

To legally operate an LPG distribution business in Kenya, you must officially acquire the following licenses:

ERC Retail License

Among the key conditions, you need to have for your LPG distribution business is a supply contract with a licensed LPG wholesaler.

If the supplier is independent, they must have permission from the oil company to refill on its behalf.

The license for your business will normally cost around Kshs. 5000 and is usually in about a month.

You can apply online through the ERC website.

Fire License

This license is proof that you have taken the required measures to avoid the outbreak of a fire, and in case of one, you can control it.

You should, at the very least, have one readily inspected, fully functional, and certified fire extinguisher.

The fire license is acquired from the Fire Department of the county government and costs typically about Kshs. 3000.

It’s also recommended to acquire this license as a safeguard against harassment from government officials.

A Business Permit

This is the normal business permit issued by the local authorities required to open your LPG distribution business legally.

The price usually is dependant on the area, size of the business, and locality.

Prices average Kshs. 8000.

Weight & Measures Certification

This is certification from the Weights & Measures department that your weighing machine is properly calibrate.

Price averages Kshs. 1200.

KRA Certificate

This is a tax compliance document that shows you are paying your (individual taxpayer or a company) taxes and filing your tax returns.

4. Get the right equipment for your LPG distribution business

Gas cylinders

Lpg cylinders are the property of the oil marketing companies that brand and Issue them.

The companies usually import gas cylinders from countries like Thailand or purchase them locally from gas cylinder manufacturing companies.

These companies brand the cylinders, fill them with gas, and then release them to the market.

The price of empty gas cylinders usually comes at around Kshs. 800 to Kshs. 1000.

Gas cylinders in Kenya mostly come in 3 sizes:

  • 3 kg – This is popular in low-income areas.
  • 6 kg – This average quantity is the most popular overall
  • 13 kg – Preferred by those of middle and relatively high-end income.

There are other sizes; 15kg, 25 kg, 35kg, 45 kg, 50 kg.

However, these aren’t that commonly purchased as the 3kg and 6 kg gas cylinders took over the mass market as affordable for most low-income households.

In short, the 6 kg gas cylinder is the fastest moving in neighborhood gas retail shops.

You can start with a little of each but with a bias towards the 6 kg LPG version.

You also need to purchase a:

Metallic Cage

This is the cage is to place and display the LPG cylinders.

There is no standard price or single source for these.

Lpg retailers order from local welders and negotiate the price depending on what you would like.

Fire Extinguisher

Fire extinguishers can be from some hardware and motor vehicle spare shops.

Or official fire equipment companies like Nimrod Kenya and Dragon Fire with prices varying on the size.

Standard extinguishers normally go between Kshs.3500 to Ksh.7000.

Digital Weighing Scale

There are various digital weighing machines available with supermarkets and hardware shops stocking them.

Prices start from around Kshs. 15,000 to Kshs. 50,000 depending on the features and make.

5. Find an ideal location

After putting together all the necessary business documents, equipment, and have gathered all the information required.

You need to start to find an appropriate piece of property for your LPG distribution business.

A factor you will need to bear in mind when choosing a location in your market.

You must locate your LPG distribution business close to where there are many potential customers as while kerosene may need to be purchased weekly or even daily.

LPG refills do not need that much frequent travel to buy.

For instance, a business customer could be cooking, and even before the meal, the gas is over.

In such circumstances, the client will want to purchase the gas as quickly as possible and from the nearest seller.

Not to mention the fact that gas cylinders are also bulky and relatively heavy items.

As such, the best places to set up your cooking gas retail store are residential areas (majorly dominated by the middle class).

And near entertainment centers such as hotels, restaurants, and fast-food outlets.

6. Assess and locate a market niche for your business

There already exists a huge demand for cooking gas in the country.

However, there is often a lot of competition in this business because, as previously mentioned, it’s relatively easy to start if you have the capital.

To avoid the crowded marketplace and unhealthy competition.

This LPG distribution business model will work better if you can find dedicated customers or an under-supplied area of town and dominate the supply.

It is in those locales that there is good potential to make more profit.

High-end homeowners are prime examples of customers who can become dedicated to a supplier who reliably delivers good service.

You just need to think of unique ways to differentiate yourself from the competition.

For instance, you can consider creating an online business website to help you get a fix on your target market more accurately & supply customers better.

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There are already a few cooking gas distribution businesses in Kenya that have recently jumped on this wave, such as; Kisafi, Vite Kenya & Click A Gas.

You can take a cue from them and set up your LPG gas business in Kenya to also be online to help get a head start on your competition.

7. Transportation and staff

If you would have to deliver cooking gas to customers, then your LPG distribution business will need to get a truck, van, or motorcycle capable of safely hauling cooking gas.

You will also need a few messengers on hand to deliver the gas cylinders.

If you cannot afford to buy a vehicle, you can always lease one each time you need it, pending when you would be able to procure yours.

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Early Morning Delivery..

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Keep in mind, and you must ensure that the vehicle in question meets the safety requirements for vehicles hauling hazardous materials such as cooking gas.

8. Marketing and advertising

Marketing involves focusing on direct efforts like advertising and efforts at branding.

Advertising in the Kenyan business market takes some common, easily replicable forms.

One utilizes billboards while another is the placement of stickers in shops, gates, matatus, or any available public spaces.

Other forms of advertising include pamphlets, posters, and in some cases, online classifieds depending on your target customer.

The effectiveness of your marketing strategy largely depends on adopting aggressive marketing strategies and offering attractive discounts.

But as mentioned, what’s even more important is for you to narrow down the target demographic.

It also helps by widening your LPG distribution business and emphasizing how you can offer the potential customer value-added services such as home or office delivery.

Moreover, sales of accessories such as gas cylinders and burners.

9. Pricing

The gas cylinder price is an important consideration for customers.

Since July 1, 2020, Kenyans forced to pay a Ksh. 300 higher markup for LPG after a 14% Value Added Tax (VAT) hike hit the gas market.

This came after Kenya’s Finance Bill 2020 removed LPG from tax-exempt goods, bringing a commodity in the majority of Kenyan households to the tax fold.

As such, on average, a 13-kilogram cooking gas used to retail for 2.100 to 2,200 has resulted in an increase to between 2,400 and Sh2,508 from July 1 when the new tax measures came into effect.

As such, price-based business competition is very common of late, especially in low and mid-income areas.

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Moreover, in most cases where the price is too low compare to the competition, customers can end up skeptical about the quantity.

On the other hand, higher prices do not instill confidence that the cooking gas is of the correct amount because of the skepticism that already exists.

It is important to find the right price point when charging your business customers, depending on the area.

10. Excellent customer service

You may have a quality product, but if your customer service is undependable, unfriendly, or just difficult to get in to contact with.

Especially in the given locally that your cooking gas business is located.

Then you can be sure that everybody will hear about it, and you’ll lose customers over it.

Businesses should ensure that customers are not kept waiting or are unable to receive prompt service.

Statistics suggest that cooking gas customers in Kenya tend to switch suppliers if customer support does not swiftly resolve their issues, especially because they are quite a few options to choose from.

Consistency is key in this line of work.

That’s one big reason why investing in good customer service is key to long-term success.

This also involves small things like picking and delivering the gas where applicable.

Especially if you are in an area located far from the customer’s house or if the customer lives on an upper floor of an apartment building.

For instance, your staff must help the customer carry the heavy gas cylinder into the home or even install the new gas cylinder.

Customers tend to take note of such simple things and tend to tell other potential clients as well.

Moreover, you should ensure that your opening and closing times are consistent.

If a customer calls you be it in the early morning or late evening, they must be confident that they will receive the customer service and gas delivery they urgently require promptly and with haste.

11. Availability and Dependability

Among consumers, it’s common that there can be skepticism on whether the cooking gas being supplied is, in fact, of the right and full quantity.

This is mostly due to the many illegal retailers that can be around Kenya’s localities.

While many cooking gas businesses have a weighing scale with which a customer can confirm the true weight of their filled gas cylinder.

Many of them can be skeptical as to whether the scales have tampered with.

Thus, the only true proof that consumers take to prove that the weight is correct is if the gas usually lasts for the duration expected.

It’s vital always to ensure that all your gas cylinders and it’s contents match up to what is expected of them by the customer.

In addition to this, some customers choose to utilize a specific type or brand of a gas cylinder.

In such cases, it pays to have a variety of the most common brands available to give yourself an edge over the competition.

How much profit can I potentially make?

The cost of 1KG of cooking gas from wholesalers is, on average, about Ksh 150, but prices vary from seller to seller.

If the selling price of a 6 KG gas is Ksh 900 to Ksh 1000.

Then you can net yourself a profit of between Ksh 300 and Ksh 400 by reselling it at Ksh 1300.

In a day, your LPG distribution business can normally sell up to 10 6kg gas cylinders, bringing your profits up to a potential Ksh 4000 per day.

But keep in mind that this only accounts for one size, so selling a few 13kg gas cylinders throughout the day could earn you even more money on top.

Ideally, your LPG distribution business can generally generate between Ksh 40,000 and Ksh 70,000 per month just as a small venture.

Conclusion

As more Kenyans migrate to the cities, the demand for cleaner and cheaper fuels like LPG cooking gas continues to grow.

Not to mention, climate change concerns and a growing consciousness to preserve our natural environment will inevitably lead to higher adoption of cooking gas as the preferred fuel for households.

And also, jumping into that business market now is most assuredly prime money-making opportunity for those determined enough.