It’s fuel for thought

Townsville Bulletin - - NEWS - TERRY McCRANN

DO the su­per­mar­ket petrol shop­per dock­ets de­liver cheaper petrol or have they ac­tu­ally made it more ex­pen­sive? And what im­pact do they have on prices in the su­per­mar­kets?

In the 21 years since Wool­worths kicked them off at a sin­gle Woolies ser­vice sta­tion in re­gional New South Wales, no one – not even the ACCC com­pe­ti­tion tsar – has re­ally given a sat­is­fac­tory, far less con­vinc­ing, an­swer to th­ese and re­lated ques­tions.

Woolies sealed its re­la­tion­ship with Cal­tex in 2003 and Coles fol­lowed suit with Shell the same year – it seemed like the big two of su­per­mar­kets were go­ing to ex­tend that dom­i­nance into petrol re­tail­ing.

The in­ter­play sparked by the shop­per docket seemed likely to be in­evitable and in­ex­orable.

It would send shop­pers into a Woolies/ Coles su­per­mar­ket to get a docket – es­pe­cially when they were of­fer­ing dis­counts as high as 14c a litre – and then send them to, and only to, the re­lated Cal­tex/ Coles petrol site.

How could smaller re­tail­ers com­pete? How could even the other gi­ant global petrol com­pa­nies com­pete, ex­cept by cut­ting their prices and their profit mar­gins be­low those of Shell and Cal­tex?

More broadly, how could any­one com­pete ef­fec­tively and, even more, sus­tain­ably over time against the abil­ity of Coles and Woolies to cross- sub- sidise be­tween the two; to de­cide which cus­tomer – petrol or su­per­mar­ket – would ac­tu­ally pay for the 4c.

In­deed, that the su­per­mar­kets could ac­tu­ally shift the cost on to sup­pli­ers, not of petrol but of prod­uct into the su­per­mar­kets.

With the ‘ end point’ that when the two dom­i­nated both su­per­mar­kets and petrol they could then oligopolis­ti­cally raise prices in both.

Well, the one thing that is ab­so­lutely and un­de­ni­ably clear now that the dock­ets have of­fi­cially come of age ( un­der the old def­i­ni­tion) is that it hasn’t worked out any­thing like what was feared.

The big two haven’t driven all other su­per­mar­kets out of busi­ness, leav­ing them then free to lift their prices. The ex­act op­po­site is true. For most of the pe­riod since they joined with their petrol part­ners in 2003, the big two have been cut­ting prices, and cut­ting them on av­er­age right across the su­per­mar­ket year af­ter year.

In both Coles and Woolies the bas­ket of goods that cost you $ 100, say, 10 years ago, now costs you less than $ 90.

Two big forces have been at work in­stead. One was the de­lib­er­ate cam­paign started by the post- GFC new own­ers of Coles to take on Woolies on price – cap­tured in ( and started with) the fa­mous, or in­fa­mous, $ 1- al­itre milk.

The sec­ond was the ar­rival of Aldi. In its early days it was scorned by the big two. Now it poses the sort of sys­temic threat that IGA never did; it cer­tainly will keep the big two ir­re­versibly hon­est.

Maybe you could throw in a third – the move by the ACCC to ban those 14c su­per dock­ets. The an­swer on that is com­pli­cated – maybe if they’d con­tin­ued, we would have seen fewer price cuts in su­per­mar­kets; maybe they would have self- ended be­cause of those in- store price cuts. And the ACCC’s ban­ning of the su­per dock­ets might have been a “two- for” – not only help­ing su­per­mar­ket com­peti­tors but also petrol com­peti­tors – it’s also com­pli­cated with the lat­ter.

That’s be­cause there’s a sec­ond in­ter­play at work within the petrol site – the petrol and the con­ve­nience of­fer; and that has also played back into the func­tion­al­ity of the big two and their petrol of­fers.

The other petrol re­tail­ers haven’t only man­aged to sur­vive; they’ve ra­tio­nalised and grown stronger. In­deed, ar­guably stronger than the two that were sup­posed to be­come the ele­phants tram­pling all over them.

Cal­tex has carved out its own petrol and con­ve­nience of­fer sep­a­rate from Woolies and its 4c, while con­tin­u­ing to sup­ply petrol to Woolies.

7- Eleven con­sol­i­dated its con­ve­nience of­fer by adding ( Exxon) Mo­bil. And BP car­ried on – and grew – right through all the tur­moil.

Far from world or just Aussie dom­i­na­tion, Woolies is seek­ing out of petrol – by sell­ing to BP ( with those BP sta­tions con­tin­u­ing to be sup­plied by Cal­tex!) while con­tin­u­ing its docket of­fer. So far Coles has con­tin­ued with the Shell brand – un­der its new own­er­ship by the un­known ( in Aussie) Vivo. But I wouldn’t bet on that sur­viv­ing through a sec­ond 21 years.

The one clear les­son out of all this is to be care­ful of even just pre­dict­ing the fu­ture, far less as­sum­ing its in­evitabil­ity.

Two things are now com­ing down the pike which make that fu­ture – and es­pe­cially the su­per­mar­ket- petrol in­ter­face – not just more un­cer­tain but un­cer­tainly trou­bling.

One is elec­tric or more ( and less petrol- con­sum­ing) hy­brid cars.

Al­though that’s go­ing to be a long time com­ing – es­pe­cially as un­like in France we don’t have too many nu­clear power sta­tions to plug them into. Your home so­lar? Be my – I pre­sume, very, very pa­tient – guest.

The sec­ond, much, and far more po­tently, quicker is Ama­zon. Not Ama­zon. com. But Ama­zon. com. au.

The big two didn’t take Aldi se­ri­ously; they sure as hell are more fear­ful about Ama­zon. But what to do about it? Ah, that’s a much tougher and maybe unan­swer­able ques­tion.

The cen­tral prob­lem with Ama­zon is that its busi­ness model does not re­quire it to make a profit; just to grow and gen­er­ate more and more cash­flow. And it doesn’t have to take 10 years to roll out stores like Aldi did be­fore it’s big enough to mat­ter.

In this sort of dy­namic, tur­bu­lent fu­ture 4c at the pump – around $ 2 a tank – is all but to­tally yes­ter­day.

OLD HAT: Su­per­mar­ket dom­i­nance of fuel just hasn’t hap­pened.

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