Fuel discount competition fears

National retailers Coles Myer and Woolworths may have received a referendum-delivered blow to their supermarket expansion plans in Western Australia last month, but the pair’s growth has not been entirely unchecked in recent years.

Figures compiled by the Motor Trade Association of WA show the two chains now play a major part in the state’s massive fuel retailing sector, an involvement that is being partly blamed for a rapid consolidation of petrol stations across WA.

And statistics supplied by the State Government’s petrol vigilante FuelWatch reveal that Perth, despite being one of Australia’s fastest growing cities, is losing at least one service station every month.

Almost 50 sites have closed down since June 2001, including five in the second half of calendar 2004.

FuelWatch shows the rationalisation is also occurring in rural areas, with at least one service station lost every two months. If those figures were applied on a per-capita basis it is likely the rate of station loss is similar across the state.

The trend, though, precedes the arrival of Coles and Woolworths during the past two years with their heavy discounting through alliances with Shell and Caltex respectively.

Many see the arrival of the supermarkets, which also includes Foodland’s purchase of Mobil’s retail network in WA, as simply another shift in the dynamics of a competitive market where oil companies, locked out of official market dominance of retailing, have simply used other means to turn a profit.

But the supermarkets’ tactics of deep discounting appears to highlight just where oil majors might have being exerting their market power – through the wholesale price and delivery of better terms to some players.

How else, detractors point out, could Coles and Woolworths be able to charge prices, including a four cents a litre discount that undercut non-aligned rivals by 10c/L or more.

There are also charges that the supermarkets’ entry, in concert with particular oil companies, is yet another form of getting around quarter century old legislation aimed at stopping the oil majors from dominating petrol retailing.

That cry may well be one lost in the wilderness as the two retailers come to dominate their oil company partners and suppliers.

Motor Trade Association of WA executive director Peter Fitzpatrick is one who believes the current discounts will not last once competition had been reduced.

Mr Fitzpatrick said that, while consumers were currently benefiting from the supermarket discount fuel offers, diversity and ultimately competition could be lost if their market share continued to grow.

“In five to 10 years we could see fuel retailing in the hands of the supermarket chains,” he said.

In WA, Mr Fitzpatrick said, Shell no longer had franchises while BP had cut a significant number. Caltex was also at a watershed as it sought out sites with high volume close to major shopping areas.

WA Business News has spoken to one Caltex franchisee who has opted to leave the industry after being unable to compete with another Caltex outlet operated through the Woolworths alliance nearby.

But Caltex Media Relations & Communications executive Jenny Palmer said the company remained committed to its franchises.

“Caltex is committed to its franchised network to ensure that it remains a viable and competitive force in the marketplace,” she said.

“This includes being an effective and viable competitor with sites operated by Woolworths in the Caltex Woolworths jointly branded venture.”

Mr Fitzpatrick said the consolidation of control would lead to further rationalisation of service stations and ultimately loss of convenience, as suburban and rural sites away from main arterial routes and the big shopping centres diminished.

Once control wound up in the hands of two or three major players, he said, the emphasis on discounting would diminish.

Further cause for concern within the independent sector is the threat to 1980 laws restricting oil company ownership of service sites, and franchises face the chop in Federal Parliament under a new proposal dubbed the Oil Code, which has received the backing of oil majors.

According to a spokesman for Federal Industry Minister Ian Macfarlane, the oil code will strengthen the position of independents by providing an ombudsman and independent industry representation, as well as a dispute resolution mechanism.

While acknowledging there has been a reduction of independents, the Federal Government remained confident that independents were resilient and “fighting back”.

This position appeared to be at odds with state Liberals in WA.

Opposition spokesman Dan Sullivan believes there was a problem with the wholesale pricing that needed to be addressed.

“The small guys can’t buy at the same prices,” Mr Sullivan said.

“If the small guys get pushed it will mean less competition.

“Broad monopolies need to be resolved at state level. It is very important to determine what the State Government’s role is going to be in this.”

The State Government and its fuel regulator, however, remain unconcerned about the consolidation of the sector.

“For the past 30 years the petroleum retail market in Australia and other developed countries has undergone considerable change,” Prices commissioner Patrick Walker said.

“In Australia in the 1970s, there were approximately 20,000 service stations, whereas today there are approximately 8000.

“The rationalisation of petrol stations has been a feature of this industry long before the entry of supermarkets, and independents continue to be a competitive force in this marketplace.”

Consumer and Employment Protection minister John Kobelke believed the FuelWatch initiative had improved the market but he placed the onus of consumer protection on federal level if there were issues about predatory pricing.

“Through the enhancement and promotion of FuelWatch, the Gallop Government has increased the competitiveness of the Western Australian fuel market,” Mr Kobelke said.

“The diverse nature of the retail market provides benefits to consumers and the Government wishes the important role played by small and independent retailers to be maintained.

“The entry of supermarkets into the retail fuel market is an issue that was examined by the Australian Competition and Consumer Commission.

“The ACCC continues to monitor the role of the supermarkets and has the powers to investigate any allegations of misuse of market power or predatory pricing.”