Sue Mitchell 12/5/16

The Australian Competition and Consumer Commission is watching petrol prices at Coles Express amid claims the retailer is subsidising grocery discounts by charging higher prices at the pump.

Chairman Rod Sims said the ACCC was looking at reports that Coles Express fuel prices were 2¢ to 3¢ a litre higher than average market prices and the extra profit margin was being used to bolster earnings in Coles’ food, liquor and convenience store business as the retailer reduced grocery prices.

The ACCC is checking on petrol prices at Coles Express after reports the retailer is using higher pump prices to …
The ACCC is checking on petrol prices at Coles Express after reports the retailer is using higher pump prices to subsidise grocery discounts. Photo: Max Mason-Hubers
“We do keep a close eye on these things,” Mr Sims told Fairfax Media on Thursday.

“There’s some sense that rather than reducing petrol prices they are, if anything, doing the reverse at the moment. What we’re seeing rather anecdotally is consistent with the Deutsche Bank report. But it’s too early to tell.”

In a recent report, Deutsche Bank analyst Michael Simotas said Australian Institute of Petrol data suggested retail fuel prices had fallen 7 per cent on a year-on-year basis in the March quarter, but Coles’ sales implied that its prices had fallen only 2.6 per cent.

Mr Simotas estimated that Coles’ premium prices could boost margins in its food, liquor and petrol business by 12 to 34 basis points or $22 million to $65 million in the June half, depending on whether the petrol price gap was maintained, countering the impact of increased investment in grocery prices.


“We believe this tailwind, combined with operating leverage from strong like-for-like sales growth in supermarkets, should provide Coles with the firepower it needs to continue to invest heavily in prices while maintaining or continuing to grow food and liquor and petrol margins [and keeping the pressure on Woolworths],” Mr Simotas said.

Mr Sims said the ACCC needed to establish whether Coles’ above-market pricing was a short-term or long-term strategy and analyse the response from competitors.

“It’s very unlikely to be a breach of the act, but it is a concern if it leads to consumers paying more for fuel,” he said. “We don’t yet know if it’s a blip and whether others will follow.”

Mr Sims said the ACCC monitored fuel prices in conjunction with the major fuel and grocery retailer’s financial data.

“We’ll be able to shed more light on it when we look at that as well,” he said.

Coles’ prices have been harder to track since the retailer stopped providing data to fuel-monitoring service Informed Sources last month as part of an undertaking to the Australian Competition and Consumer Commission (ACCC).

However, petrol pricing will become more transparent later this month, when Informed Sources starts providing data to third parties, some of whom are expected to use the information to develop new petrol price comparison apps.

Coles declined to comment.

Mr Simotas says Coles’ petrol pricing strategy is a deviation from Wesfarmers’ highly successful strategy of driving sales growth through value and allowing operating leverage (rather than price rises) to boost margins, and could be unsustainable if Coles starts to lose market share in petrol.

In the three months ending March, Coles’ fuel volumes fell 10.1 per cent on a comparable store basis, while Woolworths’ comparable petrol volumes fell 3.2 per cent.

In December 2013 Coles and Woolworths avoided legal action by reaching an agreement with the ACCC to cap fuel discounts linked to supermarket purchases to 4¢ a litre and to stop subsidising fuel discounts with profits from food and liquor.

Extracted in full from The Canberra Times.