The national body representing fuel retailers in Australia has openly criticised ACCC’s June 2016 Quarterly Report on the Australian Petroleum Market for being somewhat selective in its most recent commentary on retail petrol price movements, in Australia.
“We fully respect the ACCC’s price monitoring role of industry but we are getting increasingly concerned at the ACCC’s apparent inability to provide balanced commentary on the core factors increasing retail petrol prices in this country”, said ACAPMA CEO Mark McKenzie.
In its latest petrol price report, the ACCC has argued that the Gross Indicative Retail Difference (GIRD) in petrol prices averaged 11.2cpl – the highest since ACCC began monitoring petrol price levels in 2002.
It is worth noting that the ACCC report is focussed on the Gross Retail Margin and that this is not the same Gross Retail Profit.
“The Gross Retail Margin is the difference between wholesale and retail prices and includes both cost and profit. It therefore follows that the Gross Retail Margin could be going up because costs are going up for fuel retailers”, said Mark.
“There are a number of factors that are pushing up costs for fuel retailers in Australia and it is surprising that these factors do not get any mention in this latest ACCC Report”, said Mark.
A significant part of this increase, for instance, is likely to be a direct response to two recent market developments, namely: (a) the increasing cost of State/Territory government regulation, and, (b) a narrowing of profit margins earned from convenience store sales.
Currently, there are no less than eight (8) pieces of new legislation being considered or finalised by State/Territory Governments in Australia. These include:
- New biofuels laws in NSW requiring the sale of E10 and biodiesel by small fuel retailers from 1 October 2016
- New biofuels laws in QLD requiring all fuel retailers with 10 or more sites to sell E10 and biodiesel from 1 January 2017
- New regulations requiring NSW fuel retailers to advise the NSW Government each and every time they change retail fuel prices on their forecourts
- A looming deadline in NSW for compliance with new laws requiring installation of Vapour Recovery (Stage 2) infrastructure by 1 January 2017.
- New regulations requiring modification of fuel price boards in Victoria from 30 November 2016
- New regulations on fuel price boards are also reportedly under active consideration by both the Queensland and Tasmanian State Governments.
“All of this new legislation brings increased investment and compliance costs for fuel retailers and we believe that we may now be seeing the impact of these costs flow through to motorists”, said Mark McKenzie.
“Increased competition on the convenience store side of the business is also likely to be a significant contributor to recent fuel price trends”, said Mark McKenzie.
Traditionally, the net profits earned from sale of convenience store items has been larger than profit earned on fuel and these profits have been used to subsidise the costs of providing fuel to the community.
“A dramatic increase in competition for this side of the market over the past 12 to 18 months has placed pressure on convenience store margins, meaning there is less profit available to ‘subsidise’ the fuel side of the business”, said Mark.
“Interestingly, the ACCC analysis also excludes any consideration of this second likely cause of higher gross retail margins in Australia”, said Mark.
“On a final note, the ACCC commentary about retail price differences being the highest since 2002 is disingenuous”, said Mark.
The entry of the two supermarket chains into the Australian retail fuel market sparked a decade of unprecedented price competition. While good for motorists, the profit margins earned during this period were simply unsustainable over the longer term and actually resulted in some regional communities losing their local service stations.
Long term retail gross margins have consistently been in the order of 12-18cpl for a typical service station business and therefore the ACCC’s figure of 11.2cpl suggests a return to a sustainable level after more than a decade of intense competition.
“What we are seeing now is retail businesses charging fair and competitive retail prices that support business reinvestment in the face of increasing compliance costs and lower net profits from convenience store sales”, said Mark.
“That said, there remains strong competition in the market and we encourage motorists to use some of the many mobile phone applications that are now available to shop around for the lowest fuel prices in their area”, said Mark.