You really have to wonder about the ACCC’s agenda at times. This week saw the release of a major report detailing the economics of the Australian fuel industry coupled with a somewhat unrelated media release alleging that fuel retailers were profiteering by not passing through savings in wholesale prices created by the COVID 19 global economic downturn.
The report itself was innocuous enough, albeit long overdue. Entitled “The Financial Performance of the downstream petroleum industry (2002 to 2018), the report examined the financial performance of fuel supply, fuel wholesale and fuel retail businesses in Australia and is the first of its kind in more than 7 years – despite the ACCC collecting the data needed for this report throughout that time.
A copy of the ACCC’s Report can be downloaded at: https://www.accc.gov.au
The headline finding of the report was that net profit margins for fuel retailers (albeit before tax) had ‘nearly doubled’ – from an average of 1.6cpl in the five year period ending 30 June 2014 to an average of 3.0cpl in the 2017/18 financial year.
The ACCC analysis means that during a year where the average profits where the “highest that they have ever been” – according to the ACCC at least – a service station owner who has invested around $4.5M in an average volume service station in a capital city earned an average of just $105,000 profit before tax – or around $78,000 after tax).
“Quite apart from the fact that the rather ‘cute’ analysis sought to compare a single year with a five year average – despite having data for other years within the time period – the headline grabbing statement was far more prominent in the ACCC media than the subsequent explanation”, said ACAPMA CEO Mark McKenzie
Rather than being due to fuel retailers upping profit on petrol products, the ACCC report acknowledged that the majority of the increase appeared to be a significant increase in the purchase of higher margin premium fuel products – effectively lifting the average margin on fuel products because consumers were voluntarily choosing these products.
“The Report effectively challenges the view of ACCC and the Nation’s motoring clubs (and others) about price sensitive purchase behaviours in our industry by revealing that an increasing proportion of motorists are recognising seeing the value that comes from purchasing the higher priced premium fuels”, said Mark
The ACCC analysis notes that annual purchases of premium fuels have increased over the last 9 years. Annual purchases of 95RON increased from 9% to 13% between 2009/10 and 2017/19 while sales of 98RON almost doubled over the period – increasing from 10% to 18%.
“The higher margin levied on these premium fuels mean that the average yield on all grades of motor spirt increased because of a change in consumer purchase patterns – not because of anything the industry did on the cost side”, said Mark
As a result of there really being ‘nothing to see here’, the ACCC instead decided to launch an attack on the industry alleging that fuel retailers were not passing on the full value of savings realised as a result of the COVID 19 economic downturn. This attack included a bizarre acknowledgment of the important role of convenience sales to the viability of the fuel retail businesses while, in the same breath, suggesting that motorists save money drivers by resisting the temptation to buy convenience foods at petrol stations.
Despite this clearly troubling assault on the viability of essential and largely small to medium businesses in the face of unprecedented downturns and challenges, fuel price outrage makes for good news. Coming, as it did from the regulator, this attack got the desired attention of the media and the national news media. Subsequent press releases from various politicians seeking to ‘join in the fun’ were scathing in their allegations about the fuel retail industry profiteering at the cost of Australian motorists – most of whom had stopped buying fuel because they were stuck at home.
“What was missed by most is that 45cpl of the supposed 50cpl that the ACCC believed should have been passed on had already occurred in the larger high volume markets – and so the commentary was limited to the small volume capital city markets and regional markets”, said Mark.
And therein lays the explanation. Had the ACCC decided to ask the industry before making such outrageous claims we would have told the Commission that lower turnover means wholesale price changes take longer to pass through to the pump due to the fact that turnover has been halved.
What was interesting is that the ACCC provided no evidence – it was just an allegation of wrongdoing that was masked as a ‘warning’ by the ACCC Commissioner in press statements made this week.
ACAPMA was then asked for a ‘please explain’ on behalf of fuel retailers and was kept busy by a flurry of media requests. The Association took the unprecedented step of releasing a video explanation (via various social media platforms) with the video receiving more than 6,000 views over the first 24 hour period.
Watch the video explanation here: VIDEO
But the problem with the ACCC statements was much darker than simply being another “cheap shot” that played to the populist and longstanding antagonism against fuel retailer in Australia – two thirds of which are small to medium family enterprises as the ACCC well knows.
“Within 8 hours of the ACCC statement, we received reports of staff being abused at service stations. In two cases, allegations were made some staff members were being spat on by members of the general public”, said Mark.
In short, the ACCC’s comments and subsequent media reporting appear to have incited community aggression against service station staff. The ACCC, above all others, knows that national discussion on petrol prices is acutely political. The community has been trained to be aggrieved despite having very little understanding of how fuel prices really work.
“As the ACCC has itself pointed out in the past, it is incumbent on all fuel industry commentators to ensure that they are commenting in a responsible and factual manner”, said Mark
“Sadly, the ACCC appears to have failed in this responsibility given its actions of the past week”, concluded Mark
- ACCC Media Release – https://www.accc.gov.au/media-release/petrol-retailers-should-reduce-their-prices-in-line-with-falls-in-international-petrol-prices
- ACCC Report 2002-2018 – https://www.accc.gov.au/publications/petrol-industry-reports/financial-performance-of-the-australian-downstream-petroleum-industry-2002-to-2018
- ACAPMA Insight: COVID-19 petrol prices and reporting – VIDEO