The Price of Petrol

Asda Photograph by Richard Walker for Asda

During the summer my pattern of buying petrol changed.  My semi-regular route takes me past two independent garages and two superstores.  Almost invariably over years Tesco has been the cheapest, often by some margin.  But this changed at some point, though it took a little while for me to really recognise that this seems to be a long-term change. A couple of months on and the petrol in Stirling has become cheaper in the independent retailers than in Tesco (in one case by 5p), though in the last two weeks this has narrowed.

In early August, we were down in North Wales, just as the price of petrol really began to fall from its very high peaks.  The variability in price amongst stations was highly noticeable and notable.  The independent garages were not just cheaper than any of the major supermarkets but substantially so; up to 15p per litre in one instance. Then later, on a recent visit to Lewis and Harris the price of petrol in the islands (and not just in Stornoway) was lower than the price in mainland Scotland and when we returned to Stirling. I have not experienced that before on the Islands.

None of this is new news and the RAC in particular has been on the supermarket’s retailers cases, most recently last week.  They make the point that in the past the volume purchased and its frequency by the major retailers gave them a price first-mover advantage in the market.  According to the RAC this though seems no longer to happen when wholesale prices fall and pump prices should follow. 

Others have also noted that now Asda is owned by not Walmart but by the same owners as EG, there is no incentive for Asda to be the first to drop prices or indeed to be the lowest.  The market mover of the past – Asda – is no longer playing that role and there seems to be no successor in the other food retail chains.  So comparable prices in these retailers are higher than exhibited in the past.

I am not a sector expert and do not know the full machinations of petrol pricing but found this was an interesting notion, not least in competition terms. It is therefore perhaps surprising that the recent Asda purchase of c130 Co-operative petrol stations for £600m has not attracted that much attention, and certainly not yet from the Competition and Markets Authority (CMA) (From a purely retail point of view, the deal makes sense for Asda as it expands at a stroke their convenience store operation, where they have lagged for decades). This is more so as when the Issa brothers and TDR Capital bought Asda the CMA required them to divest 27 petrol stations, and the CMA had warned of possible higher prices for petrol after the merger. There is of course still time for the CMA to get interested in this specific deal, and some trade press commentary is predicting a small amount of sell-offs. I wonder though whether a larger consideration of competition in the retail fuel market might be warranted, and may well come from the CMA’s Road Fuel market study, though the main concern to date has been on wholesale price transmission.

The concern for the leading food retailers (who currently dominate petrol sales) must be that consumers notice this (especially in a cost of living crisis) and they begin to lose reputation for being on the customer’s side.  Whilst petrol profits might cross-subsidise some product prices, will customers notice this?  And if independents are the price leaders what does that mean for other price perceptions?  At a time of a cost-of-living crisis (whatever we think about the climate crisis, the true cost of petrol and how we meet national targets to reduce car usage and mileage) foregoing years of price leadership is an interesting position.

About Leigh Sparks

I am Professor of Retail Studies at the Institute for Retail Studies, University of Stirling, where I research and teach aspects of retailing and retail supply chains, alongside various colleagues. I am Chair of Scotland's Towns Partnership. I am also a Deputy Principal of the University, with responsibility for Education and Students.
This entry was posted in Asda, CMA, Competition, Competition and Markets Authority, Convenience stores, Cooperative Group, Independents, Petrol, Pricing, Tesco, Wholesaling and tagged , , , , , , , , . Bookmark the permalink.

1 Response to The Price of Petrol

  1. Pingback: The Price of Petrol | Stirlingretail - Pioneer News Limited

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