Fuel Retailers Say The ACCC Isn’t Telling The Whole Story

Fuel Retailers Say The ACCC Isn’t Telling The Whole Story

The national body representing fuel retailers in Australia has openly criticised the 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 — namely that petrol prices have hit a new low — but retailers are charging more than ever.

“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 Australasian Convenience and Petroleum Marketers Association (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.

ACAPMA says is worth noting that the ACCC report is focused 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”, McKenzie said.

“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.”

McKenzie says a significant part of this increase is likely to be a direct response to two recent market developments, namely the increasing cost of State and Territory Government regulation and a narrowing of profit margins earned from convenience store sales.

Currently, there are no less than eight pieces of new legislation being considered or finalised by State and 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 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 McKenzie, who goes on to blame increased competition “on the convenience store side of the business” as a significant contributor to recent fuel price trends.

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, McKenzie says, and this means less profit to “subsidise” the fuel side of the business.

“On a final note, the ACCC commentary about retail price differences being the highest since 2002 is disingenuous”, McKenzie added.

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 according to the ACAPMA.

The ACAPMA says 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 McKenzie.

In the 2014 to 2015 financial year IBIS World 2016 research showed that the 3790 businesses that comprised the Australian retail fuel industry employed more than 43,000 Australians, generated more than $37B in revenue (much of it being government taxes), made a profit of $924.5M and added $2.6B in value to the Australian economy.