The oil companies seem to be padding the pump price of petrol to take account of many motorists using supermarket discount coupons when they fill up. Driving by my local BP this morning, I saw a sign saying there was 16c a litre off with New World vouchers this weekend. This compares with 10c a litre last weekend, and 4c before that. This at a time world oil prices have been falling from their November peak and our dollar rising, which normally would see petrol prices fall sharply. But the pump price of unleaded 91 has barely moved.
BP and Shell, the two biggest oil companies, are on to a good thing with their arrangements with New World and Woolworths-Foodtown. The supermarket chains offer these discount vouchers to encourage shoppers to choose them over somewhere else. In turn the supermarket customers are likely to drive by a Caltex or Mobil station to fill the tank at BP or Shell. This has forced other oil companies to accept supermarket vouchers for rival petrol stations, or offer discounts based, say, on buying a couple of bottles of Coke to get 4c a litre off. Foodstuffs (which runs the New World and PaknSave owner-operated stores) and foreign-owned Woolworths-Foodtown are the only national supermarket chains, so the other oil companies seem to have nowhere else they can go for a similar deal, which works best with supermarkets because most households spend a large sum in one at least once a week, thus qualifying for the discount coupons, which require a minimum grocery spend of at least $40.
If petrol stations are posting a higher pump price to take account of these supermarket coupons, is that a fair trade practice? The effective real price of petrol is actually less than the posted price, 16c lower this weekend than the posted 170.9c a litre. It means that motorists whose grocery spends are not high enough to qualify for the coupons, or who do not shop at supermarkets, for example, will be forced to pay more than everyone else because they will be charged the posted pump price, even though the petrol station’s posted price is based on the assumption of motorists using a discount coupon.
Not being a commercial lawyer I am unqualified to say if this is legally a fair practice, but on the surface it seems a good deal for motorists, for the simple reason that the two supermarket chains compete by offering deals like this weekend’s 16c one. The voucher you get from the supermarket is valid for a month, so if oil prices rise next month, or the discount returns to 4c (an effective price rise), or both, you will still get 16c a litre off the posted price if you have saved a voucher. I don’t use much petrol as I take the bus for most trips around town, so I am sitting on two 10c vouchers saved from previous weekends and will get a 16c one if I drop by my local New World today.
New Zealand motorists have it good compared to those in most countries. We have some of the cheapest petrol in the OECD, with only the US, Canada and Australia being cheaper. This is because the tax on petrol here is very low compared with the tax in most countries, especially those in Europe. And our cars, both new and used, are among the cheapest, too, thanks to New Zealand no longer having a car-building industry propped up by tariffs and other protective barriers, something that penalises car-buyers in Australia, America and Europe.
2 Comments
December 17, 2007 at 12:50 pm
You’ve completely missed the actual likely source of the discount – the padding of your grocery bill.
It is very difficulty to ‘pad’ the price of fuel. There is too much market information available, it is a commodity which is easily substituted by a competitor’s, alternative wholesale sources are available that are freely traded etc.
The only way you could pad the price is through illegal price fixing and the information proves that, even ex tax, NZ fuel is pretty much in the middle of world prices, which is not surprising given our scale and distance from import sources. A 16cpl buffer would shine out like a beacon and it is just not visible.
So in the absence of any information (beyond the traditional fear of big business) supporting your oil company theory, you have to look at the other players.
It is actually the supermarkets that are funding these coupons either by absorbing the cost or building it into their grocery prices, and it is not hard to see why and how.
Firstly their cost won’t be as high as the retail price you and I pay. Like anything you buy in bulk you tend to get a discount the more you buy. So while they may be offering you 16cpl the actual product cost to them may only be 10 or 11cpl (excluding marketing cost which for them will be low as they use unstaffed automated sites). Now if I want to give you a discount of 10cpl but I only sell petrol, I have to sell an awful lot to cover that cost. But if I am selling 1500 lines in a supermarket, I only have to absorb or add a fractional increase in each item.
You’ve also ignored the marketing dynamics of supermarkets. It takes an awful lot to move a small percentage in market share, and those shifts are very valuable (if you know any Pak n save/new World owner you know they are usually doing very well), so they are willing to invest a lot to make that shift (see the fight over the warehouse).
April 14, 2008 at 8:40 am
You might find this link interesting – > http://www.med.govt.nz/templates/MultipageDocumentPage____32020.aspx
[Poneke says: Indeed I do. It is a Ministry of Economic Development report that speculates supermarkets and the oil companies are paying the cost of supermarket discount petrol coupons, which is what I suspected was the case.]