A bleak picture has been painted of the future for independent fuel retailers following the publication of a report by the All Party Parliamentary Small Shops Group, which says that many are "unlikely to survive" beyond 2015 unless the power of the mighty supermarkets is reined in. The ACS, however, believes retailers can and will fight back, and has launched a fighting fund to do just that.
Anyone reading the APPSSG report could be forgiven for wondering why fuel retailers were bothering to get out of bed, with its dire warnings of a barren future and "little hope" for independent fuel retailers’. But while the power of the hypermarkets cannot be denied - they now sell more than 30% of fuel sold in the UK, despite only operating from 10% of sites - the battle isn’t lost. The ACS has said it will continue to fight for a fairer market - whatever the verdict of the Office of Fair Trading (OFT) when it reports back this month - and all neighbourhood retailers are being encouraged to contribute to a campaign fund to help cover the costs. The aim is to secure a full market review by the Competition Commission and regulation to curb the supermarkets’ power and create a more level playing field for all retailers. However, the fund is just one way in which retailers can strive for their future. James Lowman, communications and public affairs manager for the ACS, says that while the power of the major multiples - if unrestrained - will present ever greater challenges, what is more important is how retailers react to the threat.
"It’s important not to just give up but to look at what they can do differently," he says. "There are some really important warnings in the All Party Group report, which apply to forecourts as much as anyone else, but you have to put it into context. I don’t think many people in our industry genuinely believe there will be no convenience stores and no independent forecourts left by 2015. There will be a group of independents that survive and you’ve got to look at what the things are that will help them survive. It may be luck and location, but it will also be about providing something different - focusing on service and being a part of the local community - as an independent is really offering what the supermarkets can’t. It’s about providing services and not just products. There are many opportunities for fuel retailers.
"Ultimately, the people who should really be most concerned are the competition authorities, who are there to ensure choice and competition for the benefit of consumers."
LOSS OF LOCAL SHOPS
However, Lowman warns that the loss of local shops in general is an issue that should concern fuel retailers: "If we lose more local shops and therefore people end up going to superstores nearly all the time, then they’re going to be more likely to buy fuel from those places and therefore the number of forecourts could further decline."
The biggest threat from the supermarkets for petrol retailers is their ability to set the price of fuel, rather than having to react to what everyone else is doing. Evidence submitted by the ACS to the OFT last May showed how the big four - Tesco, Sainsburys, Asda and Morrisons - have regularly sold fuel at a loss and flexed prices across local markets depending on the competition.
Lowman says: "Forecourt retailers will be as aware as anyone about the squeeze on their main product from the major multiples. Because there’s Platts data available and fuel is a product where the price is very heavily tracked, we’ve been able to plot the two together and we’ve shown that several times last year below-cost selling was clearly taking place - even when you don’t take into account operating costs. When you do take into account operating costs then you will see there’s much more below-cost selling taking place by the major multiple grocers.
"What supermarkets can do across all products is price flexing. Where competition is greatest they will make prices lower, but where there’s less competition they can put prices up - they cross-subsidise in this way. Fuel is one of the most easily identifiable examples of that. Other retailers can’t cross-subsidise against thousands of grocery lines, which is what allows the major multiples to do this."
Indeed, the ACS has submitted evidence showing an example of price flexing by Sainsbury, with the price of fuel in three Hampshire towns within a short drive from one another varying by three pence a litre depending on the level of competition.
The other major threat is to the wholesale supply chain. "One of the key things the report has shown up is that even the best retailers are going to be under some pressure because the supply chain that gets them products is under threat and may weaken because of continuing consolidation," explains Lowman. "As independent retailers close down, which undoubtedly they are, wholesalers are losing their critical mass and their buying power in comparison to the major multiples. This is continuing to move against independent retailers and make it harder for them to compete."
Former Forecourt Trader of the Year winner Jonathan James, who runs three forecourts in Cambridgeshire, believes that retailers need to do more to raise public awareness of the threat from the multiples.
He recently took part in a debate on the All Party report on the Jeremy Vine show on Radio 2 and says, unfortunately, the figures speak for themselves. "If you look at how it’s going - we’re losing 2,000 c-stores a year and 6-800 petrol stations - if it’s left unchecked then there won’t be any left by 2015," he says.
"At the moment the symbol groups are doing well because independents are joining them but what are they going to do when there are no independents left? We really need to harness public support, to make them more aware of what’s happening. I think they also need to be made more aware of the fact that a shop with the Spar or Londis name above the door is not actually owned by Spar or Londis but by an independent."
James said he was heartened by the report’s recommendations - these included the creation of a new retail regulator, a moratorium on further mergers and takeovers and the introduction of comprehensive code of practice across the retail sector. However he adds: "It’s a shame that these recommendations are not concrete and have to be followed because I am concerned about the government’s relationship with the major multiples and the fact that things could get brushed aside."
FOCUS ON EXCELLENCE
Current Forecourt Trader of the Year, Susie Hawkins, group manager of the Simon Smith group in Gloucestershire, remains upbeat about the future and believes independents need to focus on the areas where they can excel above the multiples.
"I’m quite philosophical about the whole thing," she says. "I want to get my business right to be able to compete against the supermarkets. I believe that on service and detail we can beat them hands down - we are very local and I can develop my business specifically to my customers’ needs because I’m small enough.
However, she added: "What does worry me is the wholesale side of things and the dominance in buying power. The supermarkets obviously have vast buying power advantages and range advantages.
"I would also like to ensure that supermarkets - or anybody else for that matter - cannot sell fuel below cost. Below-cost selling should be made illegal on both a local and national basis, because ultimately it’s an attempt to damage other businesses."
In the meantime, the ACS is expecting the OFT to come up with an interim verdict very shortly and is preparing itself for a long process, which is likely to run until at least 2008.