Playing the trump card

Retailers got a nasty surprise in the post last month - a letter from BP announcing it was ending its agreement with Arval.

And, according to some in the industry, the news also came as quite a shock to Arval. But will the fact that the UK’s biggest retail fuel supplier is flexing its muscles finally make Arval change its card-charging policies?

BP gave the reason for terminating its Arval agreements as "escalating costs", adding that from October 31 it would no longer accept Arval fuel cards at its company-operated sites.

In the letters, BP’s fuels operations manager Peter Molloy stated that Arval costs had "increased significantly" in recent years and were "simply unsustainable". He added that, had BP continued its agreement with Arval, the oil company would have been forced to pass the costs on to retailers. Dealers were told they were free to continue accepting the cards - but that they would have to deal directly with Arval. Some retailers felt this left them with little choice - if they continued to accept Arval cards they would have to soak up the extra costs which, on current slim margins, would be impossible.

In addition, BP offered to cut the fuel purchase price for retailers who agreed to accept only BP-branded fuel cards and selected partner cards at their sites.

In a statement, BP said: "The decision to end the relationship between BP Oil UK Limited and Arval after a long partnership was a particularly difficult one, but necessary in the current business environment. We apologise for any inconvenience this may cause to our customers and dealers. Dealers should be aware that this action does not affect the acceptance of all other BP Fuel cards and in particular BP Plus, BP Plus Routex and BP Agency; these will continue to be accepted at all BP sites across the UK.

"Finally BP continues to be committed to providing for the fuel needs of our customers. Our longer term plans therefore reflect our commitment to our customers and dealers over the long haul."

Retailers have been concerned for some time about higher fuel costs driving up the charges on Arval fuel cards, and many have called for a "fairer system" such as a fixed or maximum charge rather than a percentage cost. Arval showed early on that it wasn’t keen on compromising - when retailer Steve Jones of Nuns’ Bridges Filling Station in Norfolk started surcharging customers Arval terminated his contract.

Meanwhile, other BP retailers are waiting before making a decision. Paul Sykes, managing director of Shaws Petroleum, said: "We understand there’s going to be a meeting with a group of dealer representatives and BP this month. Until then we don’t know what to do for the best. The options are fairly limited, if BP doesn’t re-sign with Arval we have the issue of needing to get new equipment installed on site. The easiest thing would be for Arval to stop being so greedy and come up with a sensible price per litre.

"Our fuel volumes are down between 19% and 21% on last year, which is unprecedented. We’ve heard some others are down 25%. And then on top of that we face losing another 10% due to losing the Arval card customers. It’s another nail in the coffin."

The BP pullout will leave a sizeable dent in Arval’s business. According to Experian Catalist, BP has about a 15% share of the UK retail fuels market. So BP probably accounts for the same, if not more, of Arval’s business.

Industry experts have been urging the two sides to come to a compromise - not least for the sake of the retailers. Ray Holloway, director of the Petrol Retailers’ Association (PRA), said: "It’s a whole sad set of circumstances. As far as I understand, there are some talks going on between Arval and BP, and between BP and its dealers. I’m just keen to make sure there’s no over-reaction in the meantime, but it really is a worry, especially for the dealers."

Experian Catalist is also worried - the company gets the data for its daily fuel price service from drivers who use the Arval cards. Arthur Renshaw, Experian Catalist’s UK and Ireland sales manager, added that there would be wide ramifications if BP stuck to its decision. He explained: "Of course we are concerned and would like to think that Arval and BP can come to an amicable resolution before November 1 and that BP will continue to accept the Arval cards. It would make things difficult if we didn’t receive prices from the BP network which has the largest share of the retail fuels market in the UK.

"We have been contacted by many of our fuel price customers and we are currently looking at our options but we would hope that the situation is resolved in the next few weeks before we get down to the wire."

Despite rumours that at least a couple of other major oil companies have been thinking of following BP, most are keeping their cards close to their chest while no doubt watching developments with interest.

Over at Shell, the message seems to be that it will continue accepting Arval cards but it is monitoring the situation. A Shell spokeswoman said: "All our retail stations in the UK currently accept Arval cards. If there is any change, we will give notice to our dealers. We are continuously reviewing our position. The current fuel prices have raised the cost associated with fuel cards, especially where dealers have to pay a percentage fee. We are looking at ways of reducing these costs to Shell and the retailers in the UK."

It was a similar comment from Total: "Total UK has accepted Arval PHH cards for many years, and does, of course, offer its own Totalcard, which is accepted in over 3,500 Total, BP and Shell service stations across the UK."

A spokesman for Chevron said: "We do accept Arval cards at our sites, and it’s business as usual." He added that, while the company was constantly watching the market, it had made no official announcement on plans to help retailers deal with rising card charge costs.

Meanwhile at Esso, discussions have been going on with Arval but the oil company said it was still accepting the cards. A spokesman commented: "We can confirm that Esso in the UK accepts Arval cards and has done so for over 15 years. We are currently in discussions with Arval about a number of commercial aspects because, naturally, we keep the acceptance of third party cards under constant review. The contract between Arval and Esso remains in place."

And finally, over to Chris Davies, Arval’s marketing director, who at the time of going to press seemed hopeful BP would change its mind. He said Arval and BP were "actively involved in commercial discussions" and that Arval expected dialogue to continue over the next few weeks.

He added: "Normal periodic negotiations are being undertaken with a number of suppliers with negotiations reflecting current market conditions.

"We negotiate with all suppliers on a periodic basis. We have been having meetings with dealers, both independent and branded, over the last few months and have reached a number of agreements with them.

"We cannot comment on specifics as these are commercially confidential, however the feedback from all parts of the network, including BP dealers, is that the significant volume of fuel Arval brings to their sites is valued and that they want to continue to work with Arval."