As BP’s Lord Browne warns motorists that filling up with petrol may soon cost £1-a-litre, diesel prices on some sites have already burst through the £1 barrier, leaving retailers to ponder the impact such prices may have on their businesses.
Independent dealer Jonathan James said: "Around here we’re trying to keep to 99.9ppl and below. We’re 98.9p on unleaded, but 99.9p on diesel. I’m doing the sums at the moment to keep the prices down. I could be 95.9p on unleaded, but it would mean my diesel would have to be £1.02 to £1.03, so we’ve put the unleaded price up by 3p to cover for that and keep it below the £1 barrier on the pole sign. It’s a psychological barrier and it looks really bizarre on the pole sign.
"We’re fully expecting to have to hit the £1 mark at some point, but I’m really not looking forward to that. Nobody wants to be the first to break that barrier.
"People are whingeing, but I think the national press, this time, have been doing a good job at keeping the public in touch with the fact that crude oil prices have gone through the roof. The fact is that it isn’t down to the government, as such, it’s down to the world fuel prices.
"However, the government is also doing a good job in forgetting to tell what it could do with fuel tax - because 75% of 80p is not as much as 75% of £1!"
James believes the high fuel prices will have an impact on sales: "We have noticed a general decline in volumes - not through competition between sites, but because people are cutting back because the price is so high. I heard that a local company had briefed its reps to do as much as they can on the phone rather than keep driving around. I suspect that HGVs that might have driven with a half load are now being told to go with a full load or not at all.
"Also, as fuel prices get higher, the risk of drive-offs will increase as fuel becomes more valuable."
Mark Bradshaw, of Garagewatch, is expecting that most garages will go over the £1-a-litre market, especially on diesel. "Most motorway service stations are above the £1 mark already, and independents are having to follow suit.
"A lot of people are hesitating about making the jump from 99.9p to £1 because their pumps and poll signs can’t take the change. Some forecourts have made do by turning their signs over but others have not been able to do this. I’ve been contacted by the media constantly in the past few weeks and have had to try and quell the media thirst for stories about forecourts profiteering; and explaining that when the price increases it’s due to world markets. It’s extremely difficult when the media bring out so-called analysts who claim forecourt operators make 6-7p a litre on fuel when in fact it’s more likely to be 3p or 4p.
" We need to make sure the general public realises this. I always trot out the story that in a forecourt if a customer puts £5 of petrol in his car and picks up a Mars bar, the owner makes more on the Mars bar than the petrol.
"And we’re onto a loser with credit cards. Luckily we have negotiated our own rates (1.23%), but I know it can be as much as 2-3% if you are dealing directly with the banks. Unless you are with a scheme like ours you can lose all your profit on credit card charges. Then there’s the problem of buying in large amounts of fuel because you end up paying the tax up front.
"I can’t see an end to these problems and people are saying that now that oil is well over 50 dollars a barrel it will never go back to under 50 dollars again."
Phil Richardson of the Park Road Garage Group said dealers shouldn’t be frightened of putting up their prices to make a margin: "Those on fixed margins who are holding prices back to be the cheapest around are being very irresponsible by sending the wrong message to customers.
"Also, by keeping their prices low they won’t make the oil companies any money so when they come to re-sign their deals, they’ll be in trouble.
"Shell is being very aggressive and I’ve heard that Total is asking its dealers not to go to 99.9ppl. As an independent Platts dealer I have had to go to 99.9p on one site already, and they will all probably go to 99.9p very soon because I’ve got to make a margin. Here in the north-east some forecourts are still selling unleaded for 93.9ppl.
"Generally speaking I haven’t noticed any fall-back in volume. Volumes are not exactly lively - but they haven’t been all year."
Phil is optimistic that prices will come down: "It’s a market where prices go up and down. There are political as well as economic reasons for the price rises and I think at the moment it’s more of a political issue."
Paul Sykes of Shaws Petroleum said anyone selling at 99.9ppl is very lucky, but they must be profiteering at the moment.
"We’re selling at 95 and 97 ppl and making a decent margin. With so many people on Platts deals, changing prices is much more manageable. We’ve had fairly steady volumes recently, but people are cutting down on the amount they are driving. The big rise in prices people have paid for sites means their cash flow is very stretched at the moment - which could be an opportunity for us.
Derek Lodge of Rusdene Services, also thinks things are a little bit quieter at the moment. I look at the fuel prices and wonder how people can afford to put petrol in their car. The rise in prices could affect the second car in the family - is it going to be used as much? The general view is that demand for motor fuels is pretty inelastic. But motorists will be drawn towards vehicles with more fuel efficiency. So far we have resisted going over £1 on a couple of sites - psychologically it will affect people.
"But price rises could result in the closure of another tranche of sites because retailers are carrying extra working capital requirements.
"The net margin is eroded as gross price increases. The traditional 1960s-style petrol stations will require thousands of pounds of extra working capital. They sell their fuel so slowly the cash does not rotate quickly enough. If fuel has gone up 20p in the last 3-4 months, you’ve got to find at least another £5,000.
However, Ron Haacke, general manager and director of Petrol Express, doesn’t believe the high fuel prices will affect volumes: "People won’t cut down on their motoring habits. It’s part of the British way of life. They will cut down on other things before they cut down on fuel.
"As far as credit card charges are concerned, even if you do a deal with the oil company, it comes off your margin - you pay for it somewhere along the line."
MOVE THE FOCUS FROM PRICE TO SERVICE, SAYS PETROLEUM CONSULTANT
Only an element of fuel customers are price-sensitive, according to Adrian Camps of AMC Petroleum Consultants. Presenting his views on the latest trends in roadside property income generation at last month’s Henry Stewart conference on the Future of Petrol Stations, Camps said the percentage of motorists who bought solely on price varied from location to location and according to type of site.
"The customers at transient sites are probably less likely to be price-sensitive than those in urban areas," he said. "Some areas are simply not price-sensitive at all.
"A site in Chelsea, west London, was selling fuel at a massive 13ppl above the surrounding sites and had sustained this price differential for many years."
Camps said locations are not always as price-sensitive as they may seem, and some customers were simply not price sensitive at all: "I was recently in a meeting with a London lawyer who confessed that she never looked at the price of fuel when filling up."
"When I explained that she may save up to 60p on a 30-litre fill by shopping around, she clearly felt it was not worth her while.
"The oil companies and hypermarkets have spent millions of pounds sensitising customers to fuel pricing through Pricewatch and other promotional schemes. If there is a 2p differential and a customer fills his vehicle with 30 litres of fuel, do they really realise that the maximum amount they are losing is 60p every time they fill up? For a motorist who uses 30 litres a week they are only saving £30 a year by shopping around - less than the price of six packets of cigarettes a year or a cup of coffee every fortnight."
Camps said is was rare that a whole industry focused so much on price, rather than the service offer to the customer.
"I really feel it is time the industry banded together and tried to de-sensitise customers by explaining the facts. In some markets there is scope for adding value and selling fuel at premium prices by providing additional services."
WEBSITE FOR CHEAPEST FUEL
Rising prices mean that some motorists are looking to ’shop around’ for the cheapest deal and a free fuel-price website - petrolprices.com is helping them to do this.
Launched in November 2005, the site allows subscribers to type in a town or postcode and search for the cheapest petrol stations in the area, free of charge. Prices are updated daily and users can also receive email alerts.
The data is based on fuel card transactions, with information provided by Catalist and Arval.