The UK is not alone in suffering the effects of predatory pricing, where the biggest players in any market can use their huge financial muscle to decimate the livelihoods of the smaller ones and apparently get away with it.
But while in the UK fuel-retailing sector the powers that be are still trying to get the crippling effects of such practices recognised so that some kind of fair playing field can be enforced the message coming from Europe is, be careful what you wish for.
Strategy and marketing consultant Simon-Kucher & Partners recently undertook a study into the potential impact to German fuel retailers of impending fuel price change reporting legislation.
According to director Dr Andreas Jonason, Austria and Denmark already have forms of fuel-price change reporting legislation. The Danish example was introduced several years ago and is extremely complex, involving criminal law; while Germany’s federal government has been trying to initiate legislation for petrol stations to report pump price increases to the Federal Cartel Office.
But it is the type of price regulation law introduced in Austria in January 2011 and that was expected to be introduced in Germany that is the cause for concern for the UK. It is the type of legislation Jonason fears would be most likely to be introduced in the UK particularly if Justine Greening had still been Secretary of State for Transport. "She was a keen supporter of this legislation," he says. "With her move it may have just slipped off the agenda."
He explains that the price regulation law in Austria was introduced in January 2011 to keep fuel prices stable for consumers, and create transparency in the market. Petrol forecourts were only allowed to increase prices once a day at noon. Price decreases were not restricted; but all fuel prices had to be posted on the internet.
It did not work out well for independents. "Fuel companies were given significant additional work in not just posting the prices, but also in calculating the margins ahead of the price change," explains Jonason. "Many independents and mid-sized companies were unfamiliar with this and struggled under the additional administration.
"The idea of the highest fuel prices being communicated to the public 24 hours in advance meant consumers had time to decide where to go to get the best prices, and forecourts could not catch them out by suddenly putting up their prices at opportune moments.
"The consequence of the fuel price change legislation was that there were significant volume losses something like 30 to 40% from independents to large retailers."
In June this year, a so-called price freeze for longer periods (4-5 days) was introduced in order to keep prices stable over busy periods. The amendment was valid for three long weekends in the summer. For 2013 an extension of the amendment to additional periods, such as Easter, is currently under discussion.
Fuel retailers in Germany were expecting that a similar system would be introduced. And according to Simon-Kucher & Partners’ study, they were very poorly prepared for it, particularly in terms of their fuel-pricing systems.
They also feared that if there was a regulatory intervention the price sensitivity of consumers would increase. Medium-sized companies believed sales losses would increase; while smaller firms were anxious it would bring about margin losses. "Currently competitive pricing is the main driver," says Jonason. "Companies follow the prices of the major competitors. Stronger levers like customer willingness to pay receive significantly less attention. Competitive pricing is mainly led by the mid-sized firms. The larger firms have a spread of targets that they follow to set prices, and are the only ones who focus on customer willingness to pay. The study also showed there was little orientation towards margin targets."
Ultimately the petition for a price regulation system similar to the system in Austria, was declined by the German government in July. Instead, a lighter version a weekly collective report on fuel prices has been introduced.
Jonason, meanwhile, has some advice for UK independents to deal with the competition: "Retailers should establish a leading position to cope with dynamic pricing changes, by building a clear segmentation based on customer needs; position distinct offers based on the strength of offers in key segments; develop smart pricing measures to establish a pricing position; and develop tools to implement and measure pricing initiatives."
But above all, his final message is: "Avoid lobbying for legislation changes as this will create additional difficulties."