No doubt many of you will have been pleased by two recent pieces of news the Office of Fair Trading’s announcement of another investigation into UK retail fuel pricing, and the Energy Minister’s pledge to refer the workings of the international fuel price mechanisms to the Financial Services Authority.
Either or both of these moves may even lead to some major structural changes in the industry eventually. The more cynical viewpoint may be that the government now has an excuse not to ’interfere’ in the market before the outcome of these enquiries is published, and so go ahead with the next scheduled fuel duty increase on January 1, 2013.
The OFT isn’t due to report until the end of that month, and any investigation into the international market is likely to be a long drawn-out affair. Apart from the inevitable delays while these investigations take place, there are deeper reasons why it may be unrealistic for the petrol retail industry to expect salvation from government.
For a start, previous investigations have hardly resulted in any positive news for petrol retailers. Then there’s the major obstacle that no government will try to level the playing field for the independent sector of this industry if that results in supermarket pump prices rising. The supermarkets are big players in UK politics and their advertising budgets carry a lot of weight with the popular press.
It may seem churlish to suggest it, but perhaps governments aren’t really interested in petrol retailers at all? There are currently several different lobbying groups each claiming success for these moves. They include specialists such as the PRA and Road Haulage Association, as well as the more general consumer groups such as the AA.
With an unpopular government facing an electorate already sick of austerity measures, how much weight is carried by a single-interest group such as petrol retailers?
The one cause that unites these lobbyists is a desire to see overall/peak fuel prices lowered. But one has to question whether these different groups actually have anything else that they’d agree upon beyond pump price levels. Outcomes that may seem good for the road haulage industry may not be so welcome to petrol retailers (and vice-versa) while developments that suit a dealer chain may be of little help to the dealer struggling with one site.
The recent developments won’t do any harm, but they don’t necessarily help with the financial issues facing independent fuel retailers; problems that individual retailers have little power to address, but where a united approach might achieve some tangible relief before any long-term political outcomes are even announced. The reality is that the solutions to these problems might not always sit comfortably with the interests of other pressure groups but these are problems that contribute to the continuing closure of independent fuel retailers. And problems which prevent dealers from being able to reinvest and expand their sites; problems that affect the ability of independent dealers to compete against the marketing tactics of the supermarket chains. Fuel pricing is important, but there are other issues more specific to independent fuel retailers:
Why do many independent dealers find that there’s almost no choice when it comes to supply terms? Many small-volume and/or rural dealers find that they are disadvantaged by the additional costs imposed on deliveries to them, either through location or because their sites don’t have the ability to take ’standard’ modern tanker loads. For them, and for a great many ’normal’ dealers at single sites or small networks, the ’DD on third working day after delivery’ is virtually the only ’option’ when it comes to contract renewal.
Card payment terms
The terms ’offered’ by some of the fuel-card operators are archaic. Why, in 2012, does the retailer still have to wait around two weeks before receiving payment for some of their fuel sales? To rub salt in the wound, these are often the largest transactions on the forecourt dispense 400 litres of premium diesel in one go and then wait 14-21 days to see the cash. Individual retailers aren’t able to persuade the fleet cards to improve payments, the whole industry might.
Card Merchant Fees
Debit cards are generally fixed-price per transaction, but virtually all other plastic payments are subject to a straight percentage off the retail price. With a pump price of 145.9ppl, a 1.5% merchant fee takes 2.19ppl off the retailer’s gross margin before the sale is even in the bank. No individual retailer can risk surcharging the customer, just as no individual retailer wants to see the sale go to a competitor if they remove the card payment facility. But collectively the industry is losing a serious chunk of its income in merchant fees, and the card companies have a built-in price escalator the government’s duty hikes result in an automatic pay rise for the card companies at the retailer’s expense.
Bank Lending and Charges
As fuel prices and hence stockholding costs have risen, many dealers have gone to their banks asking for increased overdraft facilities. The lucky ones came away with their existing facility renewed; the less fortunate found the bank asking for some of their existing overdraft to be repaid.
There does seem to be widespread ignorance about petrol retailing among bank managers. Perhaps a trade body would be able to get a little more closely involved with at least one bank and show them how retailers work and what support they need?
By all means let’s hope that there’s a proper enquiry into fuel pricing, but in the meantime, independent dealers should unite to tackle some of the day-to-day problems they currently face, rather than waiting for a solution from above.