There’s a lot of talk again about fuel prices: the lowest for five years, according to even some perennial critics of the fuel retailing industry, which is surely supposed to be good news; and with added excitement regarding the potential effects of Fuel Finder, which comes into effect today (February 2).
Now as you might have seen elsewhere in Forecourt Trader, there are warnings that that the impact of Fuel Finder could introduce some instability and peculiarity into pricing practices, with resulting unintended effects. Maybe, but in my opinion the overall impact on average fuel prices across the country will be close to zero. Zilch. That however isn’t the same as saying that there won’t be some local effects.
As I’ve argued before in this column, the whole idea of the system is based on the overriding notion that drivers buy fuel solely on the basis of price, which to me seems both simplistic and not supported by years of experience.
Yes, there is a relatively-small proportion of fuel buyers with the time and inclination to search for the cheapest advertised price and go there – even if it means driving a further five or 10 miles to ‘save’ what may be 1.5ppl to 2.0ppl when they put 40 litres into their car.
That demographic will no doubt love playing with the new app and telling their friends how much they’ve saved. The net impact of that is likely to be nothing more than a local re-arrangement of pricing between competing supermarket sites, possibly on a daily basis. But even that’s not exactly new; for the past 40-plus years that I’ve been involved in this industry, every forecourt I’ve ever worked on has had its ‘marker sites’ – the ones whose prices they’re supposed to watch every day and use as benchmarks against which to judge their own pricing position. Well, at least now they won’t have to physically go and have a look at those sites.
The other impact that I can imagine is again likely to be local. Forget the supermarkets and think of the typical suburban stand-alone forecourt. As the industry has continued to consolidate, this forecourt is more than likely to be owned and operated by one of three or four of the major retail groups, and each of its local competitors are similar – sometimes operated by another of the big three or four, and in a surprising number of locations by its own parent group. Now at least where I live, some of these sites do seem to be somewhat sluggish in terms of price movement. They’re not really trying to compete with the nearest supermarket site because they lost that battle years ago; they ‘compete’ with each other. Occasionally, the group- pricing seems to get stuck – maybe because individual operators have been a bit lazy with reporting marker-site prices to head office. Fuel Finder might just eliminate that step – head office can now look up local prices themselves every morning, and issue pricing instructions to sites on their own initiative. Competition at the fringes, but not likely to make much difference nationally.
As far as the macro-picture is concerned, Fuel Finder doesn’t change the fundamental economics of running any individual fuel retailing forecourt. Pricing will continue to be based on the costs and profitability of individual sites. It’s possible that as mentioned above, some of the big retail groups will end up adjusting prices locally between each other, but unless they are going to abandon the idea of treating each site as a profit centre and start cross-subsidising sites across their networks, any price-adjustments will stay strictly local. And let’s not forget that fuel prices go up as well as come down: speeding up price movements in both directions between local competitors may indeed have consequences that the proponents of the system never intended!
- Jan Mikula represents nationwide franchise accounting company EKW Group – ekwgroup.co.uk
