Forecourt Trader - 30 years at the heart of the fuel retailing community

Morrisons moves in

01 March, 2004
Page 15 
In one fell swoop Morrisons is tripling its coverage of the fuel-retailing sector following completion of its takeover of Safeway for £3bn. As of March 8 the retailer will be the proud owner of another 196 forecourts to add to its current network of 113 petrol sites.
The takeover makes Morrisons one of the UK’s largest fuel retailers – bigger than specialists such as Jet, and just behind Tesco in site numbers. The move is also representative of the supermarkets’ creeping market share, which stands at about 29 per cent.David Gordon, business manager at the Institute of Grocery Distribution, said: “One interesting effect of Morrisons’ acquisition of Safeway is that the enlarged group will take a 6.1 per cent share of the retail motor fuel market (source: Competition Commission 2003).“In recent years, supermarket operators have greatly expanded their share of the market by offering a strong combination of low price and convenience to benefit consumers. The further consolidation of the supermarket sector is likely to intensify competition.”Not only is Morrisons almost trebling its network of petrol stations, it’s also expanding its presence from predominantly northern-based to nationwide. It’s this more far-reaching coverage that’s leaving the forecourt sector on guard.The supermarket chain has been notorious for being first with price-cutting promotions, which have reverberated around the forecourt fraternity, unsettling an already jittery market and triggering price wars. With a national presence and much larger network, what threat does Morrisons pose to the fuel retailing market?Ray Holloway, director of the PRA, said: “The immediate risk is that Morrisons will embark on an intense marketing campaign to promote its Safeway sites to recover lost sales while Safeway has been in limbo. And it will probably use fuel price to do that.“Safeway and Morrisons have both had suicidal policies of discounting on their forecourts so I don’t think one company having more sites is a greater risk – it’s just one company instead of two.”But both independents and oil companies have expressed concern about the supermarket chain unbalancing fuel pricing in the network. John Linn, Texaco’s vice-president of marketing in Europe, said: “We would be concerned if Morrisons brought its pricing strategies southwards.”Mark Bradshaw, independent retailer and chief executive of Garage Watch, agreed: “Our only fear is that Morrisons is very aggressive on price. I hope it is not intending to bring this into the larger network. With the recent demise of Pricewatch, it would be nice if the market could remain stable for a period.” Some dealers are a little more positive about the impact the takeover will have. One operator in the north said: “I don’t foresee the takeover having great implications for the forecourt sector. On the one hand it’s one competitor less in the market, but on the other hand, I don’t know if it will make a lot of difference the way the industry is at the moment – there’s still enough idiots out there to keep prices down even without Safeway.“Morrisons might have always led the way in bringing prices down, but Safeway has been more at the forefront of giving big discounts off fuel – it’s swings and roundabouts. If Morrisons continues wanting to lead the way with price cuts, having more sites means it will affect more areas. But in recent months, I’ve not been aware of Morrisons being any worse than anyone else. Historically, it has always had a go just before Easter so we’ll see.”The PRA’s message to independents is not to get dragged into a price war. “There will be a short-term burst of crazy forecourt prices but retailers should be brave enough to ignore them because there’s only so much trade Morrisons can handle,” said Holloway. “Morrisons might get some money back but petrol retailers will lose margin, which is crazy, and the supermarket will reach a point where it needs to make some money back from its purchase of Safeway.“The rest of the industry should look, smile, laugh at the fact there’s no money being made on Morrisons’ forecourts, and drive on. Petrol retailers should price at a policy that is right for their area and forget what the big boys are doing to kill each other.”The takeover does have one potential casualty – the BP/Safeway Partnership. While BP and Safeway’s official comment is “business as usual” for their 60 joint-venture sites, the partnership is in question until Morrisons makes clear its plans for the network. For now, both parties are remaining upbeat and continuing a programme of site launches with another opening this month. “I think the BP and Safeway Partnership will come to an end,” said Holloway. “I’m not sure whether a Morrisons/BP joint venture is feasible because BP has begun to develop a partnership with Sainsbury to supply fuel to Sainsbury-branded forecourts. And they have their Nectar promotion. We could see Morrisons buy some BP sites – there’s lots of opportunities but it’s too soon to tell. Ultimately this living in sin situation will be resolved and Morrisons’ purchase of Safeway could be the first step to that.”While the forecourt industry contemplates the significance of the takeover, Morrisons is gearing up for its new position in the market. Executive chairman Sir Kenneth Morrison, said: “This merger will be a transforming step for Morrisons, enabling us to take the distinct Morrisons formula and our passion and flair for food retailing to customers everywhere in the UK.“We have very clear and detailed plans for Safeway and I am confident that we will be able to integrate the two businesses swiftly and efficiently.”For the forecourt sector, the full impact of the takeover will probably be determined by Morrisons’ attitude to pricing. The industry will be hoping it doesn’t flex its muscles too much with its highly competitive pricing strategies – nationwide.



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