Month in, month out, the RAC criticises fuel retailers, regardless of whether pump prices rise or fall.
This is done as part of its ‘Fuel Watch’ programme, which sees the firm take the previous month’s wholesale oil costs and compare these against average retail prices for unleaded and diesel to estimate how much profit it thinks forecourt firms made on fuel.
Calculating profits by comparing another sector’s wholesale and retail prices is a rudimentary calculation, not least as it fails to account for the rising energy, staff and borrowing costs forecourt firms have faced for some time.
This doesn’t stop the RAC basing its commentary around these sums, though, and it’s clear the firm thinks the fuel-retailing sector makes too much money. A few highlights from the last six months:
When pump prices fell in April, RAC said: “it’s disappointing that retailers didn’t drop their prices further”. When they fell again in May to what the firm deemed a “near four-year low”, it said there was “still plenty of room for retailers to do more”, and advised forecourts should cut their prices by a further two to four pence per litre.
June saw international conflicts drive wholesale prices up with pump prices following, prompting RAC to say retailers were “wasting no time” in increasing prices, while in July it said “retailer margins remain high”. The theme continued in August, with the company’s spokesman observing: “It’s disappointing that high retailer margins are preventing drivers from benefiting from lower prices”.
Last month, when unleaded rose by an average of just 0.77p and diesel 0.95p a litre, the company stated: “The RAC also notes that average retailer margins continue to be high”.
Interestingly, the RAC has itself faced scrutiny for its prices. A 2022 article from Money Saving Expert reported that some of its breakdown customers had been offered renewal prices that were “more than 30%” higher than their previous year’s premium. In response, the RAC cited increased operating costs, something fuel retailers know all too much about, but which the firm seems unwilling to recognise when it critiques the sector.
“High” fuel margins defined
What does the RAC consider a “high” margin? Well, in September it named a figure, estimating forecourts make an average of 11p on every litre of fuel they sell.
The same dataset held that diesel was 143.14ppl and unleaded 135.41ppl, for combined average of 139.27ppl. If retailers made 11p on each litre, that would be a margin of 7.9% before tax, asset depreciation and other costs are taken into account – decent, but by no means earth-shattering.
On a broader level, if a company sees fit to criticise the profits of another sector, it’s reasonable that its own accounts get a quick inspection. And blimey, are margins at RAC healthy.
Rather than being a single firm the RAC is a group of companies, including: RAC Insurance, RAC Cars, RAC Motoring Services, RAC Limited, RAC Bond Co plc, RAC Financial Services Limited, RAC Midco II Limited, RAC Bidco Limited, RAC Brand Enterprises LLP, and Risk Telematics UK Limited.
These companies provide all manner of services including insurance, used-car warranties, breakdown cover, fleet management and fuel cards.
RAC margins
RAC Group (Holdings) Limited is “the ultimate parent company” for the firm’s various arms, and in 2024 it made £295m EBITDA (earnings before interest, taxes, depreciation and amortisation) on revenue of £783m, a margin of 38%, while its operating profit for the year was £220m, or 28%. Nice.
For context, if retailers priced their fuel to achieve the same EBIDTA margin as RAC Group, based on September’s combined average a litre at the pumps would have been 191.75p.
Even after tax, RAC Group made a profit of £104m in 2024, a 13.3% margin, still comfortably above the 7.9% profit it criticises retailers for making before any deductions are applied.
In the same year the firm’s breakdown arm, RAC Motoring Services, made £114m on revenue of £556m, a 20.5% EBITDA margin, but RAC Brand Enterprises LLP, which covers the “licensing and management of intangible assets” of the firm, is the group’s standout company where returns are concerned.
RAC Brand Enterprises made a gross profit of £64m on revenue of £66m in 2024, a 97% margin – and no, there isn’t a missing decimal point there. Fuel would be £2.75 a litre at that rate.
Profitability and longevity
I have no problem with firms making money. In fact, I’m a big fan of it. Companies that fail to turn a profit tend not to be around for the long term, taking with them the jobs, services and tax receipts on which all of us rely.
Nor do I take issue with the fact that while once member owned, the 128-year-old RAC currently counts one sovereign wealth fund and two private-equity firms as its parents. These types of companies tend to be laser focussed on profits, and that’s just fine – business is business.
I also think RAC does a lot of good work: last year its intrepid roadside technicians attended 2.4m breakdowns, and I guarantee each of those motorists heaved a sigh of relief as one of the firm’s familiar orange vans heaved into view.
But for a company with margins as high as the RAC’s to regularly chastise vital businesses in a different sector for turning a 7.9% profit simply does not make sense. I politely suggest the company gives thought to changing tack.
The RAC declined to comment.
