Our story back in August about Chris Cundall’s quest to make up his deficit on his Texaco petrol margins by putting up his snacks and confectionery prices has prompted some interesting responses. Richard emailed me a comprehensive set of equations to show you don’t necessarily need to match the competition.
Five years ago his petrol supplier refused to match a 4p reduction in prices in the market. Litreage went down. When the bright sparks at head office noticed they were losing money, the corporate brainwave was to up the price some more. “In the end we were selling petrol at £1 per litre when the rest around here were selling for 82p,” says Richard. “When we looked at our litreage at £1 per litre it was about 80 per cent down, but if we had been buying at normal prices and selling at £1 we would have been making about 21p per litre. If you work the maths out, 2,000 litres a week at 23p equals £600, but 4,000 litres at 21p equals £840.”
Shop sales, during this quieter period, were only down by 10 per cent. “We now have a regular deal and always sell at a margin of 3.5p and disregard the fact that the Esso site up the road is 4p cheaper. And if they are only 2p cheaper we put the price up to make 4.5p.
“These guys chasing price need a lesson in basic economics and behaviour patterns. If you are on a margin of 1.9p, you could go to 2.9p, lose 33 per cent of sales and be no worse off. There are other benefits to selling less petrol – less wear and tear, less electricity, lower rates (as most councils rate by the litreage), and maybe fewer staff, so reducing volume is not all bad. The problem is not many people have the courage to try premium pricing petrol.”
John Ashworth, who runs Phoenix Green Service Station, advises Chris Cundall to put the price up anyway. “Last time I had a go with Texaco, I put the pole price up and it withdrew support – which was minimal anyway.” Texaco gives him a supported price that yields a margin of 3.65. “And I charge 38p for a KitKat which gives me a margin of 35 per cent.”
John makes a dire prediction. “One day it will come to this – there will be no margin on petrol. They will say ‘footfall’. They’ll turn it from a product to a service.”