The CMA (Competition and Markets Authority) has released its final report today amid suspicions that supermarkets have been profiteering at the fuel pumps.
The CMA found issues in local, national and motorway fuel pricing.
Competition between retailers has weakened since 2019. Retail margins with all supermarkets has followed a similar trend.
Asda used to lead the way with petrol price wars alongside Morrisons. They decided to take a less aggressive approach to pricing to increase their internal margin targets for fuel. The largest increase was made in 2022 – 23.
The ‘rocket and feather’ approach has been implemented, whereby prices rocket faster when wholesale prices increase and fall slowly when they drop.
A lack of transparency in the wholesale and retail market with opaque pricing has left consumers being ripped off.
FINANCIAL IMPACT
The CMA estimates that the financial impact of 6p per litre increase in average supermarket fuel margin from 2019 – 2022 cost an additional £900m for customers of the big four supermarket fuel retailers in 2022 alone. This is equivalent to approximately £75m a month.
Diesel drivers across all retailers were paying on average 13p per litre more for diesel from January – May 2023.
This does not include 20% VAT.
Limited competition on motorways resulted in motorists paying around 20p per litre more on petrol and 15p per litre more on average in 2022.
Supermarkets used to be the cheapest for fuel, although independent retailers often have the best deals now.
Supermarkets have immense buying power, yet small independent retailers are undercutting them.
SUPERMARKET CROSS-SUBSIDIES
Supermarkets have told the CMA that in recent years they had faced pressure on profits in their grocery business, and had looked to increase profits from road fuel to ‘cross-subsidise’ food prices.
I have long suspected this to be the case. It is no coincidence that this trend started just before Covid and the first lockdown in March 2020.
The media has focused on food prices and inflation without taking a closer look at the increased margins on fuel sales.
SUPERMARKET PRICING POLICIES
The CMA found that supermarket pricing policies were either active or passive.
Asda and Morrisons have active pricing policies. They have a target margin that they aim to achieve on fuel and adjust their pricing within set parameters if they are falling short.
Sainsbury’s and Tesco have a passive pricing policy. They forecast the margin they expect to make on fuel, but do not adjust their pricing if they are not going to achieve it.
Asda aims to be, and are usually, the cheapest retailer in the market. Therefore their pricing will have the most impact generally.
Morrisons pricing will have some impact, particularly where Asda does not have a presence.
Asda and Morrisons produced internal documents to the CMA which proved that they have significantly increased their internal margin targets since 2021.
Both supermarkets decided sometime in 2021 to increase their margins for 2022 and increased them again in 2023.
Asda’s price per litre (ppl) target for 2023 was more than three times what it was in 2019. Morrisons doubled their ppl target over the same period.
SUPERMARKET PRIVATE EQUITY BUYOUTS
Asda and Morrisons were both purchased by private equity in 2021. This coincides with the decision to increase their target margins on fuel.
This has weakened competition in the fuel retail sector across the board.
RECOMMENDATIONS
The CMA wants greater transparency on wholesale and retail prices to be made available for all consumers.
They want the Government to create an open data fuel finder scheme. This would require retailers to share their prices on an open, real-time basis so drivers can easily compare prices in any area around the UK.
Howard Cox from the Fair Fuel Campaign has lobbied for such a scheme for many years.
This should incentivise retailers to compete on price and make it easier for consumers to find the cheapest fuel wherever they are in the UK.
This works well in Northern Ireland. The Northern Ireland Consumer Council publishes fuel prices weekly across the whole of Northern Ireland, which has resulted in fuel prices being consistently cheaper than the rest of the UK.
You can find the cheapest petrol prices locally via the Petrol Prices app, although this does not provide consumers with the level of transparency that the CMA requires.
Not everyone is familiar with digital apps, hence why the CMA wants this information freely and readily available for everyone.
There are a few easy ways to save money on running a car.
WHAT I WOULD LIKE TO SEE
I want the CMA to take decisive action against the supermarkets for blatantly profiteering and ripping off their customers.
The CMA could fine supermarkets proportionately and pass it on to motorists via a temporary fuel duty cut. The CMA could demand proof that it has been implemented to put that money back into the pockets of consumers.
What are your thoughts about supermarkets profiteering at the fuel pumps?
