Petrol price war to impact supermarket competition

Posted by Daniel Palmer on 13th July 2009

Australia’s leading supermarket chains are fighting a petrol battle that could have major implications on other supermarket chains around the country.

Coles and Woolworths, who have both significantly expanded their petrol operations over the past few years, have announced a special offer for customers who spend big at their supermarkets in the next three days.

Coles initiated the discounting, with a 40 cent/litre reduction offered to those who spend $300 or more at their chains in the next three days. And Woolworths has followed suit, with their supermarkets to match the offer.

The entry of the majors into the petrol marketplace has given them the perfect opportunity to cross promote, placing greater pressure on the independent chains attempting to compete with the majors. While a discount petrol war appears good for competition, there are concerns the move has been made to push out smaller operators – with Independent Senator Nick Xenophon calling for ACCC intervention.

“There are rules against predatory pricing, where the effect of a very deep discount is to actually push independent operators out of the market, and if that happens consumers are worse off,” he said, according to the ABC. “It also begs the question, if Coles and Woolies can offer these sorts of discounts, does that mean that we’ve been overcharged for petrol all along and overcharged for groceries?”

The discount falls in line with the amount spent, with 40 cents for $300 or more, with a 25 cent discount for $200 or more, 10 cents for $100 or more and four cents for $30 or more.
Consumer watchdog Choice has continued to question the major retailers after declaring war against them last week. Spokesman Christopher Zinn said they should reduce prices rather than offer one off deals in step with each other.

“The fact that the two majors do exactly the same thing in a grotesque two-step really illustrates how we need more competition and not to be blind-sighted or distracted by gimmicks,” he told The Age.

Benedict Brook, a spokesman for Woolworths, told the Herald Sun that further snap reductions were likely in the future.

“Price cuts of this magnitude are not sustainable for long periods of time, but with people under the pump with the economy the way it is more one offs are likely in the future,” he advised.