Will We See More Massive Petrol Discounts?

Will We See More Massive Petrol Discounts?
The ACCC has ruled that petrol promotions by Coles and Woolworths didn’t break competition law, but that doesn’t necessarily mean we’re going to see lots more “40 cents off per litre” discounts.

Australian consumers are pretty used to seeing promotions based around the idea of getting fuel discount vouchers from supermarkets in return for spending a certain amount. Indeed, such a scheme was the initial reason the Woolworths-backed Everyday Rewards card came into being.

While supermarkets now dominate the petrol market as a result, that doesn’t necessarily mean that we’re getting massively cheaper petrol. A saving of 4 cents a litre doesn’t amount to much if you end up spending extra money just to get hold of it.

However, if the savings get much bigger, then the deals can start to look impressive — and last week they did. Coles launched an offer where customers who spent $300 or more during a specified four-day period could get 40 cents a litre off petrol. Not to be outdone, rival Woolworths matched the offer within 24 hours.

The deals, perhaps predictably, led to complaints from rival supermarket chains and petrol outfits, arguing that Woolworths and Coles were unfairly exploiting their market power. The essence of the argument goes something like this: the big supermarkets could afford to run those discounts for long enough to put other retailers out of business, essentially eliminating competitors. And at that point, what alternatives would you have if prices suddenly went up massively?

The ACCC (which deals with competition and pricing law) promptly announced an investigation. However, it quickly formed the view that this particular promotion didn’t violate the law. As ACCC petrol commissioner Joe Dimasi explained in a statement today:

After considering the Coles and Woolworths discount schemes we have formed the view that these one-off promotions do not breach the Trade Practices Act. A one-off promotion of this nature results in a short term discount for consumers. For most consumers the discounts will only apply to one weekly or fortnightly shop and to one tank of fuel. Metcash, the major wholesale distributor to independent supermarkets, also offered equivalent discounts to consumers. This shows us that other players in the market have the ability to match the short term competitive pressures of companies such as Coles and Woolworths. This is competition operating in the interests of Australian consumers.

While the promotions haven’t been deemed illegal, that doesn’t mean they’re likely to become a regular feature. The ACCC has effectively ruled that they are “loss leaders”, goods sold at below cost in order to attract customers. No business can continually afford to sell goods at a loss, so it’s unlikely that such deals are going to become a permanent feature of the landscape.

The ACCC’s ruling is highly dependent on the fact that this was a “one-off” promotion. If such bargains were offered regularly, they would raise different competition issues. In any event, as wildly fluctuating petrol prices in the past few years have shown, even dominant players like Woolworths and Coles can’t do much about the global price of oil.

The bottom line? As ever, if you’re scoring supermarket vouchers anyway because of your weekly shop, it’s foolish not to use them. However, if you’re dependent on those discounts just to make petrol affordable, then your budget probably needs a bigger overhaul.

ACCC review of 40 cent discount on fuel [ACCC]

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