Fuelwatch and independent operators
A number of submitters expressed concern that a decline in the
number of small independent operators in the retail petrol market would erode
competition and ultimately lead to higher prices for consumers. The committee
respects these concerns. However, it is important to distinguish long-term
influences on the number of independents that would occur with or without
Fuelwatch from any impact arising from Fuelwatch itself. The committee heard
varying views, including from independent retailers themselves, on how
Fuelwatch would affect independents.
The role of independents in petrol retailing
There are only essentially four main players importing, refining
and wholesaling petrol; namely Shell, Caltex, Mobil and BP. At the retail
level, there are four main types of operation:
- refiner-marketer owned sites, which may be managed by an
individual on a commission basis (where the refiner-marketer determines the
price) or franchise basis (where the franchisee has some discretion over the
- owner-operator sites who usually sell a single brand of petrol
but are able to set their own price;
- supermarket operated sites; and
- independent operators selling their own brand.
Challenges facing independents
Small independent petrol chains face many challenges in competing
with the petrol retailing operations of the major oil companies and this
challenge has become harder since the large supermarket chains have entered the
markets. The large companies have the benefits of diversification, can afford large-scale
advertising campaigns and achieve economies of scale in many areas of their
operations. Some see these problems are virtually insurmountable:
The inevitable rationalisation of the industry will see a
continued decline in the smaller independent petrol retailer.
Furthermore, the large companies can buy petrol from the
refineries at a lower price than can small independents; indeed some
independents say they face a wholesale price above the retail price charged by
the large retailers.
One perspective on this is that it is just a normal 'bulk discount':
...prices that are set in the marketplace reflect the sizes and
the negotiating power of the various players.
Others point out that the same handful of very large companies
are the principal importers, refiners, wholesalers and retailers in the
They would then question whether the arrangements in the wholesale petrol
market are truly competitive or whether they are unfairly stifling the growth
The ACCC described the wholesale fuel market as a 'comfortable
oligopoly' where competition 'is not fully effective', and commented that the
'buy-sell' arrangements between the major oil companies give them a competitive
advantage over independent wholesalers and retailers.
It suggested some measures that could make the market more competitive.
While the operation of the wholesale fuel market involves
important issues, they are outside the scope of this report on Fuelwatch. As
the ACCC remarked:
The fate of those smaller independent
operators is almost entirely in the hands of the refiners and the wholesalers
that supply fuel to them. If they do not supply fuel to them at a price that
enables them to compete with others in the marketplace they will not be able to
compete. It is not to do with FuelWatch...
A further challenge posed to independents by the supermarket
chains is that the chains offer 'shopper dockets'. The majority of customers
using Coles-Shell and Woolworths‑Caltex outlets get a 4 cents per
litre discount by presenting a shopper docket obtained by spending over $30 in
one of the affiliated supermarkets. Their importance is emphasised by the
Australian Institute of Petroleum, who refer to:
shopper dockets that have enabled independently operating
supermarket chains to sell approximately 45% of the retail petrol and diesel in
metropolitan Australia... up to 4 million shopper dockets are now being
utilised each week. Consumer surveys indicate that up to 75% of consumers are
using shopper dockets.
There is evidence suggesting they make consumers less
price-responsive, and harder for independents to attract.
The role played by shopper dockets was strongly criticised in some submissions
from independent retailers:
Supermarket discount dockets are doing nothing to excite
competition on both groceries and fuel. Discount dockets are only distorting
what the consumer or customer is actually paying for their products. It is
pushing up the fuel prices at the pump, in our belief, and it is certainly
pushing up grocery prices on the shelves. The shopper docket system should be
banned to allow for true transparent competition. It is only then that you will
achieve improved competition between the supermarkets at the grocery shelves.
You will also find that fuel prices at the pump and the board prices might come
down quite substantially, because the fuel price at the top end of the price
cycle will no longer have to subsidise the fuel discount dockets in the market.
Woolworths' and Coles' fuel discount schemes (which is clearly
anti-competitive third-line forcing dressed up as a public benefit) has
resulted in a significant erosion of competition...[and will] further destroy
independent fuel retailers...[they have] used shopper dockets as a Trojan horse
to eradicate competition...
Grocery fuel vouchers, and so on are a negative long term
influence on fair competition where large chains are using undue market
influence to structure and corrupt buyer free choice.
They have also been criticised in an academic study:
such bundling may result in a considerable loss of consumer
welfare and a long-term erosion of competitive pressures.
They were even more bluntly criticised by a motorists'
organisation which described them as 'one of the biggest cons of all times' and
'an absolute disgrace'.
Choice were also critical: 'you should rather take action about shopper dockets,
which confuse consumers'.
The shopper dockets scheme may have constituted 'third line
forcing' (a type of 'exclusive dealing') and therefore been in breach of
section 47 of the Trade Practices Act were it not for the supermarkets
having notified the ACCC and the ACCC not taking action against them.
While a challenge to independents, these dockets are offered both
in WA where Fuelwatch operates and in the eastern States where it does not.
Concerns raised by independents about Fuelwatch
Independent retailers are disadvantaged by the current market
situation where the majors have access through Informed Sources to much better
price data than do the independents. Fuelwatch would even things up. The
independents would have access to the same pricing information as the major
Some independents are worried about the 24-hour rule leaving them
with an uncompetitive price:
We particularly oppose the prohibition on any downward price
movement in the notified price in a 24-hour period. This means a retailer is
unable to meet market forces in his trading area if he is off the pace or he
gets it wrong when he sets his price for the 24-hour period.
However, if the independent has nominated too high a price for a
day, their sales will be lower for that day only. But equally if their large
rival has nominated a higher price, the independent will achieve very strong
sales and the large chain's station will be unable to respond until the next
day. With the current informational advantage removed, independent stations who
know their neighbourhoods better may be better placed than large chains to set
a good price.
The opposition to the '24 hour rule' was not shared by all
independents. Australian Farmers Fuel said:
We have no problem with the price being locked for a period of
time...We all take our chances in the market as long as it is fair and equitable.
Providing better access to price information for consumers should
if I am an independent station and I do not have a brand, and I
do not have any advertising machinery, now consumers do not care about that and
they are logging onto a website and just looking at price, and that spells
opportunity. So I do not necessarily see that, as a matter of principle, this
central provision of information is going to be a bad thing for independents.
The 'Cherry Ripe' strategy
Some concerns were raised that the large chains could try to
subvert Fuelwatch by offering other forms of discounts to lower the effective
price to motorists.
For example, they may offer a 3 cents a litre discount to motorists who buy a
cherry ripe at the station. Treasury did not believe this would be allowed under
the proposed legislation.
Even if allowed, however, this strategy could prove expensive if
large numbers of motorists are using Fuelwatch. The cherry ripe discount would
not be reflected in the Fuelwatch price listings so it would not attract any
more Fuelwatch users to the station. However, all the customers going to the
station anyway may take advantage of it when they are there.
The same would apply if supermarkets tried to increase
temporarily the discount they offered customers with shopper dockets. This was
a concern raised by an independent chain who noted:
All of their price boards have the ability to change the voucher
value on the day...both major supermarket chains have digital boards at the
moment and they can move that gap out.
Asked about whether new forms of discounting had been a problem
for the WA FuelWatch scheme, the relevant WA department replied:
There is no evidence that this has operated to defeat the
intention of the Western Australian legislation. If it became apparent that
loyalty discounts or similar activities were being used to undermine the intent
of the legislation then advice would be provided to the Government for
The 'rolling price leaders'
Another potential concern expressed by independents themselves
and the ACCC was that the large supermarket chains can employ a 'rolling price
FuelWatch has harmed the competitive position of independents as
it allows large operators to adopt a strategy of rolling price leaders. Media
reports of FuelWatch price information highlight retail stations with the
lowest prices. This provides an opportunity for larger competitors with bigger
networks of retailers to have rolling price leaders in the market, with
different stations under the same banner being publicised as the cheapest for a
region or suburb at different times. Operators with smaller networks are less
able to employ this pricing strategy placing these retailers at a competitive
disadvantage in the market.
so-called rolling price leaders where the bigger operators have
the ability to deliberately underprice some of their sites so that they get
into the top 10 or top 20 cheapest lists ...Because they are a fair size, they
can even in a sense be selling petrol at a loss to get their sites into those
lists whereas independents do not have the financial wherewithal to do that.
The argument is that the majors are able to create an impression that they are
cheapest because they are in the top 10 cheapest sites.
However, this strategy may be less effective under
Fuelwatch than under the various backward-looking petrol price reporting schemes
currently in operation. At present, a chain can arrange for a handful of its
stations to offer a very low price one day. These may be reported on the nightly
news as the cheapest outlets but by the time customers are attracted to these
stations the following day the price has gone back up so the chain does not
lose much profit. By contrast under Fuelwatch, viewers will be able to go to
the few stations offering a very low price the next day, rather than other
stations operated by the same chain, and so the strategy would be quite
expensive for the chain.
Again, the WA experience is illuminating. The Royal Automobile
Club of Western Australia observe:
While there is a risk of large companies with many sites gaming
the system, the RAC does not have any hard evidence that it is occurring to any
Predatory pricing and Fuelwatch
Another problem for the independents is that the major chains can
spread losses at one station over a number of other stations. This makes it
easier for them to engage in a predatory pricing strategy of very aggressively
cutting prices at a station next to an independent to drive out the independent
(or at least discourage it from trying to undercut the price set by the major
station), and covering the loss at this station from profits at their other
For example, the Law Council suggested:
...larger retailers might take advantage of the legislation to
damage smaller retailers by deliberately quoting a low price at a nearby
service station. The large retailer could obviously afford to do this, but the
small retailer may soon incur losses which would force it out of business.
This strategy is less likely to work under Fuelwatch, as
more motorists will switch from the profitable stations of the major company to
the one offering the low price, reducing the chain's ability to cross‑subsidise
Furthermore, Fuelwatch makes it much more obvious when larger retailers
are engaging in predatory pricing and would make it much easier for an
independent victim to gather the evidence to show a court or the ACCC.
With a change in other regulations, Fuelwatch is potentially an
important weapon in independents protecting themselves against predatory
pricing. Two independent petrol retailers said:
I run my own tanker fleet, and there is no mechanism whereby I
can fill my tankers up at the forecourts of those service stations because the
law says that you can only put a maximum of 20 litres into a container. That is
Yesterday it would have been cheaper for me to take the fuel
tanker down to the Safeway service station and give in a 4c a litre docket,
fill it up and get 50,000 litres. It would be cheaper.
Currently, even if the law about the maximum size of containers was
changed, if an independent pulled a tanker up at a major retailer's outlet
where petrol was being sold at below the wholesale price, the major would just
immediately increase the price. But with Fuelwatch, the major would not be able
to do this. With Fuelwatch allowing small independents to know exactly where
majors were pricing below wholesale price, this is potentially a powerful
weapon against predatory pricing. Changing this law is unlikely to lead to
independents' tankers actually filling up at the majors' stations. Rather the
threat of them doing so will deter the majors from engaging in predatory
The Law Council has expressed concern that Fuelwatch 'may
encourage more unlawful price collusion'.
The counterargument is that Fuelwatch makes it much more obvious were this to
occur and would make it much easier for an independent victim to gather the
evidence to show a court or the ACCC.
The experience of independents under FuelWatch in Western Australian
When asked to give an 'assurance' that a national Fuelwatch would
not have an adverse impact on independents, the ACCC replied that:
Is there any reason why FuelWatch could or should have an
adverse impact? The answer is no.
The ACCC supported this by reference to the Western Australian
experience under FuelWatch there:
we had a fairly close look at that...we just could not see any
evidence that independents in Western Australia had been adversely affected by
FuelWatch. Sure, they had declined, but independents have declined across Australia.
Indeed, they have been declining for the last 20 years... we had evidence
presented to us that suggested that independents in Western Australia,
following the introduction of FuelWatch, had probably done a bit better than
independents in other states.
This view that independents had fared relatively well in WA was
confirmed by the relevant state department. Between 2001 and 2008, within the
FuelWatch boundaries, the proportion of service stations operated by 'branded
rose from 34 to 35 per cent; the proportion operated by 'independent chains'
was steady at 13 per cent and the proportion of 'unbranded independents'
rose from 2 to 6 per cent.
An alternative data series on market shares was provided by
Informed Sources. It divides petrol retailing sites into 'majors',
'supermarkets' and 'independents'. The data show little difference in the share
of sites operated by independents between Perth and the other largest cities. (In
Adelaide a new independent chain has increased the presence of independents
there.) The data for Sydney, Melbourne and Perth are compared on the following
The motorists' organisation in Western Australia also thought
FuelWatch had not hurt independents:
We have not seen any evidence that FuelWatch has been a
detriment to independent retailers in Western Australia...There is no evidence
that we are aware of that ...the rate of decline of independents post-FuelWatch
is any different from the rate of decline of independents pre-FuelWatch.
Caltex had not heard any complaints about FuelWatch from their
I have not had a retailer over there say they wish they had
An independent chain in WA was asked their impression of
What FuelWatch has done is provide readily available information
into fuel prices and held them constant so that that information can support
purchases, and I am sure there is a segment of the market that values
that...FuelWatch has added some value.
The same chain were also asked about whether FuelWatch there was
overzealous in enforcement. They replied that it was:
'fair and reasonable enforcement ... there has not been a heavy
hand in any penalties. There has been an understanding of clerical errors and
The committee also heard what independent stations in WA had told
their Queensland peers:
The only comment that we had from the independents in Western
Australia was that there was very little change from prior to the introduction
of FuelWatch to current status in terms of their viability and profitability.
As noted above, there are concerns about the operations of the
wholesale fuel market and whether independents have a 'fair go' in it. This
committee is not downplaying or dismissing these concerns. But there is no
reason to think that the wholesale market will operate in a fairer or more
efficient manner if Fuelwatch is not introduced into the retail market.
This committee has examined the impact of Fuelwatch on independents.
On the balance of evidence it agrees with the assessment of Mr Jim Murphy of Treasury
...I do not think Fuelwatch is going to put independents in a more
disadvantageous position than they are at present; it may benefit them.
The committee recommends that the Government undertake close
liaison with independent fuel retailers to monitor the operation of Fuelwatch.
The impact on the competitiveness and market share of independent fuel
retailers should be an important part of the one-year review of Fuelwatch which
the Government has already promised.
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