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Competition wins, protectionism loses: Petrol discounts A-OK by the ACCC

July 23rd, 2009 at 06:27pm

The 40 cents per litre discounts temporarily offered by Coles and Woolworths have been permitted by the Australian Competition and Consumer Commission, which is the right outcome under the circumstances.

The Australian Competition and Consumer Commission (ACCC) was urged to step in last week after Coles and Woolworths promoted new discounts of up to 40 cents a litre of petrol when consumers spent $300 on groceries.

It provoked a consumer frenzy, but independent service stations called foul, accusing the duopoly of trying to drive smaller competitors out of the market.

The ACCC’s petrol commissioner Joe Dimasi on Thursday said that after close inspection, there was nothing dodgy about the offer.

“We have formed the view that these one-off promotions do not breach the Trade Practices Act,” he said in a statement.

“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.”

And Mr. Dimasi is entirely correct…remember this in March?

Marie El-Khoury, owner of the BP service station on Sunnyholt Rd at Blacktown, continued her campaign against oil companies and supermarket giants by dropping petrol prices to 49.9 cents per litre between 7.30am (AEDT) and 8.30 on Thursday.

Last October, she led a group of independent stations across Sydney in dropping prices by 40 cents per litre for four hours to protest what they said were anti-competitive practices by oil giants.

During Thursday’s discount hour, Ms El-Khoury said she served hundreds of customers and sold thousands of litres of petrol, losing about 60 cents per litre.

A stunt which was repeated in May. If she, and her independent colleagues, can have temporary massive discounts, then so can the big players.

I should point out that the October, March and May stunts were in protest against the fact that petrol is being sold by major retailers (Caltex Woolworths and Shell Coles) at a lower regular price than the wholesale price at which many of the independent retailers can buy the product. It had nothing to do with massive discounts.

When it comes to massive discounts though, the real questions is whether the ACCC would have come to the same conclusion if Coles and Woolworths were offering the discounts permanently. In my view, they would have reached the same conclusion, because the retailers offering the massive discounts would have to lose many truckloads of money before they would be able to force smaller retailers to go out of business, and the smaller retailers could potentially offer a more attractive discount anyway, by virtue of not requiring people to spend an exorbitant amount in a related store first, and by using this discount and the expected increase in sales as justification to buy a larger volume of wholesale petrol at a cheaper price.

Ultimately I think the biggest problem for the smaller petrol retailers is that, because of their size, it’s just not viable for wholesalers to sell products cheaply to them, as the overheads on their individual orders are greater than the overheads, relatively speaking, on the orders of the larger retailers. What the smaller retailers need to do, and have shown an ability to do in the mass discounts of October, is co-ordinate their efforts…perhaps it’s about time that the smaller retailers formed an IGA (Independent Grocers of Australia) type alliance, where they remain independent, but work together under a single banner on promotions and wholesale purchases.

Protectionism favouring small retailers is not the solution here. The free market works, you just have to know how to play it to your advantage.

Samuel

Entry Filed under: General News,Samuel's Editorials

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