Drivers are used to working hard to find the best price for a tank of fuel.
Supermarkets, it turns out, have been working only as hard as they need to to provide it.
A Competition and Markets Authority investigation into fuel pricing has found that retail margins at supermarkets have widened by 6p per litre in the past year, landing consumers with a total bill of £900m.
The reason they say is a “rocket and feather” approach to pricing, soaring up when the oil price rises but descending more sedately when it falls.
All of the big four supermarkets are implicated, but the biggest impact has been a change of policy at Asda and Morrisons, both for years reliably the cheapest fuel retailers.
In the past year they have gone from driving competition to driving prices up, with a deliberate focus on increasing fuel margins compounded by a complacent approach from Tesco and Sainsbury’s.
While Asda and Morrisons actively seek to price fuel competitively, their rivals have simply pegged their prices to traditionally cheaper competitors.
That meant that when Asda’s margins grew and prices stayed higher than they might previously, Tesco and Sainsbury’s offers followed suit.
The result, says the CMA, is consumers are paying more across the board.
What it does not say is that the underlying reason may be changes of ownership at both Asda and Morrisons that have added debt to the businesses.
In 2020, Asda was purchased for £6.8bn in a heavily leveraged buyout by the Issa brothers Zuber and Mohsin, who also controlled the EG chain of almost 400 petrol stations. It has since completed a £3bn buyout of EG, a move waved through by the CMA, giving the supermarket control of more than 700 forecourts and the brothers’ enormous influence over the UK retail market.
In 2021, Morrisons was sold to US private equity operator Clayton, Dubilier & Rice for £7bn. In its first full year under new ownership it recorded a £1.5bn loss, caused in part by increased financing costs of £593m.
Last week, Morrisons chief executive David Potts conceded there were “problems” with the fuel market, and in its response the supermarket said fuel profits were helping offset the impact of food inflation.
Read more:
Drivers paid higher pump prices after supermarkets increased margins
Supermarket bosses defend food prices and deny profiteering
“The modest increase in the profitability in fuel has been an important part of our ability to invest in holding and lowering prices in store,” it said.
Asda, it should be said, remains the cheapest petrol retailer in more than 70% of areas and, where they have a store, prices at competitors are generally cheaper too, and its response was entirely unapologetic, despite being landed with £60,000 worth of fines by the CMA for non-compliance.
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“Despite record inflation, we have carefully managed our business to ensure Asda was the cheapest traditional supermarket for both groceries and fuel throughout the period reviewed by the CMA and this position is unchanged,” it said.
The CMA’s main remedy is to arm consumers with information courtesy of real-time price sharing, a mechanism that could be provided by sat-nav and smart phones to make shopping around easier.
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The government was quick to say it will change the law to enforce this, and it will surely help competition locally.
It will not change the fact that the largest contributors to the price of a litre of fuel remain tax and oil.
