1) Office of Fair Trading - Their announcement on 5 September was a formal “call for evidence”. The PRA has been working with officials on an extensive questionnaire that should be available on the OFT website by the end of this week. Our members are being urged to respond by the closing date of 17 October with copy evidence to their constituency MP. It is hoped that many MP’s will also take the opportunity to provide evidence and press for the full “Market Study” under the terms of the Enterprise Act 2002 that we originally requested. Our members are providing the OFT with very detailed financial and operating data and a meeting with our Executive Committee has been arranged for 2 October. We will robustly impress on the OFT that equivalent financial data must be obtained from both the hypermarket sector and the oil company sector to ensure that proper comparability is achieved.
2) Exchange Rate – The movement of £sterling to US$ is critical and immediate in terms of both crude oil and wholesale product pricing. For example, when Brent Crude peaked at $147/barrel in 2008 the rate was £1.00 = US$2.00 so the GBP barrel cost was £73.50. Recently, Brent Crude has spiked again to $115/barrel and many commentators queried why pump prices remained so high in comparison to 2008. The answer is that sterling has weakened to £1.00 = US$1.60 so the GBP barrel cost is £71.9 only 2% less than the record spike in July 2008.
Every weekday, the wholesale cost to UK independents is converted from US$/tonne for refined product to pence per litre and again the exchange rate can have a dramatic impact. At the beginning of September, £1.00 = $1.55 but has strengthened in just a couple of weeks to $1.62. This favourable movement has saved the motorist about 2.6ppl at the pump!
3) Fuel brands – four of the major oil companies, viz : Esso, Shell, BP and Murco supply both their own forecourts as well as independents (franchised dealers) and it is very difficult for the average motorist to determine the difference. In many instances, the shop fascia will be the tell-tale sign with Dealers using the symbol groups such as Budgens, Spar, Mace, Costcutter, Nisa etc. and oil companies using their corporate symbol such as Esso “On the Run”, BP “Connect and Shell “Select”. Sadly, over recent time, one of the emerging tell-tale signs for difference can be the pole price with oil companies offering retail prices at which their own franchisees cannot purchase the same product. This has brought about 2-tier pricing for the same brand and is just one of the reasons that the media, motoring organisations and the consumer have been misled into believing that some independents are “profiteering at the pump”. Nothing could be further from the truth as the PRA submitted the complaint to the OFT last January. We want a level playing field on product costs so that we too can offer our customers a competitive price.
4) Excise Duty – The attached graphic shows not only how much the product cost has increased over the last ten years but importantly how fuel duty plus 20% VAT now accounts for 60% of the tanker cost. How can the Government expect SME’s, often family run for generations, to bankroll the Treasury with £30,000 tax in advance of collecting most of this money from their customers? Independent retailers have to provide bank guarantees and/or security such as mortgage assignment to their suppliers before delivery can take place. Then payment is usually on direct debit basis plus 1 or 2 days. Banks are being difficult with additional loans and/or overdraft extensions hard to find. Thus many retailers, especially in rural areas, have no option but to close under extreme cashflow pressure. Even group operators are not immune with the Allied Bank of Ireland placing Calanike (19 sites in Scotland) and Bishop Retail (9 sites in NE England) into administrative receivership in recent months.
We believe that DECC are highly concerned about the ongoing decline in forecourt numbers from a retail resilience perspective and have appointed Deloitte LLP to examine the causes and recommend ways to halt the decline. Competitive tensions in the marketplace will be investigated by the OFT in any Market Study and may be a medium term outcome. In the short term, the PRA will strongly recommend that the duty point for road fuels is moved from ex-rack as the tanker loads to point-of-sale on the forecourt. After all, this is how HMRC collect VAT and it must be possible to do likewise with duty. This will form a detailed discussion with HMRC/HMT and DECC.
My colleagues, Sue Robinson and Robin Hulf, will be attending the major party conferences so do please make contact if you wish to discuss any aspects of this Fuels Briefing Note. Alternatively, I will be pleased to meet you at Westminster to follow up any queries in greater detail.
Brian Madderson
Chairman – RMI Petrol Retailers Association
21 September 2012
