More competition and increased transparency key to driving lower petrol prices in Launceston

20 July 2016

The Australian Competition and Consumer Commission report into the Launceston petrol market released today has concluded that if the Launceston market were more competitive motorists could expect savings of 4-5 cents per litre (cpl) on a sustainable basis.

Petrol prices in Launceston have been significantly higher than those in Sydney, Melbourne, Brisbane, Adelaide and Perth for much of the time over the last five years. Between 2012–13 and the first half of 2015–16, Launceston motorists paid on average around 12 cpl more for petrol than motorists in the five largest cities.

However, since the introduction of the discount arrangement between the Royal Automobile Club of Tasmania (RACT) and United in March 2016, the differential between petrol prices in Launceston and five largest cities narrowed. During March and April 2016 monthly average retail petrol prices in Launceston decreased by 2 cpl, while retail prices in the five largest cities increased by around 6 cpl. Margins in Launceston (ie. the difference between retail prices and wholesale prices) have been relatively lower compared with those in the five largest cities in recent months (see the attached chart).  

“The downward pressure on retail petrol prices, particularly due to this discounting agreement, is a clear indicator that competition is the best way to create lower prices for motorists,” ACCC Chairman Rod Sims said.

“The RACT and United offer has brought about a response from other fuel retailers, resulting in increased competition and lower prices for consumers. Discounting initiatives combined with greater price transparency can lead to direct benefits for consumers.”

The ACCC’s analysis found that the three main factors leading to higher prices in Launceston were higher transport costs, higher operating costs, and higher retail margins and profits.

The increase in retail margins and profits in recent years has been due to relatively weak retail competition in Launceston. This has been reflected by a lack of aggressive price discounting. However, this is not confined to Launceston as weak competition and higher prices are seen across Tasmania.

“There are several steps that could be taken to increase transparency and promote competition in the Launceston market,” Mr Sims said.

“These include the promotion of discount schemes such as the RACT/United offer that enhance price competition, providing current retail prices to motorists, regular publication of indicative margins and benchmarking against other locations, and continued monitoring by the ACCC of future merger activity in the Launceston petrol market.”

Increased transparency will be assisted by the resolution in December 2015 of ACCC court proceedings against Informed Sources and a number of petrol retailers, which has led to petrol price information being available to consumers and third parties on a near real-time basis online and through new apps.

“The more information on petrol prices which is available to the public, the better informed motorists will be about when and where to buy petrol. Launceston consumers, with the new information provided by the apps, will have a key role in driving the overall competitiveness of the Launceston petrol market, and therefore the prices that they pay for fuel,” Mr Sims said.

Background

In December 2014 the Australian Government directed the ACCC to monitor the prices, costs, and profits of unleaded petroleum products in Australia for a period of three years. The new monitoring arrangements include the preparation of regional market studies, which aim to explain why petrol prices are higher in certain regional locations and explain where profit is being made in the petrol supply chain.

The ACCC collects retail petrol prices for all capital cities and over 190 regional locations across Australia. Following extensive assessment of price and other data for these locations, the ACCC announced in May 2015 that Launceston would be the second of its regional studies.

The first regional study was on the Darwin petrol market, which was released in November 2015. The ACCC is currently working on market studies in Armidale (announced on 3 August 2015) and Cairns (announced on 19 April 2016). On conclusion of the four regional market studies the ACCC will review the overall lessons learned and how they may apply in other areas.

Transport costs

Petrol comes into Tasmania from refineries and terminals in other Australian cities, or from overseas refineries. In 2014–15 the cost of bringing petrol into Tasmania was around 2 cpl higher than bringing petrol into the five largest cities. Shipping costs to Tasmania are higher than to mainland Australian ports because of its distance from Singapore (the major export hub in the Asia-Pacific region).  In addition, Launceston does not have its own fuel terminal and fuel is transported from five terminals in Tasmania to Launceston.

Operating costs

Operating costs, on a per litre basis, are higher in Launceston at both the wholesale and retail level because of the smaller size of the Launceston and Tasmanian markets, and the smaller volumes sold at most retail sites.

Margins and profits

ACCC analysis of retail petrol price data in Launceston and Hobart indicates that United is a strong price competitor. However, the relatively small size of United in terms of market share, and a lack of other aggressive discounters to lead prices down, appears to have resulted in weaker responses to decreases in wholesale prices in Launceston and Hobart than otherwise may have been the case.

While the supermarkets and the refiner-wholesaler controlled sites tend to match each other’s prices, it appears necessary for other retailers to drive prices down. While United has played this role to a degree, to the benefit of consumers, it has not been sufficient to prevent increases in retail margins in Launceston and Hobart until very recently.

RACT/United discount scheme

In February 2016 the RACT announced that it had established a partnership with United to offer an 8 cpl discount commencing on 15 March 2016 for two months at nearly 40 United and associated sites across the state. At the end of the two-month period the discount decreased to 6 cpl.  In response to this offer, Coles Express and Woolworths introduced their own increased shopper docket offers.

The RACT/United discount scheme appears to be leading to lower prices in Launceston. The success of this scheme depends on the discounter benefiting through increased sales volumes and higher convenience store sales. If petrol price information is readily available to consumers, motorists in Launceston can support those discounters that are offering lower prices.

Bar chart of difference between monthly average margins in Launceston and the five largest cities

Source: ACCC calculations based on FUELtrac and company data

See also: Report on the Launceston petrol market

Release number: 
MR 128/16
ACCC Infocentre: 

Use this form to make a general enquiry.

Media enquiries: 
Media team - 1300 138 917

Tags

Audience
Topics