Earlier this week, the Australian Competition and Consumer Commission (ACCC) released a special report that examined the different pricing behaviours of businesses operating in the Australian retail fuels market during calendar year 2018, says ACAPMA.
The report (‘Petrol prices vary significantly: report on petrol prices by major retailers in 2018’) was described by the ACCC as “an in-depth report analysing average retail petrol prices in 2018 to identify the highest and lowest priced major retailers in the eight Australian Capital Cities”.
A copy of the report can be downloaded here.
The headline findings of the report were that average prices in Australia’s eight capital cities varied between fuel retail brands despite the fact that these brands were selling largely similar petrol products.
“The independent chains with the lowest average prices in 2018 were United in Melbourne, Brisbane, Canberra and Hobart, Speedway in Sydney, Liberty in Adelaide, Vibe in Perth and FuelXpress in Darwin,” ACCC Commissioner Rod Sims said.
“Motorists that always filled up at these independent chains would have come out ahead when it comes to petrol.”
While the media commentary surrounding the report noted that “some motorists” choose retail sites for reasons other than price – such as their range of convenience offerings – the ACCC’s media release asserted that “most consumers” choose service stations based on petrol price alone.
The inaccuracy of the ACCC’s assessment is self-evident. It is also heavily contradicted by consumer research conducted by ACAPMA in its Monitor of Fuel Consumer Attitudes Series (2015, 2017 and 2019) which suggests that the physical location of a retail site is a major determining factor in motorists’ decisions to choose a particular petrol convenience outlet.
“For the ACCC’s assessment to be correct, the majority of the forecourts of the service stations displaying the brands named in the report as having consistently higher prices would be empty – and that is simply not the case,” ACAPMA CEO Mark McKenzie said.
While Australia’s fuel retail businesses sell similar products, the businesses that operate in the market are very different. Some businesses focus solely on selling fuel while others provide an expanded range of convenience and food offerings that are designed to provide consumers with a convenient one stop location to source fuel, grab some food, and top up their online grocery shop.
“Many of the businesses that operate in the Australian retail fuels market use different revenue and pricing models which seek to offer value on the total shop – that is fuel and non-fuel products – as opposed to just selling discounted petrol,” Mr McKenzie said.
It is also worth noting that there are often stark differences in the physical ‘look and feel’ of service station businesses. Some retailers make regular, large capital investments in their service station assets to create an inviting environment. This results in their annual operating costs being consistently higher than those who choose to minimise asset investment to maximise petrol price discounting.
“So, like any market, the businesses that comprise the fuel market operate with different strategies which is why their product prices will vary despite selling similar products,” Mr McKenzie said.
The proposition that all fuel businesses are the same because they all sell petrol is clearly incorrect.
“Further, to suggest that price differences between retailers are merely ‘marketing costs’ – as suggested by NRMA spokesman Peter Khoury this week – is plainly naïve to the way real world markets operate,” Mr McKenzie said.
But the most notable element in the ACCC’s assessment was its’ decision to single out specific brands in a highly competitive national fuels market. The ACCC’s action amounts to market steering – that is, encouraging consumers to patronise one fuel retail business over all others.
In response to past criticism of this behaviour, the ACCC has justified its actions by suggesting that the highlighting of price differences constitutes a ‘public good’. That is, motorists are made aware of an opportunity to save money and the higher priced market participants are ‘shamed’ into lowering their prices.
“This ‘public good’ argument is an interesting one in the face of the ACCC’s promotion of one of the retailers named in this latest report,” Mr McKenzie said.
The ACCC’s report singles out United Petroleum as being the cheapest fuel retailer in four capital city markets. Yet just 3 weeks ago, the Fair Work Ombudsman announced that it had commenced legal action against this same business in respect of serious wage underpayment issues within its’ 440 site network.
The Fair Work Ombudsman’s extraordinary action was brought on by “United Petroleum’s consistent refusal to enter into a compliance partnership with the FWO for the past two years despite multiple invitations to do so” according to Fair Work Ombudsman, Sandra Parker.
The FWO has apparently been investigating United Petroleum since 2015 and the imminent court action follows raids of a dozen outlets in 2017, which found that 40 per cent were exploiting workers – including significantly underpaying wages to foreign workers on visas.
“ACAPMA is not suggesting that United Petroleum is guilty of wage underpayment – that is yet to be proven and United Petroleum have the right to mount a defence against the allegations made by the FWO,” Mr McKenzie said.
But, if the allegations are proven correct, then United Petroleum will have been operating with a significant and illegal market advantage which could provide an explanation of why their fuel prices are consistently lower than the market average in capital city markets.
Within this context, does the ACCC’s steering of consumers to a business facing serious wage underpayment actions amount to a public good?
Regardless of the outcome, surely national regulators like the ACCC and the FWO should be comparing notes.
“At the very least, the ACCC has an absolute obligation to ensure that its ‘in-depth’ investigations ensure that any business that stands to gain market advantage as a result of its’ public statements on pricing are wholly compliant with all prevailing laws and regulations,” Mr McKenzie said.
Sadly, this does not appear to be the case in this instance.
There is a substantial risk that the ACCC has inadvertently rewarded a business that could be found guilty of significant breaches of Australian employment law – amounting to a significant distortion of market competition given its 440-site presence in the national retail fuels market.
Surely that is a poor outcome for the national body whose primary responsibility is to ensure that market competition is fair and effective.
This was originally published by ACAPMA: https://acapmag.com.au/2019/10/regulator-steering-is-risky/
