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5.1

Industry structure—retail
Industry structure

Petrol retail sites in Australia can be separated into four broad categories on the basis of ownership and wholesale supply arrangements. These are: • refiner-marketer owned sites • refiner-marketer branded independent and distributor-owned sites • supermarket operated sites • independent operator sites selling their own brands. Retail sites within these categories are operated in one of the following ways: • Owner operated—the owner of the site is free to choose its wholesale supplier and determine its retail price. An independent owner-operator may choose to align its site with the brand of fuel sold by a particular wholesaler, by receiving branding (signage identifying that site as sourcing its fuel from a particular wholesale supplier). • Commission agent—an individual manages a site (owned by a refiner-marketer or independent chain), and compensation is generally in the form of a commission based on the quantity of product sold. • Franchise operated—an individual rents a site or a number of sites, (generally owned by a refinermarketer) and operates under a franchise agreement. At these sites, fuel is sourced from the owner of the site and branded accordingly. Franchise operated sites may receive price support from their wholesaler. Price support enables the wholesaler to influence the retail prices set by the operator of the site. Owner-operated sites may receive price support from their wholesaler. The operation of price support is outlined in more detail in chapter 9. The business structures observed in the retail market largely reflect the operation of two pieces of recently repealed legislation: • the Petroleum Retail Marketing Sites Act 1980 (the Sites Act), which placed a quota on the number of retail sites that the refiner-marketers could operate directly or on a commission agent basis • the Petroleum Retail Marketing Franchise Act 1980 (the Franchise Act), which specified minimum terms and conditions for franchise arrangements. The Sites Act was designed to counteract the dominance of the petrol retail market by the refinermarketers by restricting oil companies from operating or controlling more than 5 per cent of total retail sites. The Franchise Act set out minimum terms and conditions governing a franchise agreement in the retail petrol market and covered all retail outlets selling above a certain minimum quantity of petrol a year. In response, the refiner-marketers adopted other marketing strategies (including multi-site franchising). Under the Downstream Petroleum Reform Package, the Sites Act and the Franchise Act were repealed and a mandatory code (the Oilcode) under the Trade Practices Act (the Act) was introduced. The

Petrol prices and Australian consumers: Report of the ACCC inquiry into the price of unleaded petrol | December 2007

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5. SEP owns or leases a further 30 sites which are Mobil branded.1 There are a further 10 sites supplied by BP under a temporary agency arrangement under which BP sets the retail price. which is 50 per cent owned by Mobil. and market their fuel through single or multi-site franchise operations. among other things. 28 are operated by commission agents and 332 are operated by franchisees. Shell sets the prices of the sites in Shell’s commercial vehicle refuelling network and most of the sites are owned by Shell.1 Refiner-marketer owned sites The refiner-marketers own and operate their own sites. but receive price support. 1. p. most of which are located in major metropolitan areas in and around capital cities. 5. Under its truck stop franchise arrangement with the independent operator BP sets the retail price.6 Mobil owns or leases approximately 280 retail sites. 26. While prices are determined by franchisees at franchise sites. p. p. which are independent branded. 43 are owned and operated by Caltex.1. Melbourne. There are also distributor-owned sites that do this. Shell retains ownership of these sites. p. 54.2 Refiner-marketer branded independent operators and distributor-owned sites Independent operators tend to own their site but retail the fuel of one of the refiner-marketers. public hearing transcript. The price of fuel at these sites is determined by the operator. Shell owned approximately 600 branded sites that were operated by franchisees. All but one of these sites is operated by a single multi-site franchisee.Oilcode. Caltex owns a total of 778 retail sites. Shell transferred the operation of virtually all of its franchisee-operated sites to Coles Express. At these sites 85 per cent of the fuel sold is diesel. 1 2 3 4 5 6 7 BP submission. The Oilcode is discussed in more detail in chapter 6 of this report. p. p. 21.5 Shell also owns 41 sites as part of its commercial vehicle refuelling network which are located mainly in regional areas to service large fleets travelling throughout Australia. The refiner-marketers determine prices at company owned and commission agent sites. ibid. p.4 Before the alliance with Coles Express. Shell submission.3 Excluding the Woolworths joint venture sites. 7. 25. have commission agent sites. 72 Petrol prices and Australian consumers: Report of the ACCC inquiry into the price of unleaded petrol | December 2007 . There are also 299 Caltex branded sites owned by Caltex that are either owned or supplied by distributors. provides wholesalers and fuel resellers with specific rights and obligations in relation to fuel reselling arrangements.. Of these sites. BP owns and operates approximately 260 retail sites. and a further 76 Caltex owned sites that are either distributor owned or operated. BP also supplies a ‘handful’ of BP branded sites under longstanding single site franchisee agreements under which the franchisees set prices. Strasburger Enterprises (Properties) Pty Ltd (SEP). 13 September 2007. Caltex submission. As part of the alliance with Coles Express. the refiner-marketers may influence prices at these sites through the provision of price support..2 BP has a franchise agreement to operate 14 BP branded truck stops. ibid. which predominantly sell diesel and provide specialist services to heavy road transport operators. Mobil submission.1.7 5. ACCC.

some of which are owned or part-owned by the refiner-marketers and others which. where applicable. Woolworths owns the petrol sold at all 505 outlets. Shell also makes its Shell Card facility available for use at dealer owned and operated sites. 54. Of these sites. These are the Coles Express and Caltex/Woolworths joint venture sites. In addition to supplying Mobil branded and unbranded service stations. 1. 2. use their own site and equipment and have a brand and supply agreement with a refiner-marketer. 21. 8 9 10 11 12 13 BP submission. The dealer owner sets the price of fuel at these sites. The operators of these sites make their own retail pricing decisions. These sites tend to be located in rural and regional areas.12 5.10 Shell supplies fuel to 350 Shell branded sites that are dealer owned and operated.9 Caltex supplies fuel to 100 Caltex branded sites that are independently owned and operated and to 441 Caltex branded sites that are independently owned and either distributor owned or supplied.13 Under the supply arrangement between Woolworths and Caltex. Woolworths submission. The price of fuel at these sites is determined by the site operator.1. p. Shell supplies fuel to these sites on a TGP basis. delivery charges. like branded independent operators. Petrol prices and Australian consumers: Report of the ACCC inquiry into the price of unleaded petrol | December 2007 73 . Woolworths also sets the pump price at these outlets. Caltex submission. the Mobil branded distributors also supply fuel directly to farmers and other small rural and regional businesses. In particular. p.8 BP also supplies 860 sites (predominantly located in rural Australia) that are either owned by distributors or independent third parties. Prices at these sites are determined by the dealer owner. Mobil submission. ibid. approximately 134 are co-owned under a joint venture between Caltex and Woolworths with the remainder wholly owned by Woolworths. plus a fee for branding rights and credit charges and. p. 6–7. Prices at these sites are determined by Coles Express and Woolworths. Caltex/Woolworths Caltex supplies fuel to approximately 505 sites which are supplied under an arrangement with Woolworths’ supermarkets. While these independent branded distributors supply 500 branded and unbranded service stations in Australia.3 Supermarket operated sites The two major supermarket chains in Australia—Coles and Woolworths—operate sites which have shopper docket discount schemes linked to grocery sales at their supermarkets. Shell submission. including the operation of the shopper docket discounts. BP supplies fuel to 333 privately owned sites operated under the BP brand and a supply agreement under which prices are determined on the basis of a TGP. are discussed in more detail in chapter 12. pp.11 Mobil supplies fuel to a large number of independent branded distributors in regional Australia.Distributor-owned sites are run by a local fuel distributor. are supplied by BP distributors and operate under the BP brand. The supermarket operations. p. the number of Mobil branded sites is not known. BP supplies fuel at the wholesale level to its distributors (on the basis of TGP) who then onsell to rural operators.

p. located predominantly in metropolitan and large regional areas. ACCC.4 Independent operator sites selling their own brands Independent operators selling their own brands range from the large independent chains to small one.15 It also supplies fuel to a number of independent service stations that operate under their own brand. which has four sites and Oz Zone.21 Neumann also supplies fuel to a number of smaller independent distributors and resellers on a spot basis in northern New South Wales and country south-east Queensland. 87. Melbourne. Matilda also supplies fuel to four sites at the wholesale level. ibid. 22 7-Eleven owns 182 sites in Australia at which fuel is sold by a commission agent. public hearing transcript. 22 August 2007. 7 September 2007. The owner of the site determines the retail price at these sites. Independent chains generally purchase fuel in bulk from local refiner-marketers and sell it through their company-owned sites.. 3 September 2007. public hearing transcript. p. Sydney.14 5. it also receives price support from Shell. pp. public hearing transcript.24 14 15 16 17 18 19 20 21 22 23 24 ACCC. Neumann sells fuel to independent branded resellers on the basis of its TGP. Sites are generally operated on a commission agency basis. Gull determines the retail price at these sites. 16.. 20 Neumann Petroleum has four company operated sites and 44 Neumann branded retail outlets under a brand supply arrangement with independent operators.19 It also supplies 25 Gull branded sites that are independently owned. Brisbane. 41–2. ACCC. 4. pp.. 28 August 2007. 3–4. These sites are operated under commission agency arrangements. The smaller independent operators tend to use their own site.Shell/Coles Express Shell supplies fuel and branding rights to a network of approximately 600 Coles Express and Shell branded sites. At these sites the owner determines the retail price. public hearing transcript. United also supplies fuel to approximately 100 independent resellers that sell under their own brand. 7-Eleven determines the retail price of fuel at these sites. Melbourne. 74 Petrol prices and Australian consumers: Report of the ACCC inquiry into the price of unleaded petrol | December 2007 . ACCC.17 It also supplies approximately 200 United branded independent sites.1. pp. pp.23 Matilda operates at the retail level in Queensland. While Coles Express operates and determines the prices at these sites. ibid. public hearing transcript.to two-site operations.16 United owns and determines the retail price at 189 retail sites across Australia. ibid. 22 August 2007. p. The major unbranded sites supplied by Liberty are Refuel Zone. 5 September 2007. Liberty supplies 140 Liberty branded independently owned sites around Australia. ACCC. 25. public hearing transcript. Matilda operates these sites on a commission agency basis and determines the retail price at these outlets. 43–7. There are also independent operators that buy fuel from independent wholesalers and align themselves with that independent wholesalers’ brand. 46–7. Brisbane. 86–7.18 Gull owns 55 sites that are operated on a commission agency basis. Melbourne. Matilda does not determine the retail price of fuel at these sites. p. ibid. equipment and brand name and purchase fuel on an ad hoc or contractual basis from local refiner-marketers or independent wholesalers. public hearing transcript. 46. Perth. 7 September 2007. ACCC. ACCC. pp. which has seven sites. p. Matilda owns 19 sites and has a head lease on a further 18 sites.

Chart 5.e.Of the refiner-marketers. 21.1 illustrates the market share of retail sales by volume by brand in Australia for 2002–03 to 2006–07. the total market will be understated. One refiner-marketer provided information on a calendar year basis. It also supplies 167 independently owned sites that are either distributor operated or supplied which have their own brand.29 These independents represent only a small part of the market and therefore their absence will have only marginal influence on the results. 1. 25 BP submission. Matilda and Gull on sales volumes of unleaded petrol at branded retail sites for 2002–03 to 2006–07 under s. The comparison indicated that the data compiled by the ACCC was lower for 2002–03 to 2006–07. United.. The ACCC has used this data to compile retail market shares. Mobil supplies over 500 Mobil branded and unbranded service stations across Australia. 28. 95ZK of the Act. BP supplies 11 privately owned unbranded sites. 91. 27 The data compiled by the ACCC from information provided by these companies includes all grades of unleaded petrol (i. 29 The compiled data was compared with total retail sales data reported by DITR.2 Market shares The ACCC received data from the refiner-marketers.27 These shares have been compiled on the basis of the brand of the retail site. Petrol prices and Australian consumers: Report of the ACCC inquiry into the price of unleaded petrol | December 2007 75 .26 5. p. 26 Mobil submission. 95 and 98 RON) and ethanol blended petrol but excludes lead replacement petrol. As the market share data compiled by the ACCC does not include information from the smaller independents in the retail market. p. which had to be converted by the ACCC into financial year data. Neumann. This is likely to be attributable to the methodological issues associated with the compilation of the data noted above. the sales of an independent that owns and operates a site but sources its fuel and branding from a refiner-marketer would also be classified as the refiner-marketer’s sales.25 Caltex supplies 13 independently owned sites that have their own brand. the supermarkets and Liberty. 7-Eleven. the sales by a franchisee or commission agent operating a site on behalf of a refiner-marketer would be classified as the sales of that refiner-marketer. It also supplies fuel to an even larger number of independent resellers across Australia. Similarly. 28 Therefore.

3% Woolworths/Caltex. Australia: 2006–07 Independents. BP had the highest retail market share of the refiner-marketers at 19 per cent. 22% Caltex. 16% Coles Express.1 Market share by sales volume by brand. 22% BP. 11% Shell.Chart 5. The independents had a 7 per cent share. 19% Source: ACCC from data supplied under s. Mobil at 11 per cent and Shell at 3 per cent. In 2006–07 the combined retail market share of the supermarkets was 44 per cent. 7% Mobil. 95ZK of the Act. which was 4 per cent lower than the combined market shares of the refiner-marketers (49 per cent). followed by Caltex at 16 per cent. It can be seen that Woolworths/Caltex and Coles Express were the market leaders in 2006–07. both with 22 per cent shares of retail sales by brand nationally. 76 Petrol prices and Australian consumers: Report of the ACCC inquiry into the price of unleaded petrol | December 2007 .

This indicates that shares of retail sales volume by brand have become less concentrated from 2002–03 to 2006–07.1738 compares with the HHI of production of unleaded petrol of 0. discussed in chapter 3. Petrol prices and Australian consumers: Report of the ACCC inquiry into the price of unleaded petrol | December 2007 77 .1 is the change in the nature of petrol retailing associated with the alliances between the supermarkets and Shell and Caltex.1 shows shares of retail sales by volume by brand in Australia for 2002–03 to 2006–07. 30 The HHI of shares of retail sales volume by brand in Australia has declined from 0. Coles Express took over the management of Shell’s core franchise network across Australia from July 2003.1 Shares of retail sales by volume by brand in Australia: 2002–03 to 2006–07 2002–03 % BP Caltex Coles Express Mobil Shell Woolworths/Caltex Independents 20 24 0 19 20 10 6 2003–04 % 20 22 16 17 3 14 7 2004–05 % 18 18 25 12 3 18 6 2005–06 % 19 16 25 11 3 20 6 2006–07 % 19 16 22 11 3 22 7 Note: Percentages may not sum to 100 due to rounding. Longer term arrangements (involving up to 500 sites) were announced in 2004. while Woolworth’s market share increased from 10 to 14 per cent. The HHI of the share of retail sales of unleaded petrol volume by brand in 2006–07 of 0. The HHI ranges from 0. The independent retailers’ market share has not substantially changed over the period. In August 2003 Woolworths and Caltex announced that they were proposing to enter into a joint venture for the retailing of motor fuel through up to 450 petrol retail sites. The key trend shown in table 5.2 shows the HHI of retail sales by brand in Australia over the same period. Table 5.2752. Caltex’s market share of retail volumes by brand declined from 24 to 22 per cent between 2002–03 and 2003–04. which reflects a monopoly.1872 in 2002–03 to 0.1738 in 2006–07. It was 6 per cent in 2002–03 and was 7 per cent in 2006–07. Source: ACCC from data supplied under s. which indicates a high number of firms with small market shares. Under the alliance between Coles Express and Shell. This is reflected in Coles’ initial market share of 16 per cent and the corresponding sharp decline in Shell’s market share between 2002–03 and 2003–04 from 20 per cent to 3 per cent. In contrast to the sharp shift in retail market share from Shell to Coles Express. The market shares of the refiner-marketers that did not participate in an alliance with the supermarkets (BP and Mobil) have declined over the period. and 30 The HHI is the sum of the market shares of each individual firm. Mobil’s market share declined from 19 per cent in 2002–03 to 11 per cent in 2006–07 while BP’s market share has fallen marginally from 20 per cent in 2002–03 to 19 per cent in 2006–07. to one. The HHI of shares of sales volume by brand is substantially lower than the HHI of wholesale sales volumes. Table 5. 95ZK of the Act. Mobil’s market share declined more sharply than BP’s market share.Table 5.

78 Petrol prices and Australian consumers: Report of the ACCC inquiry into the price of unleaded petrol | December 2007 . 95ZK of the Act. On the supply side. The small service station with one or two pumps is being replaced by more modern sites—generally located on major thoroughfares— with multiple pumps.31 31 Mobil submission. The entrance of large independent chains.1737 2005–06 0.1 Changes in the nature of petrol retailing Site rationalisation There are currently around 6500 retail sites in Australia. Mobil submitted that competitive pressure on fuel margins has led retailers to focus on developing sites that are capable of delivering very high fuel throughput.1668 2004–05 0.3 5. supermarkets into the market has provided greater competition.1738 Source: ACCC from data supplied under s. Motorists have different driving patterns because of the development of highways and major arterial roads to accommodate higher traffic volumes. p. This indicates that the Australian retail market is significantly less concentrated than the refining sector and the wholesale market. car washes and repair facilities. while the board price was an important component of the competitiveness of a retail site.2 HHI of share of sales volume by brand in Australia: 2002–03 to 2006–07 2002–03 HHI 0. In 1970 there were 20 000 sites. While rationalisation of service stations has occurred for many reasons. customer service. There is likely to be further rationalisation in service station numbers as the industry continues to respond to the above forces. changes in underlying supply and demand factors in the petroleum market have been important contributors. discussed in chapter 4. in 1980 there were 12 500 sites and in 2000 there were 8000 sites. while price competition on fuel is important. Table 5. 5. Consumers desire longer shopping hours and more convenient arrangements for purchasing goods and services (such as the inclusion of ATMs at service stations).1872 2003–04 0. At the same time. lower operating costs have been achieved with the development of high volume service stations. as well as additional margin from nonfuel offerings such as convenience stores. a shop and other facilities. Service station rationalisation has been a feature of most developed countries over recent decades. and the availability of complementary goods and services (such as the sale of convenience goods) with petrol. 5.2 Increasing importance of non-fuel competition A number of industry participants indicated that. site facilities. demand has changed for service stations.the HHI of wholesale sales volumes of unleaded petrol of 0.1772 2006–07 0.3. There has been continual rationalisation of retail sites in Australia over the past 30 years. there is non-fuel price competition through factors like brand and product differentiation. 7.2752. more lately. there was an increasing focus on deriving revenue from non-fuel products and services. the use of self-service technology.3. convenience stores and. Mobil noted that. and site condition and appearance.

While Coles Express considered that price was the key competitive measure at the retail level. Foodland group. 4. petrol respectively) to 50:50.34 Woolworths noted that petrol retailers have taken advantage of the location of their sites by driving non-fuel sales and that the majority of gross profit comes from the selling of products other than fuel.3 Bundling with groceries—shopper dockets The shopper docket schemes. BP considers that investment in the non-fuel side of the business can and does influence fuel sales performance.3. The 2007 ANOP survey commissioned by the ACCC found that 77 per cent of motorists had used shopper dockets. Melbourne. loyalty programs—such as fly buys and retail offers—and prime site locations. p.33 Coles Express also noted that the proportion of revenue it sourced from convenience stores as compared with fuel had increased since the commencement of the alliance with Shell. BP noted that it had made significant investment in its company network to drive growth in both fuel and non-fuel categories and to differentiate BP from its competitors. In particular. Petrol prices and Australian consumers: Report of the ACCC inquiry into the price of unleaded petrol | December 2007 79 . A summary of the 2007 ANOP survey commissioned by the ACCC is attached at appendix H. Coles Group Limited submission. p. p. 3. Woolworths submission. 5–6. Coles Express noted that at the start of its alliance. In particular. it also stressed the importance of non-price competition to differentiate its retail offer. Dimmeys department stores and the Servo Saver scheme. 50. 5. The survey also found that 49 per cent of those motorists that use shopper dockets claim to use dockets ‘at least most of the time’ they buy petrol. such as fast food stores. Coles Express stated that this balance was changing over time. more than 600 shopper docket notifications have been lodged with the ACCC covering over 1100 service stations. first introduced in Australia by Woolworths in 1996. 32 33 34 35 36 37 38 Coles Group Limited submission. mechanical services and car washes. approximately 60 per cent of its revenue came from fuel and 40 per cent came from convenience stores. Since February 2004. p. The use of shopper dockets by motorists has increased significantly. and as at 30 September 2007. p.38 This compared with only 52 per cent of motorists in 2003.36 Caltex noted that its service stations were more convenience retailers than fuel retailers given that shop sales at its service stations on average account for 70 per cent of gross margins. Coles Express matched Woolworth’s shopper docket scheme when it entered the market in July 2003. provide consumers with an incentive to link their purchases of groceries to a particular petrol retailer. Caltex submission. they have extended to include the Metcash/IGA group. 36. 7 September 2007. ACCC. The majority of these notifications involve localised arrangements with independently owned major branded sites or independent fuel retailers. public hearing transcript. While these schemes initially focused on the two major supermarket chains. some co-locating with other businesses on their sites. Coles Express noted that it differentiated its fuel offer with the supply of Shell premium quality fuels.37 5.35 BP submitted that the proportion of shop revenue compared with petrol sales over the last five years has increased from 40:60 (shop. and the proportion of revenue sourced from fuel sales and convenience stores was now closer to 50:50.32 Coles Express identified that other fuel retailers have different models. pp. BP submission.

The ACCC has also received a number of notifications involving fuel discount arrangements that are alternatives to the shopper docket schemes. 80 Petrol prices and Australian consumers: Report of the ACCC inquiry into the price of unleaded petrol | December 2007 . Assessing shopper docket petrol discounts and acquisitions in the grocery and petrol sectors. The ACCC considered the impact of the introduction of the shopper dockets on the retail market in its 2004 shopper docket report. 39 ACCC. For example.39 The impact of the shopper dockets on competition in the retail petroleum market is considered in detail in chapter 12 of this report. February 2004. these arrangements may provide consumers with a discount on fuel when they use credit card or telecommunication services.