The apparent keen interest from a range of aspiring buyers of Shell’s downstream assets in Australia casts the pre-Christmas deal the Australian Competition and Consumer Commission struck with Coles and Woolworths to limit their shopper docket schemes in a slightly different light.
It might be possible to argue that the “voluntary” undertakings from the two big supermarket chains to limit the fuel discounts linked to supermarket purchases to 4 cents a litre has helped increase the interest in petrol retailing except, of course, that the Shell alliance with Coles would be of major appeal to any buyer.
The notion that the discount schemes were destroying independent fuel retailers was also challenged by last year’s $625 million purchase of the Ausfuel group by global energy group Puma Energy, part of the giant Trafigura commodity trading group, and the significant interest that was shown late last year in another big independent retailer, United Petroleum - although the asking price appears to have frustrated a sale. Earlier, the 7-Eleven convenience store chain bought ExxonMobil’s retail outlets.
The ACCC’s Rod Sims made it abundantly clear last year that he didn’t like the shopper docket schemes and their perceived impact on other petrol retailers, despite the obvious benefit consumers had experienced from the discounts over a period of more than 15 years.
He threatened action against the chains and, in the aftermath of the election and in the knowledge that they will be a focus of the Abbott government’s “roots and branch” inquiry into competition laws, they folded and agreed voluntarily to limit the discounts. They do retain the capacity to offer discounts of more than 4 cents a litre, but only if they are funded from their fuel retailing businesses and the convenience stores associated with them.
Given that the discount schemes had been investigated extensively and repeatedly by the ACCC since they emerged about 17 years ago, that the commission in the past said they weren’t anti-competitive and that there is a very strong view within legal circles that the schemes would withstand a legal challenge, the willingness of the chains to voluntarily limit the discounts might appear odd.
The discounts were primarily about driving volumes through their supermarkets and, to a lesser degree, through their petrol retailing businesses.
While they might have had some impact on independent petrol retailers, the acquisition activity in the sector says the impact can’t have been that material, while the growth of Aldi and Costco argues against the notion that the discounts have undermined competition within the supermarket sector.
The evolution of the discounts, however, meant that because both the major chains were offering them, they needed to be ever-larger to redirect consumers from the other chain. The discounts had reached as much as 45 cents a litre at times. At those sorts of levels the discounts weren’t a profit-maximising strategy and, if sustained, may have had a bigger impact on their competitors.
From that perspective the deal with the ACCC, by constraining both chains’ abilities to price the discounts at what might be regarded as irrational levels, effectively brings some discipline to their competition with other players but, more particularly, their competition with each other.
One way of looking at the deal would be to say that ACCC has forced Woolworths and Coles to create a cartel and authorise them to fix their prices. It ought to mean that both will be more profitable than they would otherwise have been. The chains couldn’t have colluded to limit their schemes without breaching competition laws but the ACCC involvement has sanctioned essentially that outcome.
That’s a quite peculiar outcome, given that there is no objective evidence that the fuel discounts have had material anti-competitive impacts on the petrol retailing or grocery markets (although they may have had an impact on individual competitors within those markets), while it is obvious that the undertakings reduce consumer benefit.
The chains could have challenged the ACCC to take them to court if they had really wanted to retain open-ended schemes.
Either they felt that acquiescing to the ACCC’s demands would help them in the competition inquiry or, perhaps, they were quite happy, without any risk of being charged with price-fixing, to put a cap on the discounts and on the impact of the bigger discounts on their profitability.