Safeway's cheap petrol offer inflames its competitors

Safeway's dramatic "money-off" petrol promotion could be deemed unfair, leaving the supermarket group facing the Competition Commission.

The scheme, which offers a series of vouchers culminating in a 20p-per-litre reduction to anyone spending £150 in the stores, has already created massive upset among other UK petrol retailers.

Because the market is already highly competitive, with all retailers operating on wafer-thin margins, Safeway's move has panicked its competitors, who know it will be ruinously expensive to match.

But legal experts have pointed out that Safeway's promotion could be establishing an unfair practice. Competition laws prevent companies from cross-subsidising one part of their business with another. The super- markets, for example, cannot use grocery profits to undercut the general petrol market.

According to industry calculations, a customer taking advantage of the top rung of Safeway's scheme is in effect buying petrol at 5p per litre below cost price. That is acceptable as long as the price cuts are part of a promotion, but not if the scheme persists.

The problem some lawyers have identified with Safeway's promotion is that the retailer has openly said it will run the scheme "indefinitely". They have argued that under the Competition Act, if a promotion is maintained for a "sustained period" it can reasonably be considered to represent a permanent change in business practice.

One group particularly concerned by Safeway's move is the Petrol Retailers' Association. Its spokesman said it was considering taking the issue to the Competition Commission if the promotion lasted more than two months.

Several City analysts believe that the scheme could prove too expensive for Safeway, and might in fact be abandoned soon anyway.

A Safeway spokesman said: "We do not believe that the promotion is unfair."