Petrol retailers poised to ignite price war

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A full-blown petrol price war looks set to erupt following calls from motorway service companies such as Granada and Forte for lower prices at service sites along Britain's main roadways.

The companies fear that sharply lower petrol prices at supermarkets have encouraged motorists to fill up before joining motorways, thereby jeopardising sales of food and other goods and services provided at motorway sites.

They want petrol retailers such as Shell, Esso and BP, which operate the petrol stations at motorway service areas, to reduce prices to narrow the gap.

Roger Mavity, chief executive of Granada Leisure, which operates 30 motorway service sites, said: "People don't mind paying a small premium for their petrol on the motorway but they don't want to pay a larger premium."

The gap between motorway and supermarket prices had reached as much as 10p per litre, a spread which Mr Mavity said represented a problem not just for companies like Granada but for the oil companies too. Service stations make only a nominal profit on petrol, using it as a bait to lure motorists into the restaurants and other facilities. Although Mr Mavity said Granada's catering revenues had actually increased in recent months, he added: "I can't believe [the price gap] hasn't lost us business."

Motorway prices have already fallen by about 4p a litre after recent price cuts by the oil companies. But the price is still about 3p more than that typically charged by supermarkets.

Sainsbury's cheapest price for four-star petrol is 53.9p a litre. The Granada service station on the M1 at Toddington charges 59.9p.

In the last five years, supermarket giants such as Sainsbury and Tesco have built up a 20 per cent share of the UK petrol market from a standing start. The number of supermarket petrol stations has increased by 20 per cent to 685 in the past year alone. Pricing policy is increasingly used as a means of building market share in the cut-throat petrol market. Last month, Esso launched an aggressive price promotion in the North-east of England and in Scotland. The campaign, called PriceWatch, is a pledge to match the lowest price in an area within two miles of an Esso station. The action triggered an immediate reaction from rivals such as Shell and Mobil, which have also cut prices.

Esso's strategy study manager, Pete Szanto, said: "There has been a change in the balance between the importance of location and the importance of price. Location used to be the most important criterion in buying petrol but people are showing a tendency to drive further and further for lower and lower prices." He said petrol stations were closing at the rate of 1,000 a year as the larger groups with better sites and lower prices flexed their muscles.

However, Sainsbury's dismissed the Esso price cut as a "sham" and challenged the oil giant to match its prices across the whole country on a permanent basis not just in a short-term regional promotion.

Of the supermarket groups, Tesco has the most petrol sites, with 234, compared with Sainsbury's 154, Safeway's 111 and Asda's 106. Sainsbury's recently announced a plan to develop 60 additional petrol stations, including some on sites not shared by its supermarkets. Tesco is rolling out its Tesco Express format, which includes a mini-supermarket alongside a petrol station. Other groups such as Asda and Safeway are also including petrol stations in the development of new superstores.