A petrol price war swept across the forecourts yesterday, taking up to 4.4p off a litre of Shell fuel, and provoking the abandonment of Esso's long-established Tiger Tokens. The Petrol Retailers' Association said thousands of petrol stations could go out of business, with the loss of up to 50,000 jobs.
Shell's price-cutting move underlines a growing backlash by the big oil companies against cut-throat pricing at supermarket petrol stations, which now account for about a quarter of UK sales.
Individual Shell retailers will set their own prices, but the recommended price of a litre of four-star is cut from 63.9p to 59.5p; unleaded will come down from 58.9p to 56.9p, and diesel from 59.9p to 58.9p. The cuts coincided with Esso's announcement of lower prices nationwide and the scrapping of its 10-year-old Tiger Tokens gift scheme from 14 February. BP responded by saying others "are now catching up" and that it would "remain competitive and continue to undercut other quality suppliers".
According to the AA, the effect of a 3p per litre price cut would mean a fuel bill saving of about pounds 36 a year for a motorist averaging up to 8,000 miles and pounds 54 for those reaching 12,000 miles.
The onslaught of the supermarkets has squeezed both the volumes and the margins of the oil companies. The situation has been further exacerbated by years of recession and the increase in fuel-efficient cars.
The number of outlets has already shrunk to about 17,000 from 39,000 in 1968, although this is driven partly by the growing size of individual stations. According to the PRA, the total could slump to 9,000 or 10,000 by the end of the decade.
Shell said: "We are already in a price war and it is very difficult to say how long it will last." But it added that Shell believed its customers were also attracted by quality of product and its incentive scheme which allows customers to build up units exchangeable for gifts, entertainment and travel.
Esso's latest initiative, called Pricewatch, aims to match the lowest petrol prices on offer within a three-mile radius of its 2,100 service stations. Trials of the scheme in Scotland and the North-east have resulted in 2p to 3p off a litre, but Esso stressed that national price comparisons were "irrelevant" as its pricing would be done on a local basis to make its product "normally unbeatable".
John Adkins, Esso's UK divisional director of retail, said: "Our strategic studies show that the consumer is becoming much more sensitive to prices. People will drive three miles to get lower prices and are much more interested in price than in any promotions." He said that people in the Tiger Token scheme had until 14 February to top up their tokens before it was eliminated and than until the 6 May Bank holiday to have them redeemed.
The Petrol Retailers' Association said consumers would benefit from the price cutting in the short-term but that they could ultimately suffer as outlets closed and there was less choice. The greatest number of casualties are likely to be the smaller independent retailers which lack the financial muscle to see the battle out.
Park Road Group, which runs 10 outlets in the Tyneside area, where Esso has already been trying out Pricewatch, said that turnover had fallen by pounds 56,000 a week over the past four months. Philip Richardson, Park Road's managing director, said: "We have been to hell and back on prices. There are going to be more losers than winners in this game."
Last November, the PRA asked the Office of Fair Trading to look at the situation after allegations that Esso was selling in the test areas at below cost. But the OFT deemed the actions not to be predatory, noting the intensive competition in the industry.
Comment, page 17
Average or recommended petrol prices
Shell BP Esso estimates* Supermarkets
4 star 59.5p 61.4p 59.5p 56.1p
Unleaded 56.9p 56p 54p 49.5p
Diesel 58.9p 58p 55.5p 50p
*Esso said that pricing would be localises and that proper estimates could not be given until Pricewatch takes effect.Reuse content