Profits evaporate as petrol battle hits supermarkets

Click to follow
The Independent Online

The petrol price war sparked by Esso two weeks ago is already having a damaging impact on the supermarket groups, which between them account for 22 per cent of the UK market.

First evidence of the pain emerged yesterday when a City broking house said profits at Sainsbury, Tesco, Asda and Argyll, owner of the Safeway chain, would be lower than expected. Lower petrol sales were cited as a major reason.

According to NatWest Securities, the price war will cost Tesco pounds 12m in profits next year and Sainsbury, Asda and Safeway together around pounds 20m.

Mike Dennis, an analyst at the broker, said: "It is a very volatile market. Things could get very interesting if someone decides to cut another penny per litre off their prices." He warned that if the latest round of price cuts continued, smaller, independent stations, particularly those in rural areas, would be forced out of business. Up to 2,000 of the Britain's petrol stations are expected to disappear this year anyway. It is possible another 2,000-3,000 will disappear as the larger companies flex their muscles.

Sainsbury and Tesco declined to say what their next move might be yesterday and also refused to say how the price war had affected their own sales.Tesco said: "We have a commitment to being as competitive as possible within a local area."

Esso started the battle last month when it launched its "Pricewatch" campaign. This pledged to match the lowest prices on offer within a three- mile radius. Shell and BP followed and prices have fallen to as low as 49.9p per litre.

The most severe price cuts have been in the North-east and Scotland. Some garages in Sunderland have been selling petrol at 1.6p per litre below the cost price. Paul Sykes, president of the Independent Petrol Retailers Association, which represents 5,000 smaller petrol stations, said: "If prices continue like this 45 per cent of the industry will go out of business within 18 months." He added that some of the smaller oil companies would also pull out.

The largest superstore groups make a significant amount of their profits from selling petrol. Tesco makes about pounds 70m a year while Asda, which has fewer sites, rakes in around pounds 30m.

Sainsbury, Tesco and the other leading chains have boosted their shares of the petrol market by selling petrol at significantly lower prices than major oil companies such as Shell, Esso and BP.

A litre of unleaded

Shell, Glasgow 49.9p

Sainsbury's, Sunderland 50.9p

Esso, Kensington 52.9p

Tesco, Brent Cross 52.9p

BP, Clapham 53.9p

Asda, Watford 53.9p