Frost claims petrol price war will kill independents

Britain's largest independent petrol retailer hit out against the Esso- inspired petrol price war yesterday, blaming the oil giant for a sharp drop in its sales which could make the company a takeover target.

Frost Group, which trades under the Save name, said its market share had fallen by 15 per cent since Esso launched its Pricewatch campaign which pledged to match the lowest price offered by any petrol retailer within a three mile radius.

Frost's share of the UK petrol market stood at 4.7 per cent prior to the nationwide launch of Pricewatch in mid-January. It has since slid to 4 per cent. The company's share price has also collapsed, falling from 269p in June to just 116p, down another 2p yesterday. James Frost, chairman, admitted yesterday that the collapse made the company "dirt cheap".

He said that the price war was likely to force more mergers along the lines of BP's recent deal with Mobil and that these could include Frost.

He said: "The big three oil majors [BP, Esso and Shell] are going to account for around 50 to 55 per cent of the market. The hypermarkets are going to account for around 22 per cent. That doesn't leave much room for anyone else."

He admitted that as a specialist retailer which did not have a refinery, Frost would be an attractive target for a merger or takeover by a company seeking to get into the UK market. "When this price war is over, the UK petrol market is going to be a closed shop. It will be impossible to get in." He said that no discussions were taking place at the moment.

He reiterated past comments that the middle ranking oil companies such as Fina, Q8, Repsol, and Gulf were going to be under pressure. More than 3,000 privately owned independent petrol stations would go bust this year, he said.

Mr Frost was speaking as he announced marginally higher pre-tax profits of pounds 11m for last year. Sales doubled to pounds 451m, boosted by last year's acquisition of Burmah's petrol stations.

Frost Group now has 1,114 sites, making it fourth behind BP, Esso and Shell. The company is hoping to maintain margins on petrol but accepts that sales may fall as a result of its prices being higher than those of the large oil suppliers.

The price war has proved costly for Mr Frost, who would have received more than six million shares in the company had he achieved earnings growth of 18 per cent. The price war means he will now fall short of that target.

Esso launched its Pricewatch campaign nationally in mid-January in a bid to boost its share of the UK petrol market from 16 per cent to 20 per cent. The supermarket groups have hit back by matching prices and offering forecourt promotions for the first time.

The most likely victims of the battle are the independent garages. Mr Frost said yesterday that 4.3 per cent of UK sites closed last year, compared with 5.6 per cent the previous year. He added that once the battle was over, prices and margins would rocket.