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Fury over fuel discounting

The offering of petrol discount dockets by Australia’s largest supermarkets are being blamed for the closure of over 1,000 smaller petrol station outlets in the last four years.

Supermarket giants Woolworths Limited (ASX: WOW) and Wesfarmers Limited  (ASX: WES) are both currently advertising a saving of 8c per litre on fuel when $30 or more is spent in store. Whilst the deal was intended to end at the closure of the Easter long-weekend, both have extended the discount until the beginning of May.

Whilst consumers and motorists rejoice about the extended period of savings on petrol, it is the smaller petrol outlets who suffer.

As is the case where smaller supermarkets, such as Aldi or Metcash Limited’s (ASX: MTS) IGA, are unable to compete with the larger supermarkets in terms of prices and costs, smaller petrol outlets are unable to compete with Caltex or Shell service stations – owned by Caltex Australia Limited (ASX: CTX) and Royal Dutch Shell (NYSE: RDS-A, RDS-B) – which Woolworths and Coles are affiliated with.

According to Nic Moulis, the CEO of Australasian Convenience and Petroleum Marketers Association, Coles and Woolworths are selling almost one half of all retail petrol in Australia – despite 41% of all petrol stations being under the control of independents.

As the ACCC investigates both Woolworths and Wesfarmers for anticompetitive behavior, a number of recommendations have been made in response to a review conducted by the Federal Government regarding fuel price boards. It has been argued that petrol stations should only be allowed to display undiscounted prices to motorists, with an aim of decreasing driver confusion and unfair comparisons being made, and hence, lessen the “damaging effect” on competition in the fuel marketplace.

Foolish takeaway

Whilst the price of petrol remains over $1.30 per litre, motorists licks their lips at the mention of an 8c discount, however, consumers are advised to “be careful what you wish for”. Should the ACCC allow such heavy savings to continue, more independent petrol outlets will close and the level of competition in the marketplace will face further declines.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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