ACCC close to striking deal on petrol discounts

The ACCC is reportedly close to striking a deal with Woolworths (ASX: WOW) and Coles group, owned by Wesfarmers (ASX: WES) over their petrol discount vouchers. The petrol vouchers have been a contentious issue for years, with independent grocers and petrol retailers alike claiming that the vouchers reduced competition and forced smaller players out of both markets.

The ACCC has stayed on the sidelines until relatively recently, when it began an inquiry to determine if the petrol discounts were in fact, anticompetitive. ACCC chairman Rod Sims told a Senate committee last year that it appeared that the bulk of the fuel discounts were being funded by subsidies from the grocery business, effectively introducing an unfair advantage to some petrol retailers at the expense of others. He demanded that the two supermarket giants offer customers a discount on groceries rather than petrol.

The ACCC is now reportedly attempting to create an accord between Coles and Woolworths to impose limits on the maximum amount that petrol can be discounted – which is currently up to 45c per litre in some cases.

Foolish takeaway

If anything, a reduction in the maximum petrol discount has the potential to earn the supermarkets even more money by reducing margin pressure – it all hinges on the point at which a discount becomes appealing to consumers.

Retailers always price items at, for example, $19.99, because 99 cents is perceived psychologically as being significantly cheaper than a flat $20.00. If a 4c, 7c or 10c discount is enough to convince consumers that they are receiving a significantly better deal, Woolworths and Coles may retain their petrol sales advantage with the advantage of slightly higher profits caused by smaller discounts to go with it.

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Motley Fool contributor Sean O’Neill doesn’t own shares in any company listed in this article.

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