What the Federal Court decision means for our supermarkets’ petrol retailing businesses

Woolies and Coles should be rapt.

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I’ve written several times about Woolworths Limited (ASX: WOW) and Coles-owned Wesfarmers Ltd (ASX: WES) ongoing skirmishes with the ACCC over their supermarket petrol discount offers. Both supermarkets have continued to push the boundaries of agreements with the Australian Consumer and Competition Commission (ACCC) since limiting the size of their fuel discounts in January this year.

The latest phase saw the two supermarkets in court over offering additional discounts for customers who spend money at the convenience stores linked to petrol stations. These discounts could be combined with 4c/litre vouchers from allied supermarkets in order to achieve discounts as high as 14 cents per litre for Coles and 8c per litre for Woolworths.

The ACCC began court proceedings against both retailers, feeling that they had violated voluntary undertakings to structure their discounts in a certain manner. Those proceedings wound up recently with a surprise verdict that was broadly in favour of the supermarket vouchers.

Woolworths was found to have breached the agreement for the first three months of the year as its 4c per litre discount at the service station was only available to customers who had already obtained a 4c/litre discount from the supermarkets. Woolworths has now restructured its discount to be the same as Coles; where discounts can be obtained at the petrol station regardless of whether customers shopped at the supermarkets first.
The Federal Court ruled that both supermarkets discounts (in their current form) are not in violation of the ACCC agreement.

Foolish takeaway

Coles and Woolworths are both facing modest declines in the amount of petrol sold through their stations, primarily as a result of more fuel efficient vehicles. This decision will go a good way to ensuring their petrol stations continue to deliver high volumes and may even deliver some earnings growth as consumers chase discounts. Longer-term however it remains to be seen what either company plans to do with their petrol retailing business. For now, it’s full steam ahead with volume-driven growth and price competition!

Motley Fool contributor Sean O’Neill doesn’t own shares in any company mentioned.

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