Sharechat Logo

Loyalty scheme members not exclusive customers, fuel inquiry hears

Tuesday 24th September 2019

Text too small?

Users of fuel loyalty schemes are price sensitive and shop around to ensure they are getting the best deals available to them, the Commerce Commission heard today.

While the AA Smartfuel scheme has about 2.6 million members, only about one million are active each month and they tend to come and go depending on other offers that are available, managing director Scott Fitchett told the commission. He said most members probably have cards for other schemes and will use them.

“They engage in and out all the time. It is very fickle,” he told a public hearing looking at competition in the fuel market.

AA Smartfuel offers price discounts at BP and GAS outlets. Caltex was previously a partner until August when it joined the expanded Pump loyalty scheme of parent company Z Energy.

Fitchett told the commission that programme members typically build up their fuel discounts through their purchases through the other non-fuel firms participating in the scheme.

“A lot of people using our programmes are conscious of the price of fuel. They are not stupid. They look around.  They know where the cheaper sites are, they know the better days to buy,” he said.

“They are very price savvy.”

The Commerce Commission is testing the level of competition in the retail markets for petrol and diesel.

In a draft report in August, the commission said it was concerned the industry may be earning excess returns at a cost to consumers and suggested changes may be needed in the wholesale market to improve competition. But it also questioned whether the growth of loyalty schemes and the discounts available were a poor substitute for more active price competition and whether there needs to be greater standardisation of price board advertising.

Earlier this month, the Australian Competition and Consumer Commission raised concerns about the customer data being gathered by retail loyalty schemes there and whether consumers have any control of its use.

About 30 executives from the fuel industry and related industry or consumer groups are attending the two-day public hearing the commission is hosting in Wellington. Mobil executives are present but not participating.

BP New Zealand managing director Debi Boffa said loyalty schemes are important in understanding how customers are using the broad range of products its chain offers, from fuel through to coffee, shopping and carwashes and making differentiated offers to them.

But price remains a key factor and loyalty scheme members still “shop around”. If a site is one or two cents out of the market on fuel “we will lose volume,” she said.

“Active participation does not mean exclusive participation.”

That theme was repeated by all the retailers present.

Waitomo Group operations manager Simon Parham noted that while his firm’s unmanned sites are ideal for motorists wanting a fast and simple fill, those same customers might go to BP if they felt like a Wildbean coffee or to a Z Energy outlet if they also wanted a pie.

Commissioners also heard that purchasing patterns are also often different when people are on their way to work, on their way home from work, or at the weekend.

The public hearings are to be followed by a series of confidential meetings with the commission later this week. Topics participants put off until then included development of pricing apps and the impact that unmanned competing sites had had on rival outlets.

Fuel companies have been highly critical of the commission’s analysis of profitability in the sector, accusing the regulator of basic errors but also some fundamental misunderstandings of parts of the industry.

Earlier this month, Z Energy, the country’s biggest fuel retailer, cut its full-year earnings forecast by $60 million citing tough competition, the expansion of its Pumped loyalty scheme, and weak refining margins earlier in the year.

Chief financial officer Lindis Jones told the commission today that margins and returns have increased since the start of the decade.

But he said competition has also increased and as a result returns have declined, with Z’s return on capital employed falling from 12 percent to 10 percent in the 2016-2018 period the commission’s study covered.

“Last year they declined to 8.5 percent and this year we forecast them to be about 7 percent.”

BP's Boffa told the panel that the entry of firms like Timaru Oil Services, which it estimates is investing about $100 million in new storage facilities in Timaru and Mount Maunganui, “does not sit comfortably with the notion that the wholesale fuel market is broken.”

At the same time, independent firms like Waitomo, Gull and Allied have opened 76 outlets in the past five years

While margins have risen from historic lows during the past decade, operating costs have also risen in that time, so analysing margins only will tend to over-state sector profitability, she said.

Boffa said competition has also increased and is likely to increase in coming years.

“You should not conclude that profit margins will remain the same or increase when expansion in retail capacity continues to substantially outpace the growth in demand for retail fuel.”


  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

Rio Tinto decision following strategic review of Tiwai
Contact says smelter closure is ‘disappointing’
South Port (SPN) Statement on NZAS Tiwai Point Aluminium Smelter Closure
Rio Tinto announcement on Tiwai Aluminium Smelter
Me Today announces equity raising to accelerate growth
Scott Technology Trading Update; Rising to the COVID Challenge
New non-binding indicative offer received from apvg, shareholder meeting deferred
U.S. Added 4.8 Million Jobs in June as Reopened Businesses Rehired
Auditors have a duty to be alert to fraud
Strong sales recovery but uncertainty remains over economic outlook and potential second wave of COVID-19

IRG See IRG research reports