Petrol war between Coles and Woolworths saving us $4 million a week

John Rolfe
January 30, 2013
News Limited Network

THE supermarket giants’ escalating petrol price war is saving motorists up to $4 million a week.
Coles doubled its shopper-docket discount to 8c a litre in October.

Woolworths initially resisted the provocation but buckled on January 18.

Coles has committed to keeping the discount in place until at least April – a decision News Limited recently revealed was under investigation by the Australian Competition and Consumer Commission due to concerns about the effect on the viability of other service stations.

Now sharemarket analysts at Citigroup – who specialise in tracking the performance of stockmarket-listed retailers – have calculated the weekly cost of the additional 4c a litre reduction is $1.8 million for Coles and $2.3 million for Woolies.

So the bill for Coles’s six-month-long campaign will be about $48 million.

If Woolies sticks with its rival until April it will lose $25 million, having held off on deepening the discount for three and a half months.

“There is an escalating petrol discount war,” Citigroup said in a new research report to its investor clients.

“The recent moves to double the discount for a lengthy period (are) costly.”

Coles would need to lift overall revenue by nearly 2 per cent to cover the cost of the petrol price cut, Citigroup’s team, led by Craig Woolford, wrote.

Coles experienced some “acceleration” in sales before Woolies matched the discount, Mr Woolford said.

Also, it had reduced the number of grocery markdowns and benefited from an industry-wide 1c increase in petrol margins.

“But on our numbers the cost of the discount outweighs the sales lift,” he said.

Coles has more service stations than Woolies – 627 versus 599.

It sells more petrol: $7.6 billion a year compared to $6.7 billion.

But Woolies earns more – $127 million in 2011-12 as against $124 million – because its servos have much lower operating costs.

The reason the doubling of the shopper-docket discount hurts Woolies more is its redemption rates are higher.

About 60 per cent of petrol purchases at Woolies servos are made with a docket compared to 45 per cent at Coles.

According to Citigroup, the higher redemption rate is due to Woolworths shoppers storing the discount on their Everyday Rewards cards.

Coles uses barcodes at the bottom of the supermarket receipts only.

A Woolworths spokesman said the Citi analysts “overstate the cost of the program”.

“More broadly on petrol discounting, Woolworths understands that our customers are facing additional cost of living pressures at this time of year with back-to-school and other expenses, and they welcome the additional price relief at the bowser.”

Coles said it could not comment directly on the Citi research.

A spokesman would only say: “We are always looking for ways to help our customers save money and we know petrol is big expense for many households.

“Our 8c double fuel discount is saving the average motorist as much as $4 off of the cost of filling their car. The double discount will last until Easter so customers can look forward to even more savings.”