Canberra could see lower fuel prices with new Coles arrangement

Viva Energy, which has been supplying fuel to Coles on a wholesale basis, will take over the retailing and marketing of petrol, leaving Coles Express to focus on its other products, and sell fuel on a commission-per-litre basis.

The aim of the new agreement, announced last week, is to “deliver a more competitive customer offer”, to “allow each party to leverage their core competencies”.

In a statement released last week, Coles chief executive Steven Cain said "the benefits of the new agreement are compelling for all customers, team members and shareholders".

In other words, said Mark McKenzie, chief executive of the Australasian Convenience and Petroleum Marketers Association, Viva was likely to bring petrol prices down to make up for the market share Coles has lost by charging higher prices to cover their own costs.

“Instead of being the most expensive, we expect that what will happen, they're going to chase the market share they've lost, and the only way they'll be able to do that is by lowering their average prices,” he said.

“This is where Canberra is likely to be the biggest beneficiary of this change, because Coles have such a concentration in Canberra.”

Chair of the Australian Competition and Consumer Commission Rod Sims said this week that Canberrans were paying too much for petrol because more than 26 per cent petrol retailers were owned by Coles.

He was speaking in response to the announcement that the ACT government will commission an inquiry into why Canberra’s fuel prices are consistently higher on average than many other Australian cities.

Mr McKenzie, who heads the peak body representing petrol sellers across the country, including Coles, said Canberra’s biggest problem was its market structure.

And while he supported the inquiry, he said he was disappointed that no one from the ACT government had approached him for an explanation of how fuel pricing worked.

“In all other states where these sorts of issues have come up, we have been contacted and asked for an explanation, and they've either proceeded to an inquiry in the case of Victoria, and in other cases they didn't,” he said.

“In Canberra, we just got this furious debate that emerged, no one came to ask us any questions, and they launched an inquiry.

"I suppose if the government is rich and it's got sufficient coffers that it wants to keep conducting expensive inquiries, that's OK, but we're going to say the same thing that we would have said sitting down with the chief minister, the opposition leader and [Greens parliamentarian] Shane Rattenbury in an hour-long conversation.

“One of the things people lose sight of in this conversation is that Canberra's range between the cheapest in the city versus the most expensive is the highest in the country,” he said.

“In most other markets, the discounters have been able to buy sites and put up their own brand and build critical mass, and there have been enough of them to create a tension that has forced the bigger guys to respond.

Canberra, because of planning laws from the old National Capital Development Commission days, has not released a lot of sites, and in fact it's been very hard to get into the Canberra market for those discounters, they have not had the same opportunity they'd had in other capital cities.”

He said it was therefore no coincidence that the city’s few discount outlets are in outlying areas like Fyshwick, rather than closer to town centres, and fewer people had the incentive to drive long distance to fill up their cars.

But he said consumers were nonetheless voting with their feet, and Coles outlets across the country had been losing volume for the last three years, a problem the new arrangement between Coles Express and Viva, which will be in place from March, looks set to address.

Viva chief executive Scott Wyatt confirmed this last week in a media conference, saying the new arrangement, which comes into effect in early March, would “provide the alignment and funding necessary to improve competitiveness, provide more value to customers and ultimately restore growth”.

Mr McKenzie said the results from the new arrangement were likely to be good for Canberra.

“I wholly expect that you will see a lowering of average prices from March 2019 as a result of those new arrangements between Coles and Viva,” he said.

“Because Canberra has such high exposure to that brand, we expect it will have a marked impact on lowering Canberra prices because the rest of the market is going to have to adjust to stay competitive too.”