ON AIR: The Sunday Session

9AM - 12PM

Mike's Minute: I'm not so sure we are being fleeced on petrol prices

Author
Mike Hosking,
Section
Video,
Publish Date
Tuesday, 17 September 2019, 9:52AM

COMMENT:

Z Energy is seemingly flying the flag for petrol operators. They appear to be the most vocal in response to the Commerce Commission's interim report into whether we are being fleeced at the pump.

Z claims the commission misrepresented their level of profitability. The commission claims Z's rate of return on capital employed is 22 per cent - Z say it's about half that.

And if that's a bit complex to get your head around, they also claim that the commission included all the pies and coffee they sold in the shops as part of the overall figure. And I think we would all agree what they make from pies and coffee has got nothing to do with whether motorists get fleeced at the pump.

Z Energy has also recently downgraded their profit outlook, citing the impact of heavy discounting. Part of the commission's report appeared to be that discounting was some sort of scam whereby you never really knew what sort of discount you were getting, unless you belonged to particular loyalty schemes. Even then the suggestion appeared to be the price was always hiked a bit to allow for the discount to be taken into account.

There is also an argument over the margin around higher octane fuels. The better the fuel, the higher the margin. Which then, as far as this punter is concerned, brings in a whole new area of comparison.

First, it must be remembered all of this is just opinion. The Commerce Commission, in their opinion, don't like the look of what they see. It doesn't make them right, just makes them powerful enough to have their opinion materially affect the way business is conducted.

But a simple question for you: would you expect to pay a larger margin for high octane fuel? I would, and I do. I only buy 98 octane. Why? Because I have engines that run better on it. Big engines, performance engines, in fact one of my cars on that sign by the fuel cap says minimum 96. And given we only have 91, 95 and 98, I'm stuck for choice.

But when you buy better you pay more, not just in price but surely in margin. Steak at a restaurant is not sold uniformly, other factors are at play. Business class seating on planes comes with material advantages with an increased ticket price, but the margin the airline makes is exponentially bigger as well.

None of this is news, is it? Then why would the Commerce Commission expect all petrol product to be sold with the same margin?

Life is filled with products that may be barely different from each other, and yet things like branding, sales technique or marketing might see the price vary considerably.

Is that all illegal now, according to the commission is it? None of this is to defend the oil companies, but as we have said all along, this is way more complicated than a bunch of politicians want to try and make it.

There seems some common sense around access to the wholesale market. But if the simple, sale, promotion, and marketing of petrol as we know it is an issue, then what any number of business sectors is doing, has been doing, is exactly the same thing - and we have never blinked an eye.

ON AIR: The Sunday Session

9AM - 12PM