Petrol giants need retail nous to drive home service message

The oil giants have been caught at their own game, but how will they respond to the new challenge from grocery multiples? George Pitcher reports. George Pitcher is joint managing director of media consultancy Luther Pendragon

It’s the simplest ideas that take a long time to arrive. Take out-of-town shopping. The major retailers started constructing huge, pagoda-like complexes on the outskirts of major conurbations, with even bigger car parks attached, and started serious socio-economic debates.

Despoiling the countryside, carbon monoxide pollution, planning consents, the death of the high street, access for the elderly and infirm, local retail monopolies – out-of-town shopping gripes could have filled a year’s worth of Michael Heath’s Great Bores of Today.

At last, someone has rumbled that we had been out-of-town shopping for decades before the pagodas appeared. Almost since the invention of the internal combustion engine itself, we have been driving to rural and suburban retail sites to part with significant proportions of disposal income at convenient, drive-in locations. I speak, of course, of the humble petrol station.

The pity, for the oil companies, is that it took the grocery retailers to notice that petrol is an fmcg, rather than the oil majors to recognise that they could flog groceries as a serious retail industry. True, some of the oil majors stuck some sweets and car accessories in the payment hut about 20 years ago. But Esso’s and Texaco’s marketing over the years has been about tigers in tanks and weary motorists finding welcoming refuelling oases, not shopping.

It took the Gulf War to show the grocers that they could carve up oil companies in the same way that they have oppressed and dominated branded food manufacturers over the years. In passing, it is worth noting that the knee-jerk price rises by the oil majors during the 1991 conflict coincided with the grocery retailers’ entry into petrol retailing. Consumers became increasingly price-sensitive to petrol. We can’t accuse Tesco and Sainsbury’s of starting the Gulf War, but in this respect, at least, we can say that the Gulf War was all about oil.

But politics should not detain us here. Whatever the cause of the petrol price war – whether it was Saddam Hussein’s invasion of Kuwait or the grocers’ invasion of the petrol retailers – we are faced with the kind of marketing showdown we have happily seen before. It is, quite simply, another example of the breaking of markets that have appeared to operate on the surface with vicious internal competition, but have in reality been all too prone to informal cartels.

We saw it with the dissolution of the building societies’ mutually comfortable little arrangements with interest rates. Further back, we saw it in the grocery trade with retail price maintenance, a scam at the expense of the customer that the early Tesco saw off. Now, with some piquancy, it is the same grocers who are driving a wedge between oil companies that have all too often, despite repeated MMC inquiries, collectively protected margins and have mysteriously decided to move prices at the pump at much the same time.

One can tell when a comfortable old club is to be broken up. Its members start complaining that they will have to live in the real world, as though that is something from which they have a right to be protected. When the old City cabal was broken up a decade ago, there were bleats from stockbrokers and jobbers that client relationships would suffer. Because they would have to compete for our business? Because that would mean they would have to drop their prices? I think we have managed to cope with their suffering.

For their part, the oil majors have been accused of predatory pricing to gain market share. Let’s analyse exactly what that means. The grocers are being accused of cutting prices to get into the market. There is a case for OFT inspection and possible reference to the MMC where a company seeks to price competitors out of the market and thereby limit consumer choice. Will the grocers put the oil majors out of business and limit choice? I don’t think so.

Furthermore, Esso has, under pressure, launched a pilot scheme called Pricewatch, whereby it undertakes to match or undercut competitors’ prices on a regional basis. Predatory or what?

In all fairness, Esso should be congratulated for joining the battle. And, it should be added, the battle will throw up some of the less edifying prospects of a price war. We will see differential pricing, when rural independent petrol retailers will have to subsidise the narrow or non-existent margins of petrol stations near Tesco or Sainsbury’s alternatives. But we have been here before with groceries – the regulators will have to be alert and they have the experience in other markets to be effective.

What should the oil majors do? Well, in my book they have an opportunity to beat the grocers at their own game. One option is to do a Sainsbury’s – go for quality and widen margins. That could mean serving petrol and other items to the motorist in his or her car, in-car payment and more sophisticated loyalty schemes.

In short, an end to the utilitarian and surly service of Britain’s service stations and an adoption of a US drive-in, drive-out experience. I’m looking forward to it – this is one price war we should welcome.

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