At the meeting with Howard Cox on 18th August, PRA was represented by their Chairman and a retailer from Hampshire who owns and operates 4 local filling stations. The retailer emphasised that the pricing agreement with their supplier was "Weekly Lagged” and then explained how it works – this week’s prices (which take effect on Tuesday) are based on the average of the previous week’s prices. Then a price is calculated based on the average of their agreed marker sites. This produces a "Supported Price” and the margin that results is shared with the supplier on the basis of a matrix which forms part of the supply contract. However, the retailer often has to sell below the agreed price to remain competitive in the local area and, as a result, takes the full hit on margin. A 1ppl cut in pole sign price costs 0.83ppl - often a very substantial part of the margin.
It is disappointing that Howard insists on referring to crude oil prices despite telling him repeatedly that retailers only buy refined product which is separately quoted by Platts ( a division of McGraw-Hill). Recently there have been considerable differences in the grade prices.
Howard also conveniently ignores the fact that the retailer has stock in their tanks, sometimes considerable volume which has to be sold before dropping the price. More likely, the retailer drops the price immediately taking the hit on margin
This is illustrated in the table below.
Oil company fuel cards were mentioned due to the very low card commissions at around 1.40ppl and just 0.77ppl for Bunker diesel. This clearly reduces the overall margin achieved as the independent segment has 70% of the specialist hi-speed refuelling facilities for HGV’s so supply a large part of the on-road fuel to this sector. Without this network the fuel costs of many haulage companies would increase as they would have to divert off route increasing delivery/product prices for everyone.
The retailer advised that an average annual gross margin of 5ppl is needed just to sustain the business but that isn’t a maximum it is just a target that the retailer has yet to achieve over a financial year. This market cannot be judged in a single day, or even a week – it really should be considered over a much longer period, a year minimum.
Chairman Petrol Retailers Association
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