In capital city markets where regular price cycles were present the following results were found: Average volumes were lowest on the day that average prices were highest (and vice versa) in Sydney, •
Melbourne and Adelaide.
In Brisbane, average volumes were highest on the day that average prices were lowest and average •
volumes were lowest on Sunday.
In Perth, average prices were highest on Wednesday, and lowest on Sunday, while volumes were •
highest on Friday and lowest on Sunday. Perth had roughly fortnightly cycles in 2006–07 so weekly analysis of sales volumes in this city is less meaningful. We exclude Perth from further comparison with other major capital cities in this analysis.
Table 11.5 shows that in Sydney, Melbourne, Brisbane and Adelaide, more than 60 per cent of weekly •
sales were made on the four days of the week (i.e. Sunday, Monday, Tuesday and Wednesday) when the average daily price was below the average weekly price.56
56 Note that the average daily price is not itself volume weighted, so this measure may disguise the effect of big intraday price swings on volumes.
Table 11.5 Proportion of weekly volumes sold on days where the average price is below the weekly average price: 2006–07
number of days with above average price
Proportion of sales sold on days with above average
price (%)
Proportion of sales sold on days with below average
price (%)
Sydney 3 36% 64%
Melbourne 3 35% 65%
Adelaide 3 34% 66%
Brisbane 3 38% 62%
Source: ACCC from data supplied under s. 95ZK of the Act.
In capital city markets where there were no regular price cycles, it was found that:
volumes over the course of a week were stable relative to sales in capital city markets where regular •
price cycles were present (Hobart, Darwin, Canberra)
average volumes were highest on Friday and lowest on Sunday in Hobart •
average volumes were highest on Thursday and lowest on Monday in Darwin •
average volumes were highest on Wednesday (when average prices were lowest) and lowest on •
Sunday in Canberra.
The following results were found in non-capital city markets:
Volumes were stable relative to sales in capital city markets, where regular price cycles were present. •
In New South Wales and Queensland, average volumes were highest on Tuesday and lowest on Sunday. •
In Victoria, average volumes were highest on Wednesday and lowest on Sunday. •
In South Australia, Western Australia, Tasmania and the Northern Territory, average volumes were •
highest on Friday and lowest on Sunday.
11.5.3 anoP survey results on price cycles
The ANOP survey on motorists in urban Australia has provided information about consumers’ price cycle perceptions and preferences. Appendix H presents a summary of the survey results.
The survey finds that there is a high level of awareness of price cycles among petrol consumers. The results for the four major capital cities where weekly price cycles are present show that:
83 per cent of surveyed motorists believe there is a regular price cycle and 75 per cent think there is •
a regular weekly cycle. Awareness of weekly cycles is highest in Adelaide (82 per cent) and Melbourne (81 per cent).
85 per cent of surveyed motorists believe petrol is more expensive on particular days, with 44 per cent •
and 43 per cent nominating Friday and Thursday respectively. Monday and Tuesday were the days least mentioned.
90 per cent of surveyed motorists perceive that petrol is cheaper on particular days, with 74 per •
cent nominating Tuesday. Thursday to Sunday were seldom mentioned by the surveyed motorists as cheaper days.
On average, consumers estimate that prices vary, from the most expensive to the cheapest day, by •
13.5 cpl. This compares closely to the highest amplitudes recorded in the analysis shown in table 11.1, which covers 1 January 2007 to 30 June 2007. This is higher than the average amplitudes of price cycles (see table 11.1) calculated from daily average prices over the same period.
The results for Perth show that fewer surveyed motorists think there is a regular price cycle (61 per cent). Forty-two per cent of Perth motorists think there is a regular weekly cycle, while 15 per cent think that there is a regular fortnightly cycle.
The survey also shows that petrol consumers in the four major capital cities where weekly price cycles are present tend to buy petrol on particular days of the week. The survey results are that:
68 per cent of surveyed motorists tend to buy petrol on particular days of the week, with 50 per cent •
buying on Tuesday; Tuesday is nominated more often in Adelaide (64 per cent)
59 per cent of surveyed motorists buy on a particular day because of their perception that petrol is •
cheaper on this day
only seven per cent of surveyed motorists say they buy on particular days solely because it suits them. •
Perth had fewer surveyed motorists reporting buying on particular days of the week (31 per cent). Similarly, fewer people report buying on a particular day of the week solely because it is cheaper (17 per cent). Apparent fortnightly cycles in Perth may make a ‘day of the week’ approach to buying petrol less attractive.
The survey asks motorists aware of regular price cycles how often they managed to buy petrol when it is cheapest in the cycle. The survey findings are as follows:
In capital cities with typically regular weekly price cycles, 28 per cent report buying when cheapest •
in the cycle almost every time and 34 per cent report buying when cheapest most of the time In Perth, with its typically regular fortnightly price cycle, eight per cent report buying when cheapest •
in the cycle almost every time and 28 per cent report buying when cheapest most of the time. It is quite possible that this lower result reflects that with fortnightly cycles the cheapest day of the cycle is a smaller portion of the overall cycle. With a fortnightly cycle a greater proportion of motorists would ‘need’ to fill up more frequently than the length of the price cycle would allow them to take advantage of price cycle troughs.
Overall, many consumers seem to be aware of regular price cycles and many have adapted their purchasing behaviour accordingly. This is particularly the case for the four major cities with weekly cycles. The relatively low awareness of regular price cycles in Perth may be because of the recent shift from weekly cycles to fortnightly cycles there.
11.5.4 different types of petrol consumers
Unleaded petrol is a homogenous product with limited brand loyalty. Petrol consumers are generally very sensitive to petrol price. However, there is also a group of consumers that do not care as much about petrol price levels.
The ANOP survey classifies, petrol consumers into three price sensitivity groups based on when they buy petrol: highly sensitive (always try to buy when cheaper), fairly sensitive (usually try to buy when cheaper) and insensitive (just buy when needed). Seventy per cent of surveyed motorists are found to be price-sensitive, with 36 per cent highly sensitive and 34 per cent fairly sensitive to petrol price. The rest are price-insensitive consumers who normally buy petrol when needed.57
Compared with price-sensitive consumers, those price-insensitive consumers are either less prepared and/or less able to adapt their purchasing pattern to the changing petrol prices in a market with price cycles.
Petrol retailers, in particular the refiner-marketers, may have used non-price competition, such as promoting fuel card and credit card reward programs, to improve consumers’ purchasing commitment with branded petrol. The main target is those price-insensitive consumers—for example, the corporate customers whose companies pay for their petrol purchase.
11.5.5 do consumers take advantage of price cycles?
While many petrol consumers are price-sensitive and well aware of price cycles, they cannot all take advantage of price cycles. To the extent that consumers are willing and able to change the timing of their purchases of petrol, the presence of regular price cycles permits them to purchase petrol at prices below the average price of cycles.
The day of the week analysis presented in section 11.5.2 indicates that sales volumes and average retail prices on each day of the week are generally negatively related in metropolitan cities where price cycles are present. Broadly speaking, petrol sales made on Tuesday when petrol is relatively cheap are much higher than those made on Thursday and Friday when petrol is relatively expensive. In other petrol markets where there are no regular price cycles, sale volumes over the course of a week are relatively stable. This indicates that some consumers have responded to regular price cycles by purchasing petrol at times when petrol prices are relatively low.
This is consistent with the finding of the ANOP survey summarised in section 11.5.3, which show that most consumers in the four major capital cities with weekly cycles are well aware of regular price cycles and have adapted their purchasing behaviour by buying petrol on particular days, when cheapest. There is evidence that more petrol is purchased by consumers when prices are relatively low. In Sydney, Melbourne, Brisbane and Adelaide, more than 60 per cent of weekly sales were made on four days of the week (i.e. Sunday, Monday, Tuesday and Wednesday) when the daily average price was below the weekly average price (see table 11.5). Up to 20 per cent of weekly purchases occurred on Tuesday— the day with trough price.
The ANOP survey provides further evidence that consumers have taken advantage of price cycles by purchasing petrol on particular days when it is cheaper. Sixty-eight per cent of motorists in the above four cities tend to buy on particular days, almost exclusively from Monday to Wednesday when prices are relatively cheaper. Fifty per cent tend to buy on Tuesday.58 Combined with the evidence presented
in the preceding paragraph, this suggests that the majority of consumers may take advantage of price cycles by purchasing more petrol when prices were relatively low.
The reality is that while there may be price-sensitive consumers who benefit from cheap petrol on Tuesdays and early Wednesday, there are many consumers who simply buy when they need to or when they can. They do not or are not able to choose the time of purchase to take advantage of retail discounting.
Although price cycles present opportunities for consumers to purchase petrol at relatively low prices, whether they can take advantage of price cycles depends on their willingness and ability to better time their purchase. This willingness and ability to better time their purchase of petrol depends intimately on consumer search costs. The search costs in turn depend heavily on both price volatility and price transparency. Aspects of price volatility have been discussed in this chapter, and chapter 15 will discuss price transparency.
12 Petrol shopper dockets
The emergence of petrol shopper dockets has often been raised as an issue affecting petrol retailing in Australia. It is not surprising that the current inquiry has attracted further discussion in this area, with submissions received both in support and raising concern.
The inquiry has enabled the ACCC, with the benefit of experience to date and considerable information, to undertake further assessment of the effects of the arrangements on competition and consumers.
12.1 Supermarkets’ shopper docket arrangements
12.1.1 Woolworths’ shopper docket scheme
The first Australian supermarket to enter petrol retailing was Woolworths in 1996. Woolworths combined the opening of its first petrol site with a special discount offer on fuel for consumers who could produce a Woolworths grocery receipt for a specified dollar amount of groceries—known as a shopper docket.
Woolworths routinely offers a 4 cpl discount on the price of fuel to customers who present a voucher which is obtained when a purchase of $30 or more is made at a Woolworths or Safeway supermarket, a Big W store or other Woolworths subsidiaries. From time to time, Woolworths offers a greater discount on petrol to customers who have purchased a minimum value of goods from a particular retailer within the Woolworths Group.
In August 2003 Woolworths and Caltex announced a proposal to enter into a joint venture for the retailing of motor fuel with up to 450 petrol retail sites. Longer term arrangements (involving up to 500 sites) were announced in March 2004.
Currently, Woolworths operates from 505 petrol outlets across Australia.1 There are 371 outlets owned
and operated directly by Woolworths. The remaining 134 are owned by Caltex and operated by them directly or through their franchisees under an alliance arrangement whereby Caltex supplies petrol to Woolworths for retail sale. All 505 outlets are branded with the dual logos of Caltex and Woolworths. All petrol sold at these outlets is owned by Woolworths.2 Transactions for around 60 per cent of fuel
sold at Woolworths service stations involve a shopper docket.3
When setting petrol prices, Woolworths’ policy is to match the lowest price in the local area.
Woolworths submitted that the price of fuel at any Woolworths’ site is not dependent on Woolworths’ shopper docket scheme. Woolworths advised that it does not identify a minimum acceptable price. Woolworths submitted that the net cost of the fuel discount program is only a fraction of a cent of the average selling price of the 25 000 lines sold in Woolworths supermarkets. It considers that loyalty/reward/promotion schemes are part of the total cost of operating a retail business and enticing customers to come back, to switch brands or to buy more. Woolworths submitted that the cost of the shopper docket scheme is not something that is taken into account in setting individual prices for grocery items and it does not price the over 25 000 product lines it sells on a cross-subsidy or cost recovery basis. Woolworths indicated that the cost of the shopper scheme is borne by the overall business.4
1 Woolworths submission, p. 2. 2 Woolworths submission, p. 2.
3 ACCC, public hearing transcript, Sydney, 4 September 2007, p. 70. 4 ACCC, public hearing transcript, Sydney, 4 September 2007, p. 69.
12.1.2 coles’ shopper docket scheme
5In July 2003 Coles and Shell entered into an alliance under which Coles took over the management of Shell’s core franchise network across Australia. The roll-out of the Coles Express network was completed in March 2004 and there are currently around 600 Coles Express service station sites. Coles Express routinely offers a 4 cpl discount on the price of petrol to customers who have purchased a minimum value of goods or services from Coles’ supermarkets or other companies in the Coles Group. From time to time, Coles Express offers special promotions above the standard 4 cpl discount.
Coles submitted that its shopper docket scheme was introduced in 2004 as a competitive response to marketplace developments at the time. It elected to offer a 4 cpl discount by taking into consideration the position of its competitors and the nature of an offer that would represent value to customers. Coles submitted that its shopper docket scheme replaced its shareholder discount scheme. The shareholder discount scheme was not considered to be consistent with retail loyalty programs around the world, and it was relatively expensive. The intention was to introduce a scheme that is accessible to all customers and rewards them according to their patronage of Coles’ group stores.
Coles submitted that its shopper docket scheme is expected to meet two objectives. First, it is expected to act as a loyalty program for the brands within the Coles Group. Second, the alliance venture, Coles Express, is expected to be a growing and profitable business in its own right. Fuel is not used as a loss leader. While Coles admits that it makes a lower return on fuel than its investment warrants, it is nonetheless satisfied with the return on fuel.
When setting petrol prices, Coles’ policy is to offer the best value prices to customers while taking into account marketplace occurrences and the objective of making an economic return. In practice, Coles generally matches prices with competitors in local areas. It noted that the higher margins on lower volume sales at the top of the price cycle offset the higher volume sales with thin margins at the bottom of the cycle.
Coles submitted that it prefers not to lead the price cycle as this has an adverse impact on the number of customers that use its fuel outlets. It advised that the decision to increase the price of fuel is made after reviewing its business as a whole as well as its position against business targets, the current supply situation, the volume of fuel being sold on the day in question, the relationship between fuel volume, customer traffic and convenience store sales and market occurrences in the preceding days and weeks. Coles submitted that there is a very important relationship between fuel, fuel margins, fuel customers and convenience store sales. Coles submitted that, at the commencement of the alliance, 60 per cent of alliance revenue came from fuel sales while 40 per cent came from convenience store sales. Over time, revenue from convenience stores has grown so that it now represents about 50 per cent of the alliance’s revenue. To illustrate the importance of convenience stores, Coles advised that it offers an additional 2 cpl discount associated with minimum purchases from its convenience stores.
Coles submitted that Coles Express funds 1 cent of the 4 cpl discount while the remaining 3 cents are funded by the business (such as Coles Supermarkets, K Mart or Officeworks) which elects to offer a shopper docket promotion. If the business elects to offer an additional discount above 4 cpl it funds the additional cost of the promotion. In the main the supermarkets offer shopper docket promotions. The management team of the business treat the shopper docket scheme as a promotional option in the same category as a catalogue or TV advertising. The cost of the shopper docket scheme is treated as a