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Forecourt
September/October 2003Victoria, guinea pig state
Coles Myer's new fuel discount offer is only a few weeks old. The network of Shell forecourts in Victoria were never so busy as they are now. It's too early to say what the fallout will be, but here's a few early observations on the Coles Express experiment.
What's the big deal?
It was Sunday morning, 11.30 am, 27 July. Business was slow at the Coles supermarket in the new Victoria Gardens complex at Richmond, a trendy in inner-suburb of Melbourne. Standing next to a pile of mandarins, John Fletcher, CEO of Coles Myers, announced the launch of Coles Express in Victoria*. At 7.00 am on Monday 28 July, 151 Shell service stations and eight Shell Select stand-alone C-stores were re-badged. The battle was on.The basic deal of four cents per litre discount on fuels with a spend of $30 or more at Coles, Bi-Lo and liquorland stores matches the Safeway* petrol offer. During the launch period, Coles Myer upped the ante with some bonus deals based around Fly Buys points. Shell and Coles Myer have been Fly Buy partners for many years.
By matching the Safeway discount rather than opting for higher, say 4.5 cents, Coles Myer is relying on what it sees as the other distinguishing features of the deal: convenient locations and fuel quality. John Fletcher emphasized Shell's reputation for fuel quality and the availability of the discount on the high-octane Optimax. Nearly 80% of FuelWatch survey respondents believe there is a difference in fuel quality between operators.
The main difference in strategy is location. When Woolworths started petrol retailing in Australia, it adopted the UK hypermarket model of building new service stations adjacent to supermarkets in major regional centres. This proved difficult in the Australian market. Woolworths had to build stand-alone service stations in the cities, then acquired control over the Liberty network. Only 40 of its 108 Victorian petrol sites are located within a Safeway supermarket, even though it claims that nationally, 210 of the 287 sites are either in the Woolworth's car park or adjacent to the store. The additional 160 petrol sites planned for the Woolworths' network will be co-located with stores. Woolworths argues that this strategy provides a convenient offer to customers and that the take-up of its discount offer diminishes with the distance between stores and canopies.
Coles Myer disagrees, arguing that convenience is the main thing for customers, and that the Shell network is well-located with committed customers for whom petrol buying is their routine.
"Shell has spent 100 years making sure its service stations are in the right places and Shell service stations are a way of life in the community," says John Fletcher.
Both claim virtually all petrol outlets are within five kilometers of stores offering the discount.
Customers have their say
Although biased towards internet-savvy, price-sensitive petrol buyers, the FuelWatch surveys give us some idea of how motorists (and shoppers) might respond to the new deal. When FuelWatch asked its subscribers and visitors about how they thought they would react to the new discounted fuel offer, there were some surprises in the responses.
Source FuelWatch (www.fuelwatch.com.au)Despite John Fletcher's claim that this is not about capturing market share in the fuel market, it's possible that the impact on petrol will be greater than the impact on groceries. Less than 40% of motorists are loyal to a particular brand and more than half of them prefer Shell. Let's assume all those that prefer Shell also shop at Coles. That still leaves a big group (at least 40%) of Coles' shoppers with no particular loyalty to a petrol brand, and they are about to be given a reason to become Coles Express petrol customers.
The 15% of petrol customers that prefer Plus Petrol are likely to be among the 23% that won't be shopping at Coles. The 4% deserting Coles because of the alliance are intriguing. The supermarket battle is for the 14% that say they plan to switch allegiance from other supermarkets to Coles.
Out and about in the first few weeks - some observations
On the afternoon of the first day I visited Brandon Park on the corner of Springvale and Ferntree Gully Roads, both major commuter roads in the eastern suburbs of Melbourne. This is a busy corner with three service stations - a Coles Express and two Mobil sites. Behind one of the Mobil sites is a shopping complex with a Coles supermarket, a Liquorland and a new Aldi discount supermarket. The Coles Express board price of 82.5 cents was below the Shell terminal gate price (TGP) of 83 cents per litre. Most sites in the area posted a matching price. It was the middle of the day and the site was constantly nearly full. The forecourts of the Mobil sites opposite were constantly nearly empty.Closer to town, the Coles Express on Dandenong Road in Oakleigh was also doing brisk business on the first Monday with a price of 82.5 cents per litre. It was missing its '4' and the new pole sign was a plastic wrap, but this did not deter customers. Nearby sites were priced a bit off the pace and were empty. They must have been suffering. The best independent price in the area was 81.3 cents, nearly 2 cents below TGP.
By the following Friday afternoon the Brandon Park area had moved up to 89.9 cents per litre, in keeping with the Melbourne cycle, and the TGP was still approximately 83 cents. At Oakleigh the market stayed down and, closer to town along North Road, the Coles Express could not keep up with the peak traffic flow. It posted 79.9 cents per litre - unheard of at that time on a Friday.
Even busier was the Coles Express at Vermont South with a posted price of 81.9 cents per litre. Going against the cycle, the site had held that price for the previous two weeks, making it a busy site anyway. The noticeable change was the increase in activity in the middle of the day when customers brought in their discount dockets.
Out and about, I also noticed that BP held its ground and its North Road site co-located with an IGA Express was doing good business with a posted price of 86.9 cpl. Perhaps it was attracting the less price-conscious with its new mini supermarket.
So far, Coles Express has posted very competitive pump prices and matched the Safeway discount of four cents per litre. This is in keeping with Coles Myer's announcement that "competitive pump prices are critical in driving sales". The main response by Safeway is a change in its price boards. Plus Petrol now display the discounted price equal to the Coles Express price less the four cents discount. This must have created some confusion for motorists used to getting four cents off the displayed price.
In the first couple of weeks, the discounted Coles Express and Plus Petrol prices were retailing petrol at least 4 cents per litre below TGP. This was clearly not sustainable. By Friday 15 August, some Coles Express price boards showed 96.9 cents per litre and the TGP was 86.9 cents. That's four cents discount and six cents retail margin at the peak of the cycle. Isn't that interesting?
* The alliance started in July at 151 sites in Victoria and will be extended to the rest of the network by the middle of next year.
