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State of The industry

Service station operators in Victoria and Tasmania voice their concerns over the future viability of their businesses.

The VACC’s State of the Service Station Industry Survey, released in April 2004, reports the concerns raised by service station operators in Victoria and Tasmania over the future viability of their businesses.

In the final week of March 2004, the VACC/TACC Service Station and Convenience Store Division sent survey forms to its member businesses. Of the 352 businesses surveyed, 78 responded. The majority (70%) of respondents reside in regional areas and rural locations. Nearly three-quarters identify their businesses as being independent.

The survey revealed that a quarter of service station owners don’t expect to be in the industry in a year, and just 42% believe they will be operating in five years. This pessimistic outlook is linked to recent trends. In the 12 months to March 2004, these service stations experienced little growth in sales of fuel and convenience store goods; widespread increases in labour costs and overheads; rising debt levels; falling profits; and an increase in hours worked by service station owners.

Respondents were asked to indicate the impact on their business of a number of different factors. Those factors that caused a strong negative impact included ‘fuel discount schemes’ and ‘fuel price competition’; ’underground storage tank regulation’; and the ‘conduct of oil companies’. When a ‘net balance’ figure was derived by subtracting the percentage of respondents who recorded a moderate or strong negative impact from the percentage of respondents who recorded a moderate or strong positive impact, ‘underground storage tank regulation’ topped the list of adverse factors.

Impact of factors on service station businesses

Source: State of the Service Station Industry Report, VACC, April 2004, p.17

The timing of the survey – not long after the introduction of the new UPSS obligations – would have affected the responses. Respondents did not specify how the factors impact their business. The VACC notes that it is likely that the cost of complying with new guidelines, development of skills required to operate new tank reporting systems, the size of penalties for non-compliance, and the cost of removing underground storage tanks when ceasing to retail fuel are the reasons for ‘underground storage tank regulations’ having such an adverse impact.

Like the refiners, retailers are being asked to make investments for the environment when profits are low.

The VACC/TACC survey report can be downloaded from ‘Surveys’ page of www.vacc.motor.net.au. The results of the survey were also reported in the June/July 2004 edition of Auto, the journal of the VACC.

The journal article also called for reforms to the Trade Practices Act to strengthen the protection of small business from predatory pricing, misuse of market power, and unconscionable conduct. The VACC is particularly concerned that small independent service stations are being driven out of the industry. This concern is shared by other representatives of fuel retailers and distributors such as APADA and the PMAA.

Here, we reproduce a letter sent to the Prime Minister and the major political parties in May 2004.

Dear Prime Minister, CONCERN FOR THE FUTURE OF THE INDEPENDENT SERVICE STATION SECTOR Our members, who are the independent service station operators and petroleum distributors, are very concerned about the Government and ACCC’s attitude to small business in general, and in particular the independent service station sector. We are disappointed with the current status of the Petroleum Market Reform process, and are anxious to have a Code of Practice, covering all industry participants, and for the appointment of an Ombudsman to mediate and issue binding directions in matters affecting competition and market abuse. The influence and impact of the two major supermarket chains following the recent roll-out of the Coles/Shell sites across Australia, together with the existing Woolworths and growing number of Woolworths/Caltex sites will mean that these alliances will have some 50% + of the service station market by year end. In areas where these two alliance chains are establishing themselves, the retail prices of petrol are often below the Terminal Gate Price available to other service stations in the area. The ACCC has made it quite clear that their role is fundamentally to enhance the interest of consumers, and that “if businesses are unable or unwilling to respond to challenges of competition they may languish and ultimately fail”. The independent service station sector cannot compete with the substantial market power of the supermarket alliances who have the ability to ‘cross subsidise’ their discounting, and if they try to match the pricing, they will soon be out of business. Small business must have some form of protection from the impact of these giant supermarket chains or there will be massive closures in both the city and the country, with regional centres experiencing a `knock on` effect to other businesses. We are aware that recently, there has been support and protection given to the pharmacists and newsagents, who are among a number of other business sectors under siege by these major companies, and we are asking for the same form of consideration. We have been encouraged by the Senate Economics Reference Committee’s recommendations for amendments to the Trade Practice Act, particularly in the areas of misuse and abuse of market power, unconscionable conduct and predatory pricing. The independent operators in the petroleum industry are being subjected to these influences and we are requesting urgent action and support from the Government in these areas. As you have stated in the past, ‘small business is the engine room of Australia’. Well, in our industry the engine is about to die without immediate action to curb the monopolistic thrust of the major supermarkets. Yours sincerely JIM LAMB Petroleum Marketers Association of Australia GARTH SYMINGTON Australian Petroleum Agents and Distributors Association

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