Price war at the petrol pump announced for bank holiday weekend

The so-called supermarket price war has spread to the petrol pumps ahead of the bank holiday weekend.

Asda started the forecourt fight yesterday, cutting pump prices so motorists would pay no more than 124.7p per litre for unleaded and 128.7ppl for diesel. Sainsbury’s and Tesco soon weighed in with petrol price cuts of their own, while Morrisons said it may tinker with prices on a regional basis.

So good news for UK consumers then, who have consistently seen earnings growth running behind the rate of inflation despite the UK’s economic recovery.

The impact on the supermarkets over the bank holiday looks more mixed as they can no longer rely on consumers’ savings at the pump coming through their tills via increased in-store spending.

Shore Capital analyst Darren Shirley explains: “Historically there was a healthy correlation between cuts in fuel prices and in-store spend in supermarkets. Such a relationship, however, seems to have broken down in recent times as many consumers divert any new-found spending capability away from weekly groceries into non-food and experiences.”

As consumer habits have moved away from the weekly out-of-town supermarket trip, so price-savvy shoppers have moved away from buying their fuel and shopping from a single retailer.

Tesco’s Fuel Save was a notable attempt this year to retain this multi-point customer loyalty. In its first quarter IMS in June, Tesco said the initiative was “driving clear changes in behaviour with a marked increase in fuel volumes towards the end of the month as customers seek to maximise the amount they can save”.

Nonetheless, the trend of consumers shopping around at grocery discounters and value retailers continues at pace.

Shirley concludes: “Whilst supermarkets may capture some benefit from any redirection of spend away from the forecourts, non-food retailers and participants in the leisure trade are just as likely to benefit too, in our view.”

The fuel price cuts will put even more pressure on the margins of beleaguered supermarkets. Even before this latest round of cuts the supermarkets were experiencing like-for-like falls in fuel value sales - despite increased volumes going through the pumps - because of price deflation.

These cuts seem primarily to be driven by lower oil prices during a period of strength for Sterling, rather than by the supermarkets simply trying to increase traffic to their out-of-town stores in a crucial weekend for retailers.

Furthermore, according to Shore Capital’s Shirley, there may be more price cuts to come if oil prices retain their downward trajectory – Brent crude oil reached its lowest price in over a year on Monday.

So there may be even better news for consumers around the corner. Just don’t expect the cuts at the pump to rescue the under-pressure supermarket sector.