Supermarkets that vary petrol prices by location are giving indies the chance to undercut them, says Edmund King

Since the collapse of fuel prices in the latter months of 2008, the AA has become aware of a change in the nature of pricing at UK fuel pumps. Before then, supermarkets were clearly the best bet for the cheapest fuel.

A new breed of independent fuel station owner established itself in 2008: sites with mini-stores using competitively priced fuel to draw in customers. When the supermarkets raced to be first to drop petrol prices below £1 a litre in October that year, at least three independents had already beaten them. They weren't in urban areas, but rural places such as Elgin in Scotland and Chaddesley Corbett near Kidderminster.

Supermarkets then re-established their position as the main drivers of falling prices, with Asda and Morrisons pushing hard, and Tesco flexing its muscles on a couple of occasions with 2p cuts that brought the UK average price down 1p to 1.5p over a weekend. Yet, as prices recovered in 2009, cross-supermarket competition diminished.

For a number of months we in the AA have been commenting that there are two types of town in the UK, those with Asda fuel stations and those without. Those with have enjoyed with rare exception the lowest prices, while the others have been significantly higher.

In previous years, our members often complained about neighbouring towns differing in price by about 2p a litre. The past 12 months have seen that differential grow to as much as 4p a litre.

We have come to accept 4p above the average UK price as the level for motorway service areas, which have to finance free parking, free toilets and other facilities 24 hours a day. However, it is hard to see how a supermarket can charge that extra and claim to be competitive. A whole city, such as Guildford, paying £2.50 more for a tank of the cheapest petrol compared with an Asda town, such as Reading, was a discrepancy that had to be pointed out.

Let's be straight about one thing: the AA does not think it can tell supermarkets what they should charge for their fuel. We recognise that supermarkets are just as likely to be competitive in the aisle as they are at the pump. A buy-one-get-one-free deal on a £1 loaf of bread may be a better deal than fuel that is 2p-a-litre cheaper on a 25-litre refill.

However, it is our duty as a motoring organisation to point out emerging trends in fuel prices to drivers, particularly when petrol prices are more than 22p higher than at this time last year.

It is clear that the willingness of some supermarkets to compete on fuel prices only where they have to is creating a golden opportunity for independent retailers to undercut them. Average monthly UK fuel prices show that retailers such as Shell, Jet and others have recently undercut one, and sometimes two, of the big supermarkets.

It is down to drivers and customers whether they choose to go a cheaper independent petrol station or continue to fill up at supermarkets, balancing reward card points against higher prices. It is a fact, though, that supermarkets are no longer the unchallenged bastions of cheapest fuel prices. Could it be that this is why year-on-year petrol sales in the third quarter of 2009 shrank 1.8% for supermarkets but grew 3% for other retailers? We don't know but, like our members, we can spot a good deal and a bad one.

Edmund King is president of the Automobile Association

Read more
Asda ‘national’ fuel price varies by 3ppl (4 February 2010)

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