Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 200 - 219)



Mr Butterfill

  200. How much room for manoeuvre is there for retailers in setting their own prices or is it all dictated by the oil companies? I think I know part of the answer to that: it depends on the type of retailer they are, whether they are a franchise operator. Perhaps you could just go through the different ranges and let us know overall how much flexibility there is.
  (Mr Holloway) To answer the question very simply, if an independent forecourt owner has a contract with one of the major companies there will be an agreement which actually fixes the level of margin earned on each litre sold. In return for that, effectively the individual will surrender the price fixing to the major oil company.

  201. That is also in return for price support presumably when there is heavy competition down the road.
  (Mr Holloway) Correct. What it effectively says is that the margin level does not fluctuate, depending upon the moving price of petrol and diesel on the international market.

  202. That deals with the situation with one particular type of petroleum retailer but there are others, are there not? There are some which are franchise holders, is that correct?
  (Mr Holloway) Yes.

  203. And there are others who are wholly independent and can buy where they like and have not signed a deal. Can you run through the gamut for me?
  (Mr Holloway) Yes. In terms of the latter there are two who fall into that sector. One is they are buying fuel which is effectively produced by one of the major brands but it is supplied through a third party distributor and therefore may be branded with the minor name UK Petroleum. In those circumstances the purchase price fluctuates and the retailer himself can set the retail price. In the other case, where there is no brand, exactly the same circumstances apply. It is the kind of criticality in the market which has actually developed since we came through the fuel crisis in September. When we went into the fuel crisis on 7 September, we had a situation where the major oil companies were actually set to increase price. We came out of the fuel crisis on 13 September when one of the major oil companies indicated they wanted to increase price. They were influenced not to do which meant the market did not move. But the increases were actually passed on to the smaller independents in the market, or those without a direct contract with a major company. Indeed the actions therefore increased the price per litre to the user by several pence. It was referred to in the previous evidence. For two weeks bulk buyers of diesel have actually been paying up to ten pence per litre more than the forecourts of the major oil companies of the UK. That has had a dramatic effect on the industry and a number of independent forecourts have closed permanently in the six weeks since 13 September.

  204. There have been other independent forecourts, have there not? I think there is a celebrated chap in South Wales who actually goes out to buy his own on the spot market in Rotterdam and ships it over.
  (Mr Holloway) Yes.

  205. How prevalent is that?
  (Mr Holloway) We are talking about a gentleman known as Mr Curlie Humphries who developed a business many years ago when in fact it was feasible to do so because of the scale of the business he had in one geographical part of the UK and also because of the surplus over demand for motor fuels in Europe. He was actually acquired by one of the major brands and they themselves were acquired by a bigger major brand. The opportunity for individuals to develop such a business today is non-existent.

  206. Nobody is doing it now.
  (Mr Holloway) The barriers to entry into the UK market are too high and indeed there is only one sizeable independent retailer left and that is the Safe Service Station Group.


  207. You mentioned that a number of stations have closed since 13 September. How many do you think that could be?
  (Mr Holloway) We have evidence of 164 forecourts which have closed permanently since 13 September.

  208. I believe you gave a list to the BBC of some 99.
  (Mr Holloway) Yes. We had at that stage only 99 confirmations.

  209. The BBC have said to me that of the 99 you provided them with they phoned 16: five have ceased selling since September or are soon to do so; four had ceased selling before September, one as long ago as 1998; seven are still in business. That was a random sample of 17. Perhaps we could have a look at these figures. They have been bandied about. It does not seem to add up to particularly accurate statistics. It would be in everyone's interest if you were prepared to give it to us. We are quite happy to adherer to the confidentiality that you required of the journalist but the journalist who spoke to me in advance of today said he only tried 17 of them and gave up after that because the evidence was so paper thin and frankly misleading. Maybe you could have a word with us afterwards.
  (Mr Holloway) I should be delighted to. I should be delighted to give you a copy of the list. The list was given to us by the suppliers to the individual outlets. A few are with the main brands; they are regional distributors. The qualification for entering onto the list was that these businesses in the forecourt sense had to have ceased trading since 13 September.

  Chairman: It seems that of a small sample of them 16 per cent did not quite add up in the way you were led to believe. I shall leave it there.

Mr Chope

  210. They have ceased trading. The Chairman is questioning the figures and we shall see what the truth is. The ones which have ceased trading have ceased trading as a direct result of the deal which was done between the Government and the oil companies in order to keep the price on the forecourt down, to keep the ordinary motorists happy, which has had the consequence of adding extra costs to the already hard pressed road haulage industry and also driving the small independent petrol retailers out of business. That is down to the Government.
  (Mr Holloway) Yes, it was Government intervention which actually created that situation because an announcement was made by Esso Petroleum that they were increasing the price on a particular morning after the crisis. They were immediately followed by two other major oil companies within the UK, but later that day they withdrew the planned increase because of comments made by the Prime Minister. The result of that was that those oil companies who were actually quite happy to keep their own retail prices down passed on the price increases to the other part of the industry they supply, including the hauliers.

  211. Perhaps that has not been very widely known.
  (Mr Holloway) It is perhaps not widely reported.

  212. Dealing with the issue of the amount of fuel which is being sold, does your Association represent Northern Ireland as well? Do you have Northern Ireland members?
  (Mr Holloway) Yes; indeed it does.

  213. Are you able to give us any figures about the amount of sales of petrol and diesel in Northern Ireland? Do you have those available?
  (Mr Holloway) Yes, they are included in the figures which I provided to the Committee. In actual fact in the five years from 1994 until 1999 deliveries into Northern Ireland of petrol and diesel combined are down by over 55 per cent. That is comparison of year on year.

  214. Do you think that is because Northern Ireland people are just not travelling anywhere by vehicle and they are walking and going by bicycle?
  (Mr Holloway) The interesting thing is that vehicle growth in Northern Ireland has gone up by some 22 per cent in the same time. That suggests they are not walking.

Helen Southworth

  215. Can you give us some indication of how much diesel is sold to hauliers and in particular are they actually buying it from organisations which you represent or do they use separate specialist depots?
  (Mr Holloway) The hauliers in the UK really have a choice, principally they can buy on a fuel card from one of the major fuel brands. They may well buy through a bunkering system which means they pay for the fuel and because their fleet is in a particular area regularly then by using their buying power until recently they were able to store fuel and draw it from that centre for their own use whenever required. The other form of supply is indeed through bulk storage of their own on their own premises. In terms of where that impacts on us, it impacts on us where instead of own storage there may well be local accounts with the local filling station; they do exist. The reason they would choose to do that would be for Health and Safety legislation reasons, the difficulty in complying, or indeed it may well be that they are of course using a fuel card on one of the major branded forecourts. As far as the bulk fuel is concerned, that is handled by another association, not members of ours. In terms of total diesel sale in the retail market it represents about one quarter of total fuel sales. In terms of commercial diesel, of all diesel in the UK that is round about 42 per cent of the total fuels market.

  216. How much of that is from organisations which you represent?
  (Mr Holloway) Broadly speaking about 30 per cent of the fuels market in the UK would actually be covered by membership of our association.

  217. Who would speak on behalf of the specialist depots, the people you were referring to before who were put under pressure by the oil companies and costs were passed on to them? What was their negotiating process?
  (Mr Holloway) The association representing the suppliers of that fuel would be the Federation of Petroleum Suppliers. The two haulage associations would of course have in membership, I would suspect, the individual companies buying from those sources.

Mr Morgan

  218. I have seen it suggested that one of the reasons for the speed with which the recent crisis arose was because retailers do not necessarily hold full stocks in their tanks because that is quite expensive. Is that actually the case? Is that a factor?
  (Mr Holloway) In terms of the general situation within the market it is a just-in-time service which is provided. Because of the way the price support system works from the major suppliers prices can of course come down and stock loses value in those circumstances. In terms of total working capital employed within a business, if you manage your stock efficiently then clearly you keep your costs in check as well. That is the overview.
  (Mr Brocklehurst) If I may just speak of my own site in Northampton, we have storage capacity of 160,000 litres. It would probably be normal to run on half stocks, half to two thirds full. Certainly with the price as it is, it is normal now to run on the bottom of the tank because of the capital involved: it evaporates once it is in the tank, there are certain losses, the insurance valuation I have already spoken of. All of these costs have gone up dramatically and it just does not make sense on the margins that we are left with in the retail sector.

  219. So when the tanker comes to fill you up that is the last thing it does.
  (Mr Brocklehurst) Just in time.

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