Why Has Supermarket Fuel Become Less Competitive?

Have you driven past an independent garage recently and noticed the fuel prices seem lower than at the supermarket? 🤔 There may be a reason for that. Many consumers around the UK have been noticing a shift. This begs the question: Why are Supermarkets charging more than garages? Is it better to fuel up at independent garages rather than your usual supermarket? Let’s explore. 🔎

The Cost of Supermarket Fuel in the UK

In June 2022, the average UK fuel prices (for both petrol and diesel) were hitting daily highs of approximately 191p for every litre of petrol and 199p for every litre of diesel.* There is a cap to how cheap fuel prices can go because fuel duty plus VAT accounts for the majority of the price of a litre. Even if the fuel were sold with no profit (without a margin), the price of a litre would still include tax and VAT.

The fact that there is so much tax has a significant impact on the price of a litre of fuel. When the cost of oil drops, it can create the impression that pump prices are not dropping as much as they should because the lower the price of petrol per litre, the more tax there is to pay. 

But what about the cost of fuel from supermarkets? On 1 July 2022, Asda was named the cheapest petrol retailer on average, at 179.96p for every litre, followed by Sainsbury's (181.03p per litre), Morrisons (181.75p per litre), and Tesco (181.75p per litre).

*Accurate prices at the time of writing. 

Are Supermarkets Making More Money On Fuel 2022

It has recently been revealed that independent petrol garages have lower fuel prices than their supermarket rivals. Even before that, supermarkets have been widely criticised for failing to lower petrol prices even though wholesale costs were getting cheaper.

For decades, drivers have profited from large supermarket brands racing to offer the lowest petrol rates. It now seems as though that time may be coming to an end. According to various reputable sources like RAC, supermarket petrol retailers have ceased using low prices to entice customers into their shops. 

It is clear that garages have not been slashing petrol prices enough when considering the drop in wholesale prices - the biggest shops accused are Morrisons, Asda, Sainsbury’s and Tesco. 

The fuel spokesperson for RAC, Simon Williams, reacted by saying: "There appears to have been a big shift in the last few months in the behaviour of the four major supermarkets which dominate UK fuel retailing as they are now commonly being undercut by independent retailers that are passing on the wholesale cost savings they're benefitting from to drivers at the pumps. This is unheard of as the supermarkets are normally at least 3p a litre cheaper than the UK average."

Meanwhile, in September, the average price of gasoline dropped by nearly 7p per litre to 162.89p, which is the sixth-largest monthly decline since the year 2000. Of course, drivers would have greatly benefited from an additional 10p reduction in petrol prices, but supermarkets chose to raise their profit margins instead.

Williams also said: “While there are no rules on what retailers can charge for their fuel, it remains the case that the supermarkets are extremely influential in determining the UK average pump prices as they sell so much fuel. However, as many drivers will have noticed, there are lots of smaller forecourts which are now selling fuel much cheaper than the supermarkets.”

Want more car news? Carmoola’s got you covered! We post new car wisdom every day, fo example, check out how to get the best out of your tank of fuel. Stay tuned. 😀