Page 2383 - Week 07 - Tuesday, 30 July 2019
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in Canberra by $70,000 on average between 2014-15 and 2016-17 whilst falling in Sydney.
When compared to petrol retailers in surrounding towns, the petrol retailers in Canberra made nearly twice the profit. The most recently available data shows that in 2017-18 the average net profit rose to around $750,000 per site in Canberra while it was only $380,000 in the regional locations. The ICRC’s analysis further indicates that the higher net profit in Canberra primarily reflects a higher net retail margin. The net retail margin is the profit margin of the retailer remaining after all other costs, such as wholesale costs, transport costs and the retailers’ operating costs.
The net retail margin in Canberra has increased from 3.7c per litre in 2012-13 to just under 6c per litre in 2017-18. This was higher than in the surrounding regional locations by an average of 4.4c per litre based on 2017-18 data and in Sydney by an average of 1c per litre based on the 2014-15 data.
Within Canberra, petrol retailers at the airport and in Fyshwick had the lowest net margins of 2.1c per litre in 2017-18. This reflects the relative high level of competition in these areas. The net retail margin was highest in Tuggeranong at 7.2c per litre, followed by Gungahlin at 7.1c per litre.
The ICRC found that Canberra’s higher net retail margins reflect weaker competition in Canberra. This is mainly due to Canberra having a more concentrated retail petrol market with a higher share of major brands with business models offering a premium product and a lower number of independent retailers that often exhibit a business strategy to aggressively discount. They found that in Sydney and in the towns on the Hume Highway and inland, with lower net retail margins, there is a substantially higher proportion of independent retailers, with price discounting a key component of their overall business model.
A low level of competition in Canberra also reflects the relatively poor visibility of petrol stations and their price offerings. For historic planning reasons, petrol stations in Canberra are typically located off major roads. They are located in local shopping and industrial districts, whilst in Sydney and other regions they are often located on the main road, which makes it easier for consumers to compare competing retailers’ prices and seek out the best available prices.
Retail operating costs include site rental, maintenance, labour and utility costs. They vary for a range of reasons that may be related to factors such as the scale of the business, its location and its capital costs. The ICRC’s report indicates that compared to retailers in Sydney, the operating costs for Canberra retailers are around 4c higher per litre. However, they are around 1.3c lower than the average surrounding region, which appears primarily due to the higher sale volumes per site in Canberra.
The ICRC found that the differences in wholesale petrol costs and transport costs also contribute somewhat to the retail price difference observed between Canberra and other regional areas. For example, in 2017-18 the average annual wholesale cost paid in Canberra was 2.2c a litre higher than the average across regional towns. Based on
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