Costco fuel margins five per cent lower than competitors

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An ACT Government inquiry into fuel pricing has heard the Costco petrol station near Canberra Airport operates at a profit margin significantly lower to its Canberra competitors.

Managing Director of Costco Wholesale Australia Patrick Noone told the Select Committee Inquiry into Fuel Pricing hearing on 10 April that Costco generally don’t go above a 12%-14% margin on any of their services, including fuel.

The average margin on regular unleaded fuel in the ACT is 19.4%, according to NRMA research.

While Costco do charge a $60 annual family membership fee, their petrol station at Majura Park has consistently been one of the ACT’s cheapest fuel sites since opening in November 2016.

Competitors in Costco’s geographical sphere at Majura are known to change prices when Cotsco’s petrol station opens and closes.

Mr Noone said that phenomenon happens at every fuel station Costco has in Australia.

“We’re causing the market to respond, and I think that’s good for all of our consumers … in the end we all benefit from competition,” he said.

Mr Noone told the hearing their business model is reliant on high sales and low overheads.

“It’s a low cost operation, it’s self-service, we have a small hut there but you pay at the pump.”

Mr Noone said targeting the fuel market was a strategy Costco adopted when their venture came to Australia.

“Fuel just fitted that whole concept; we can bring fuel in and use that North American model of selling fuel at high volume with low overheads.”

The NRMA’s written submission to the inquiry said the penetration of non-aligned independent fuel stations in the ACT is only 8.6%, or five out of 58 retail service stations.

“Costco at Majura Park and Metro Petroleum in Fyshwick offer the cheapest fuel in the ACT market, and they can be up to 20 cents per litre cheaper than the five major brands.

“The ACT fuel market is dominated by the two supermarket retailers, Coles Express and Woolworths … The supermarket retailers have 25 out of 58 sites in the ACT,” they wrote.

“It is estimated that around 40% of the Sydney retail service station market operate as independent operators compared to only 8.6% in the Canberra market.”

The NRMA called on the ACT Government to stimulate price competition in the fuel market by prioritising independent retailers when approving future fuel stations; and setting a target to increase the number of independent fuel retailers to comprise at least 20% of the market.

Another public hearing on fuel pricing in the ACT is scheduled for 30 April.

The Select Committee on Fuel Pricing has an online survey on fuel prices in the ACT that can be found at surveymonkey.com/r/FuelPricing

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Ian Cubitts
Ian Cubitts