Sebastian Delgado von Euw
April 1, 2019
READING TIME ~
EdgeIndex is our new monthly blog, where we will be using our superpowers to track market movements over the last few months. We’ll also be asking and answering important industry questions to help retailers better understand the market around them. 💪
We think it’s important for retailers to understand more about margins and pricing to help them make better decisions for their own business.
This month, we seek to answer the following question:
How does the presence of a supermarket petrol forecourt affect nearby non-supermarket petrol forecourts?
Why is this an interesting question? 🤔
It’s a well-known fact that supermarkets in the UK have consistently lower prices on fuel when compared with most independents and fuel company-owned sites.
That’s pretty good if you are a consumer, but what if you own a forecourt and one of your closest competitors is a supermarket? How does that affect your margin?
Consumers often have multiple choices to buy their fuel from. One would also expect that having a close competitor with consistently lower prices would drive another competitor with consistently higher prices out of business.
But in today’s market, thousands of forecourts - both supermarket and independent - work side-by-side. 👭
We found that SM forecourts had an average margin of 7.10ppl over the 4 months while non-SM forecourts had an average margin of 8.37ppl over the same period. A difference in margin of 1.27ppl indicates that there is a significant difference between the two groups.
And this is where we got really smart. 🤓
We produced a ‘histogram’ (in appendix), which showed us that the margin within SM forecourts varies quite a lot more than non-SM forecourts. SM forecourts had a minimum margin of 2.0ppl and a maximum of 13.7ppl. The margin for non-SM forecourts ranged between a minimum of 5.3ppl and a maximum of 11.6ppl.
We also conducted a statistical test to confirm that the differences between these two groups were not due to our small sample sizes or random chance. The results showed that these differences are in fact statistically significant. 😲
To better visualise this, we plotted the average unleaded pole prices for each forecourt group over time:
As expected we can see that average prices for SM forecourts are lower than prices for non-SM forecourts, although both are higher than the national average. Conversely, average supermarket prices are consistently below the national average. The same relationship was observed for diesel prices.
We can take the differences between these lines and the national average to better understand how much each group of forecourts deviate away from it:
We’ve established that there is a significant correlation between having a forecourt with a supermarket competitor and lower margins and that the main reason behind this is the price-depressing effect supermarkets have in their local markets.
We’ll continue to keep an eye on this subject in future EdgeIndex editions.
Sebastian Delgado von Euw is EdgePetrol’s Data Scientist. He previously worked in the finance industry and studied Economics at the University of St Gallen with a specific focus on econometrics, financial mathematics and statistics.