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EdgeIndex - Supermarket Showdown

Written By

Sebastian Delgado von Euw


April 1, 2019






First off, what is EdgeIndex?

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. 💪

Why does it matter?

We think it’s important for retailers to understand more about margins and pricing to help them make better decisions for their own business.

EdgeIndex (March 2019) 🎉

Margins were down 1.44% in March from Feb

EdgeIndex - Supermarket Showdown

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. 👭

So, do supermarkets have any other effect we are not seeing? And are we able to measure it? ⚖

In order to tackle this question we took a sample of 74 forecourts with a mix of 7 different suppliers across England, Wales and Scotland and looked at their margin performance over 4 months (November 2018 to February 2019). We then divided this sample into two groups:

  1. Forecourts that had one or more supermarket competitors within 10km (as the crow flies). Sample size - 43 forecourts. We will call these SM forecourts,
  2. Those that did not have any supermarket competitors within 10km (as the crow flies). Sample size - 31 forecourts. We will call these non-SM forecourts.

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[1]. 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[2]. 😲

So what is causing this?

  • Forecourts close to supermarkets are forced to lower prices in order to remain competitive[3].
  • They probably also face competition from other petrol forecourts nearby as they are more likely to be in a higher density area.
  • More rural forecourts face less competition in their local markets and are therefore able to push higher prices since consumers have fewer options.
  • Supermarkets are often on a different Platts contract lag to independents. Whilst independents are usually on Platts Day -1 or Week -1 contracts, supermarkets tend to be on 2 or even 3 weekly lags. This makes it difficult for SM forecourts to hold their prices consistently as they are exposed to both this and their own cost prices.
  • Supermarkets have lower margin targets on their fuel as they see fuel primarily as a way to attract customers to the shop.
  • Supermarkets are also under immense pressure to be the market leader in dropping prices as the Platts price comes down, forcing them into price moves they may not otherwise make.

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:

So, what does this show us? 🔍

  • SM forecourts struggle to reach 1p above the national average.
  • At one point, SM forecourts actually had to drop below the national average to compete with the supermarkets.
  • Non-SM forecourts are able to reach 2p above the national average.
  • Supermarkets constantly keep their prices 2p below the national average.

Conclusion 📙

  • SM forecourts have lower margins than forecourts not facing competition with supermarkets.
  • Forecourts close to supermarkets are forced to price their fuel more competitively in order to sustain themselves in their individual local markets.
  • It is also important to note that it is possible to maintain a comfortable gross margin even with a supermarket nearby.

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.


  1. Standard deviation: SM forecourts = 2.04, non-SM forecourts = 1.57
  2. T-test results: t-value of -3.05, p-value of 0.00
  3. Competitions and market authority (CMA): “The PCA [price concentration analysis] suggests that, in general, supermarkets have a larger effect on fuel prices than non-supermarket PFSs [petrol fuel forecourts]. For example, on one version of our analysis, within a 5-minute drive-time, the impact of one additional supermarket PFS is almost six times as large as that of an additional non-supermarket PFS. An additional competing supermarket PFS within 5-minutes' drive-time lowers fuel prices at the centroid PFS by 0.71%, while the reduction is only 0.12% for an additional non-supermarket PFS within 5-minutes drive-time.” (Anticipated merger between J Sainsbury PLC and Asda Group Ltd, Provisional findings report)


Insights and stories from the EdgePetrol team.

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