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Asda and Morrisons have both raised their margins on fuel since their takeover by private equity firms, according to the UK competition watchdog, which warned that weakening competition was pushing up motorists’ costs.
The two retailers have “significantly increased” the targeted gap between what they pay for petrol and diesel and how much they sell them for, the Competition and Markets Authority said on Monday, with average supermarket fuel margins up by six pence per litre between 2019 and 2022.
Responding to the regulator’s call for greater market transparency to protect consumers, the government pledged to set up a new scheme allowing motorists to compare petrol and diesel pump prices in real time.
Chancellor Jeremy Hunt said: “Consumers need to be treated fairly, and so we’re empowering drivers to find the best prices possible for their fuel.”
The intervention came as the CMA published the findings of its detailed review into the road fuel market, which it began last summer following the surge in pump prices linked to Russia’s war against Ukraine.
The average price of diesel hit a record of 199.2p per litre on July 4 2022, meaning it would cost almost £110 to fill up a 55-litre car.
While wholesale prices have since fallen, the CMA said it had identified a “clear trend of increasing margin being earned by retailers since 2019”.
The watchdog found that supermarkets’ average annual fuel margin climbed from 4.6p per litre in 2019 to 10.8p per litre in 2022. It said the rise amounted to an extra £900mn in costs for customers of the top four supermarket fuel retailers: Asda, Morrisons, Sainsbury’s and Tesco.
Asda and Morrisons both have a large influence on the market given their size and traditional role as cost-cutters.
The CMA said Asda’s target margin was more than three times higher in 2023 than in 2019, while Morrison’s had doubled over the same period.
It highlighted an internal document from a competitor blaming the pair’s less competitive pricing approach on “planned or completed changes in ownership”.
Asda was bought by the Issa brothers and private equity firm TDR in a deal worth £6.8bn in 2020, while Morrisons was acquired the following year by US private equity firm Clayton, Dubilier & Rice for £7bn.
The watchdog did not uncover any evidence to suggest the change in pricing strategy on fuel was being driven by the new owners, according to people familiar with the findings.
Other retailers had raised prices in response, the CMA said, noting: “Taken together this indicates that competition has weakened and reinforces the need for action.”
Under the new price transparency scheme, retailers will have to provide up-to-date price information, which third parties will be able to use to develop apps or price comparison websites.
Asda said the CMA’s review “confirmed the presence of an Asda petrol station in a local area keeps prices down for all motorists”.
“Despite record inflation, we have carefully managed our business to ensure Asda was the cheapest traditional supermarket for both groceries and fuel throughout the period reviewed by the CMA and this position is unchanged,” it added.
Asda was fined £60,000 by the CMA for failing to provide information when required during its probe. The retailer described the penalties as “alleged technical breaches” and said it had “engaged fulsomely with [the CMA’s] enquiries”.
Morrisons said it remained “extremely competitive on fuel pricing and although margins have increased, they remain very low”. It added that it had used the “modest” increase in profitability to hold and cut in-store food prices.
Tesco said: “We are committed to providing customers with great value, competitively priced fuel and we regularly monitor fuel prices at a local and national level to make sure we’re giving our customers competitive prices.”
Sainsbury’s was contacted for comment.