Why Fuel Prices Vary between city and regional areas

Why fuel prices vary between city and regional areas.

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Fuel prices vary greatly between city and country towns, also areas due to competition and economic characteristics. Retail fuel prices and margins in regional areas are typically higher compared with major capital cities. This is due to: Lower volumes and convenience store sales over which to recover service station operating costs.

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Regional service stations may typically see only 1x tanker every couple of weeks versus 1x tanker per day at some city sites. The average customer base per service station is around 2,000 people in country areas (and well below in many towns) whereas city sites have a customer base of around 4,000 to 5,000.

As a result, if a typical regional service station is selling around half the volume of a typical city service station then it needs to sell petrol at around 4 cents per litre more to earn the same return on sales.

Distance (freight costs) is also important, and usually the further the service station location is from a refinery, the higher the retail price.

On average, freight is typically around 1.6 to 4.1 cents per litre greater for country than city delivery. Storage and handling costs could be higher for some country areas where fuel must be stored in depots and handled twice, rather than being delivered directly from coastal terminals.

The general absence of the weekly discounting cycle in regional areas means that fuel prices are higher than city prices. Because of these factors, estimates that prices in regional centres and country towns have been about 5.8 cents per litre higher, than prices in the five largest cities over the past 10 years.

Competitive forces and costs also vary greatly between regional towns, so that pump prices do not just reflect volume, freight and handling differences. Accordingly price changes in regional centres and country towns also tend to lag behind fuel price changes in capital cities, both up and down, reflecting the extra time it takes for stocks to move through the supply chain in regional centres.

In regional areas, retail fuel prices are largely set by independent operators, including those who sell fuel supplied by one of the major brands under license.

Retail fuels markets & trends.
Retail fuel prices apply to almost half of the fuel sold in Australia.
The retail fuel market is highly competitive and has been undergoing significant change for the past three decades.
Analysis shows that the most significant changes in market shares of retail sales by brand have been the increased market shares of the supermarkets.

Around two thirds of retail petrol volumes are sold through sites operated by supermarket alliances or independents.

While the major brand names appear on the majority of petrol retail sites, it is important to note that mostly the businesses are actually owned and/or operated by supermarkets, independent retailers, franchisees, or commission agents.

The most significant trend in the retail fuels sector over the last decade has been the reduction in
the number of retail service station and the move to high volume outlets located in busy areas where there's greater traffic volume, thus achieving economies of scale.

The number of retail sites has reduced from around 20,000 sites in 1970 to around 6,300 now.

Coles and Woolworths operate around 1,200 retail sites, which is around 20 per cent of all service stations.

There's also been a corresponding increase in the average volume sold at each site and an increase in reliance on revenue from non-fuel products such as convenience store sales and car washes.

It's estimated that the average gross margin on none fuel (shop) sales was 30.6% in 2013–14. In contrast, the gross margin on petrol sales was 8.1% and 8.3% for diesel sales.

Retail markets profits.
The retail fuels market is a high-volume, low margin business. Retail profits are volatile (due to the nature of the market) and are typically a very small proportion of the retail fuel price.

It's estimated that the retail sector as a whole (fuel and none fuel sales) has earned net profit at an annual average rate of 2.1 cents per litre for the past 9 years. The average net profit on fuel over the past 9 years was 1.3 cents per litre.

While non-fuel sales made up less than 20 per cent of total revenue in 2013–14 they contributed over 40 per cent to retail sector net profits.

The retail sector has about the same profitability as overseas petrol retailers but is less profitable than other kinds of Australian retailers.

Hiclone: Australia's No1 Fuel saver will save you money.

We’re here to help you save $$ on your car expenses, petrol, diesel and LPG. Hiclone fuel savers an environmentally friendly solution for more power and economy.

We've been marketing fuel saving products for over 20 years and I still get asked for fuel saving tips on a daily basis, for more information please call me (John Riley) on 04 3863 9594.

Thanks for you time.

John Riley - hiclonehq@bigpond.com


Hiclone have been in Australia for over 34 years, sold over 6,000,000 world-wide and have saved many liters per 100 kilometers.


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John Riley


8 Starckie Trail, Smithfield, 4878
04 3863 9594