Tesco fuel leads to price cuts

The opening of Tesco's new petrol station in Dubin just over a week ago has already had a dramatic effect on prices in its north…

The opening of Tesco's new petrol station in Dubin just over a week ago has already had a dramatic effect on prices in its north Dublin catchment area. Tesco's pre-budget price of 79.3 c per litre of unleaded has seen prices charged by its competition fall by between five cent a litre. Ian Noctor reports.

The effect mirrors the reaction of local petrol retailers in Killarney where the food retailer opened its first Irish petrol station in February. Prior to its opening, SIPTU had accused petrol retailers in Killarney and South Kerry of operating a cosy cartel in the area. Tesco's director of corporate affairs, Dermot Breen, says: "Killarney was one of the most expensive towns in Ireland for petrol. When we announced our intention to open our garage there, the price of petrol in the town dropped. As soon as we opened prices dropped further. We're seeing a similar scenario being played out in the region surrounding our Clearwater store in Finglas."

The supermarket retailer's decision to expand its Irish operation follows on from its successful entry into the British market, where it is now a major player in the retail petrol market with 288 stations across Britain. Planning permission has also been granted for a further Tesco filling station in Dundrum in south Dublin next year. It has also sought planning permission for further petrol stations attached to new superstores in Maynooth, Co Kildare and Clarehall in north Dublin. The company says it will continue to expand its petrol selling facility across the country as opportunities present themselves.

However, the Society of the Irish Motor Industry (SIMI), which represents hundreds of petrol retailers around the country is concerned about the effect the company's entry and expansion into the Irish market will have on the petrol retail industry and on small Irish towns.

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SIMI unsuccessfully appealed the planning permission for the three Tesco stations to an Bord Pleanála. The organisation argues that as a result small independent stations will face closure. It claims the system whereby customers are offered vouchers for savings at the pumps outside, makes it unfair to other stations, and also expressed concern about traffic congestion in areas in which the stores are located.

Tesco's Dermot Breen has dismissed SIMI's concerns: "SIMI has been complaining. But they just complain and whinge all the time. This is better for the consumer, and there is no evidence to substantiate the claims the SIMI are making."

One competitor, Esso Ireland has given Tesco's entry into the Irish market a tentative welcome. Its chairman, Ian Wells, saying that "Esso welcomes developments such as this in the forecourt retailing industry as it ensures that standards continue to improve and it is the consumer who ultimately benefits. Esso already has a very strong service, offering high-quality products and service at very competitive prices."

The relationship between Esso and Tesco in Britain has developed strongly in recent years. In Britain, the retail giant teams up with Esso to supply its petrol retailing facilities. Whether that relationship develops in Ireland remains to be seen.

But as Tesco is currently buying its petrol on the wholesale market in Dublin, the attractive economies of scale if Tesco were to negotiate a purchasing alliance with Esso, could conceivably lead to yet lower prices for Tesco's fuel customers.

Tesco has also expanded its product range in Britain to include car insurance. It's been in business for five years, and markets itself as a low-cost insurer and says it welcomes young drivers. If the public's initial reaction to its fuel service is anything to go by, perhaps there are rosier days ahead if the retail giant decides to expand its insurance service into the Irish market with a similar competitive pricing policy.