The Society of the Irish Motor Industry (SIMI) has accused Tesco Ireland of trying to force petrol retailers out of business by selling petrol at cost price.
Petrol prices at garages close to Tesco's two petrol stations in Killarney, Co Kerry, and Finglas, Dublin, have dramatically slashed prices in a bid by local petrol retailers to retain customers. Prices in both places have dropped as low as 79.3 cents a litre, a full 10 cent below the average being charged in areas not served by a Tesco station.
SIMI chief executive Cyril McHugh claims that eight Kerry garages have been forced out of business as a result of Tesco's pricing policy.
McHugh says that in Britain and France in-store sales have risen by between 30 and 40 per cent when grocery retailers locate petrol pumps in the vicinity of stores. "Consumers may feel they are getting a good deal at the moment when other stations in the area drop their prices to compete with Tesco," he adds. "But in the long term they're not. Tesco is forcing its competitors out of business."
Tesco's corporate affairs director Dermot Breen disagrees: "We are not selling our petrol at a loss. Nor are we seeking to see anyone close. What we have done is introduce real competition.
"Customer reaction to our low price petrol has been extremely positive. In Dublin motorists are travelling from all over north Dublin and beyond to fill up. "
Peter White of the Irish Petrol Industry Association, says, "Petrol retailing in Ireland is a fiercely competitive business. Of the, say, 90 cent a litre the customer pays for petrol the oil company gets just a third. The rest is taken up in tax and excise duties. Since 1995 the number of petrol stations has dropped by 4 per cent a year from just under 2,500 to an expected 1,675 this year. The market is extremely tight and the mark-up extremely small."
Tesco's third Irish petrol pumps are set to open in Clarehall on the Malahide Road, Dublin this summer, with another due in Sandyford south of the capital next year. Planning permission is being sought for further stores in Dundrum and Maynooth.
Meanwhile, Declan Holmes, director of Irishfuel.com, the fuel price monitoring website, has welcomed the effect Tesco's entry into the market has had.
However, Holmes is less well disposed towards oil companies for their failure to pass on the drop in wholesale prices to consumers. He also questions the rate at which oil companies passed on the gains made in the euro's surge against the dollar. "Crude oil is bought in dollars. The euro has strengthened hugely against the dollar in the last year, but the benefits have not been passed on. Why not?"
Peter White of the Irish Petrol Industry Association argues that while the dollar may have weakened, crude oil prices have surged since September. "The price of the barrel of crude has risen from $28 in September to over $35 now. With the cold snap in the East Coast of the US and Canada it's unlikely to drop in the next few months."
Chief economist with Friends First, Jim Power, says the cold snap is having an effect but other factors are also coming into play. "In a nutshell the benefit of the strength of the euro against the dollar has more or less been wiped out by the rise in crude prices. OPEC has limited its supply.
"The amount of oil coming out of Iraq has not increased since the end of the war. The price of crude has risen by 30 per cent since the end of the war and in the last 12 months the euro has gained 21 per cent in value against the dollar. The figures effectively cancel each other out."