Asda tripled its profit margins on fuel, says watchdog

Asda bosses claim it is the supermarket with the cheapest fuel, but the Competition and Markets Authority says otherwise, as ITV News Business and Economics Editor Joel Hills reports

How much you pay for petrol and diesel depends to a very large extent on whether you have an Asda near you - or at least it did. As the Competition and Markets Authority (CMA) report makes clear, Asda - and to a far lesser extent - Morrisons, were traditionally the price leaders on fuel. Crudely put: they set their prices low - often aggressively so - and Tesco, Sainsbury’s, the oil companies (Shell, BP, Texaco) and the independent retailers followed suit. But, since 2019, the CMA says Asda has stopped competing as enthusiastically as it used to.

Supermarkets account for almost half of all petrol and diesel that is sold in the UK, although they run less than one fifth of the forecourts. As a result of this weakening in competition, the CMA says supermarket profit margins in 2022 were 6 pence a litre higher than in 2019. The CMA calculates that drivers who filled up at supermarkets paid £900m more last year than in 2019. To be clear, competition law was not broken. The CMA is not suggesting supermarkets acted like a cartel or abused their positions of power. Instead, as energy prices surged on the back of Russia’s invasion of Ukraine in February 2022, Asda and Morrisons simply saw an opportunity to inflate their profit margins. The CMA has seen internal documents which show their rivals realised what was going on but rather than viewing the Asda/Morrisons change of strategy as a chance to steal customers, Tesco, Sainsbury’s, BP, Shell, Texaco et al decided to play along.

The CMA says “during 2021 both Asda and Morrisons took the decision to increase materially their profit margin targets”. In the case of Asda, by 2023 they had trebled. Between 2020 and 2023, Morrisons profit margin target had doubled. The CMA also notes that “Asda and Morrisons were both purchased by private equity in 2021”. It does not offer an opinion on whether this is correlation or causation but the report states: “Asda told us that it has not changed its pricing target and that it aims to be the cheapest provider in a local area.

"However, its overall strategy is focussed on growth and paying down debt in a sustainable way”. Mohsin and Zuber Issa, billionaire brothers from Blackburn, and their private equity partners relied on borrowed money to fund their takeover of Asda in 2021. The CMA’s proposed fix is to recommend that the government compels all fuel retailers to share their pricing so that consumers can make informed choices about where best to fill-up. The supermarkets still tend to be cheaper but that’s not always the case anymore and there are significant differences between the prices paid in rural and urban areas. For example, the CMA says pump prices at a motorway service station were around 20p/litre higher for petrol and 15p/litre higher for diesel in 2022.

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