This is quite a shakeup in the fuel retailing market – we’re going from four major companies to three – but in a way, the consolidation was inevitable, and reflects the way the market has been heading for a number of years.
A 2008 report identified 1,265 petrol stations, with 20.2% branded as BP, 18.5% as Shell (now Z Energy), 17.0% as Mobil and 16.9% as Caltex. The remaining 27% were independently branded. It’s all a bit more complicated than that, though, since many of the ‘corporate’ branded stations were actually run by franchisees (who may or not have the ability to set their own prices), and most of the ‘independents’ are, at least, supplied by the big corporates.
Fuel retailing (aka petrol stations) has changed a lot over the years. 50 years ago, every small town had one, and they were often “garages” as well, servicing and fixing cars, changing tyres and providing all sorts of other services.
That’s changed, and most of the small stations are now gone. Instead, modern petrol stations tend to be large, selling much higher volumes than they used to. They don’t service your car anymore, but they have a heavy focus on food/ convenience items sold in store.
As a result of this, the number of stations has dropped from around 3,800 in 1976 to 1,265 in 2008:
Numbers have levelled out over the last few years, but we’re now sitting a little below 1,200.
On the topic of “food/ convenience”, the 2008 report mentions that for Australia, non-fuel sales actually make up about 70% of the gross profits. The report also makes a rough calculation which suggests similar figures for New Zealand. As surprising as it sounds, petrol stations actually make most of their money from what they sell in the store, rather than petrol.
Since 2008, many of the big oil companies (i.e. Shell, Caltex, Mobil, BP) have been selling their fuel retailing businesses, not just in New Zealand but in a number of other countries. Mobil were looking to sell in 2009, but nothing came of it. Shell sold their business to what is now Z Energy in 2010. And effective from 1 June 2016, Caltex has also sold their business to Z Energy, which brings us up to the present day.
In cases like this, the Commerce Commission looks very hard at whether the merger will “substantially lessen competition”, both at the national level and for smaller markets (e.g. a town or city). They’ve decided that, provided Z Energy sells 19 petrol stations to other operators, the merger can proceed. For example, Z Energy and Caltex are the only operators in Kaikohe, so the Commission will probably require one of the stations to be sold to BP, Mobil or another company to keep the market competitive.
Z plan to keep the Caltex chain under separate branding – they currently have two years’ rights to retain the Caltex branding, and presumably have the choice of either creating a new brand (Y Energy: you heard it here first) or paying to extend their rights over the Caltex brand.
Z Energy will now have a much higher market share, so it’s unlikely to go through any other major mergers. However, it’s quite possible that some of the smaller companies that compete with Z could merge. Even a merger of BP and Mobil isn’t out of the question – this would be similar to what happened in the supermarket industry a decade ago.
Foodstuffs (operating New World and Pak ‘N Save) had a commanding market share, but the two smaller companies (Woolworths, Countdown and Foodtown) were allowed to merge. Supermarkets are now essentially a duopoly, with Foodstuffs on the one side and Progressive (who have rebranded all their supermarkets as Countdown) on the other.
Even if something like this happened with BP and Mobil, there would still be more competition in the fuel retailing market than there is for supermarkets.* There are more outlets in total, and independents also have quite substantial market share.
* Probably. I’m oversimplifying things, and there are also other markets which would get considered besides just petrol stations: wholesaling, refining, bitumen and so on.