Outgoing BP New Zealand boss Mike McGuinness admits the margins on fuel sales are improving, but says this masks a new level of competition in the industry.
At the end of this month, McGuinness leaves Wellington to become BP's head of fuel sales position in Australia, where he will oversee the running of the company's retail and wholesale fuel businesses. Speaking ahead of his departure, McGuinness conceded that fuel margins had increased in the past two years, but he said it was from "absolutely poor" margins of recent history.
Figures from the Economic Development Ministry show that the gross importer margin on fuel has increased by several cents in the past two years.
McGuinness said margins had clearly increased in New Zealand in recent years, but were only now back to a point where companies had some level of confidence to invest. "We've still got a bit of a profitability issue, where the returns aren't what the industry needs to encourage investment."
There was "no doubt" there was a need for new infrastructure investment in New Zealand, with much of the existing assets base built decades ago.
"Since deregulation the market has fluctuated from probably OK returns to very, very poor returns. At the moment in the returns cycle, it's probably back to OK".
McGuinness said the headline cost of fuel on price boards was also of diminished importance, with fuel companies finding different ways to compete for and retain customers. Only about a third of the company's fuel was sold at the headline price, with the remainder sold to commercial or business customers who held fuel cards, or to customers redeeming other discounts, which were being offered more widely than in the past.
"You've got more people spending money enticing people into the store, the level of promotion through loyalty programmes is at an all-time high," with BP and Caltex helping launch AA Smartfuel last year, in a bid to compete head on with Fly Buys, closely linked to Z Energy.
Meanwhile, there had been a marked rise in the level of television advertising, while supermarkets were continuing to offer discount vouchers on fuel to attract customers. "It may just be that the way people choose to entice customers across the forecourts has changed, rather than just to cut the prices across the whole of New Zealand ... I actually think the market's more competitive than when I arrived."
In charge in New Zealand for less than three years, a period that included both the Gulf of Mexico oil spill and the Christchurch earthquakes, McGuinness said he wanted more time in his present role but had to take the new job when it became available. "I wanted longer, but it's the thing about working in an international organisation, you move around a lot and there's only one or two jobs I can do in the region post this one, and the one I wanted came up."
He will be replaced by Matt Elliot, a Kiwi who has worked for BP since 1994, spending 11 years working overseas.
- © Fairfax NZ News