Fuel savings battles 'win-win' for Z

DAVE BURGESS
Last updated 05:00 26/06/2014

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If fuel retailer Z Energy was to adopt a new motto then "Bring on the supermarket docket fuel wars" would be in the running as an accurate position statement.

Chief executive Mike Bennetts yesterday told the annual meeting that discount dockets for Z fuel from Countdown supermarkets cost the company about 2c a litre.

"When [supermarkets] go mad and have a good old ding-dong on discounts of 20c, 30c or 40c a litre, that's not costing us more money" than about 2c a litre.

"We quite like it when supermarkets have a competitive spat . . . we usually win from that."

Bennetts said Z's supermarket docket offer enticed people to buy fuel from it instead of the "standard BP smart fuel offer".

"They are funding that 100 per cent. That's why economically we are selling less but making more profit."

Z posted a net after-tax profit of $95 million for the year ending March 31, down from $137m in the previous year.

The fall was attributed to profits made on property sales in the 2013 year, and the leaseback of 47 retail sites, which skewed the year-on-year comparison.

At the time Z said its "replacement cost" operating profit for 2014 was $219m - up 12 per cent from $196m in the previous year - which was its preferred measure of evaluating business performance.

Bennetts also explained to shareholders the economic implications of rival BP having cheaper pump prices than Z.

"[BP's] gross margin is about 25c a litre. If you are giving someone a 5 per cent discount, you've got to sell 20 per cent more fuel to be in the same total dollar equation . . . this is why we sold less fuel in the last year than we did the previous year."

Z's petrol sales for the year ending March 31 were 832 million litres, 6 per cent lower than the previous year. Diesel sales fell 3 per cent to 634 million litres.

Bennetts said competitors were not trying to match Z's service offer, instead choosing "to fight us on price".

"Our view is they're not being rewarded for that. They are giving away a 20 per cent discount but only getting 10 per cent more business.

"It is very important that we [Z] make sure we get the right economic outcomes but at the same time retain our level of economy of scale."

The Australian Competition and Consumer Commission (ACCC) has been investigating the relationship between the petroleum and grocery industries across the Tasman.

After the meeting Bennetts said it was unlikely New Zealand's Commerce Commission would follow suit.

"The supermarkets control about 50 per cent of the volume sold in Australia through their own service stations. The dockets are pushing business back into their own business. What they are effectively doing is saying ‘we will loss-lead on petrol to make more on groceries'.

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"That is not the case here. In New Zealand it is pushing business to an associated business like ourselves."

$2 MILLION MAN

Z Energy chief executive Mike Bennetts earned just over $2 million for the year to March 31.

The company's annual report made public yesterday showed one Z employee earning just above the $2m mark.

The identity of that person was requested at yesterday's annual meeting by a shareholder who asked what "mighty deeds" the person had done for the company.

Bennetts put up his hands and said, "it's me" after Z chairman Peter Griffiths remarked, "I am sure you can imagine who that person is".

Griffiths then explained how Bennetts had been instrumental in Z's listing on the stock exchange.

"If you look at the value that transaction created for our shareholders, our original shareholders, you will get a sense of the mighty deed [that] he had something to do with. So that is essentially the basis for that [$2m remuneration]."

Another eight Z employees were paid between $410,000 and $610,000 for the year.

Griffiths said Z had to compete for top management talent against "significant global brands", and once they were working for Z they had to be "incentivised".

"We do not make any bones about the fact that if you want to work for the best management team in New Zealand, you want to work for us and we will reward you accordingly."

- Stuff

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