As crude oil prices begin to somewhat stabilise, a war at the petrol pumps is seemingly brewing among retailers as Tesco PLC (LSE:TSCO) followed the precedent set by Asda at the end of last week in slashing prices.
Currently, the price of crude oil is at US$94 per barrel, slightly above the price prior to Russia’s invasion of Ukraine.
Asda cut prices to 174p per litre of unleaded and 185p per litre for diesel, while the current average prices are 186p per litre and 195p per litre.
Tesco cut its prices by slightly less, with unleaded down 6.5p per litre and diesel at 4.5p per litre.
Competitors J Sainsbury PLC (LSE:SBRY) and Morrisons also cut prices on their forecourts over the weekend as the retailers look for ways to continue enticing customers.
But just how much income do the pumps give the listed retailers? And will the price slashes really have any impact on revenue?
Sainsbury's
In Sainsbury’s final results, the group reported revenue inclusive of fuel but excluding VAT of £29.895bn, and retail sales inclusive of VAT but excluding fuel of £29.095bn.
That would suggest that fuel sales account for roughly £800mln, a small figure when compared to the group’s total revenue.
Tesco
Fuel sales for Tesco, however, seem to be a much larger percentage of the group’s total revenue.
In its preliminary results released in April, Tesco said total revenue excluding fuel and VAT was just over £54bn.
However, accounting for fuel but still excluding VAT, total revenues were £61.3bn, meaning the pumps accounted for over 10% of the group’s total revenue.
For Tesco therefore, although its revenue without fuel is still nearly double that of Sainsbury’s, it is much more important to its final sales figures.
Morrisons
For Morrisons, which went private last year, fuel sales also contribute much more heavily towards total revenue than Sainsbury’s and even Tesco.
For the 39 weeks to 31 October 2021, the retailer reported total revenues of £13bn, of which £2.3bn was attributed to fuel, roughly 15% of its total revenue.
So, seemingly, Sainsbury’s should be least affected by scaling back on prices at the pump, given it plays a much smaller part in the group’s total revenue, while Morrison’s will have the most to lose by falling prices in terms of revenue.
However, if the prices at the pumps are moving in line with the cost of crude oil, then it should have little to no effect on these retail giants’ overall margins.