Asda fuel profit margins have tripled in four years, MPs told

Asda’s profit margin targets on petrol and diesel tripled between 2019 and 2023 as the retailer delayed passing on savings to customers, the competition watchdog has told MPs.

Dan Turnbull, director of markets at the Competition and Markets Authority (CMA) told the Business and Trade Committee that it had found “significant” changes to the company’s pricing approaching, including internal margin targets that were three times their 2019 level by earlier this year and a deliberate strategy to delay price reductions even as wholesale costs fell.

Giving evidence to the same committee, the chain’s co-owner Mohsin Issa repeatedly failed to justify the firm’s fuel pricing policy since he and his brother bought the retailer for £6.8 billion in 2021.

The news comes two weeks after the CMA accused the UK’s big four supermarkets of overcharging drivers for fuel to the tune of £900m a year compared with pre-pandemic costs. Its report into fuel pricing found that weakened competition between Asda, Tesco, Morrisons and Sainsbury’s had led to prices remaining higher for longer, bringing larger profit margins for all of them.

Turnbull told the committee that Asda repeatedly told the CMA’s market study that it had not changed its fuel pricing strategy because it had consistently maintained the strategy of being the lowest cost provider in any particular area.

However, he said: “On that particular point we didn’t find any evidence that that had changed. But what we did find were two very significant changes to Asda’s pricing approach: the first of those was around their internal margin targets.

“So we found that between 2021 and 2023 they significantly increased their internal fuel margin targets on a pence per litre basis, and indeed by 2023 those pence per litre targets were three times what they’d been in 2019.

“The second of these areas was the decision that Asda took during 2022 to deliberately feather prices on fuel as they came down from the peak. Asda told us that they saw an opportunity as the wholesale price fell to pass through reductions in the retail price more slowly than they previously would have done.

“And they said that they applied that over 100 petrol stations where they faced no direct competition from another supermarket in the local area.”

He added that the supermarket admitted it saw a greater opportunity to do that on diesel due the volatility in the market. Diesel prices have remained stubbornly high and are still higher than unleaded costs, despite wholesale prices having been lower since mid-March.

Asda’s co-owner Mohsin Issa was asked repeatedly by MPs whether the firm had changed its profit margin targets since it was taken over in 2021 but declined to answer, saying there were many elements that contributed to decisions on fuel pricing and insisting that the firm remained the “price leader”.

Supermarkets face being forced to provide real-time fuel pricing data to a public tracker in the wake of the CMA’s report. 

The CMA said that a “less aggressive” approach to competing on fuel prices had led to a 6p per litre increase in supermarket fuel margins between 2019 and 2022, and in early 2023 to drivers paying 13ppl more than necessary for diesel. It recommended that a live fuel price tracker would allow drivers to compare costs across local areas, potentially leading to increase competition and better value for motorists.