Raymond Ackerman aims to win the epic petrol wars

By Time of article published Dec 1, 2005

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In his second book, The Four Legs of the Table, Pick 'n Pay's founder and chairman, Raymond Ackerman, talks about the "petrol war" and notes that while most of the retail giants' commodity wars were fought in short, sharp bursts, "our petrol wars have consolidated into an epic, with even today no cessation of hostilities in sight".

It is a war that Ackerman is keen to win. He is obviously agitated by the continued system of regulation in the industry, which he says is designed to protect the oil companies at the expense of the consumers.

So despite all the difficulties you're still determined to become a significant player in the petrol market?

Definitely. I've told the Pick 'n Pay board that I am not leaving the company until we win the petrol wars.

Why is it such a big issue for you?

Petrol and food are the "most consumed" items these days. They are essential items for daily living. From day one at Pick 'n Pay I've wanted to sell petrol as well as food. I'd modelled Pick 'n Pay on the French retail group Carrefour, which I'd studied for a long time and which is a major player in the petrol market in Europe.

When I launched Pick 'n Pay I merely tried to implement what I'd seen work very well overseas. In 1975 we began selling petrol at some of our hypermarkets.

In the recent competition tribunal inquiry into the proposed merger between Sasol's liquid fuels and Engen, it emerged that the only serious competition for the major oil companies in the retail market were the large retail chains in Europe.

Yes, in Europe the retail chains have been the major source of competition in the market for over 30 years. In Australia two retail chains, Coles and Woolworths, dominate the retail petrol market. In both of these regions the law has been in favour of the man in the street and has prevented collusion among the producers.

Sadly our government, which has been very good in so many other areas, has been satisfied to continue with the previous government's highly regulated system. I believe governments should always support the man in the street and not cartels.

How big did your petrol venture become in the seventies?

We began with five garages adjacent to our hypermarkets and grew to a maximum of 13 before all hell broke lose. Now we're back to five. I would love to grow it to 40 or 50 outlets.

What happened when "all hell broke lose"?

Well, when we started off I spoke to all the oil companies, Shell, BP and Caltex but the only company that was amenable to us was Trek . When we were drawing up our five-year supply contract I managed to persuade the guy from Trek to exclude one page of the two-page regulations that prohibited price-cutting.

We had enormous fun. People came from as far as Bloemfontein to take advantage of the 1c or 3c a litre price reduction that we were offering at Boksburg.

But then the government and the other oil companies began to get very agitated and soon we were served with a court order banning us from selling petrol at discounted prices. We successfully challenged that order in court but then the government started to amend the law regarding price-cutting.

I think there are about 600 pages of legislative restrictions on the matter now. Everything we tried was blocked - coupons, even shoe shining - anything that would make petrol just a little cheaper was prevented. The controls are so pervasive that if we did anything wrong now I could get arrested.

What do you think would happen to the petrol price if the restrictions were removed today?

If price-cutting was allowed today, the price of a litre would probably drop by between 20c and 30c. But if you went further and removed the ridiculous edifice that controls the whole industry then, according to the experts, the price could come down by R2 a litre.

What is the edifice you're referring to?

It's that huge bureaucracy that has created a mythical pricing system for petrol. It's like a grim Hollywood production. It uses import-parity pricing, which is disgusting.

I call it import-poverty pricing. And it assumes that all our petrol is bought from high-cost refineries in Singapore and the Mediterranean - that's nonsense - and then lots more mythical costs are added in before the petrol finally reaches the consumers.

I certainly wouldn't buy petrol from Singapore. I'd buy it on the high seas, which is where all the professional trading is done and I would not add in mythical costs.

Petrol companies are having the time of their lives in this country, they're enjoying outrageously high profits. It's amazing this hasn't been changed.

I don't even mind that petrol is a good source of tax for government, but I do mind that consumers are paying through the nose to boost the profits of the oil companies.

Can you imagine what would happen if the market for food was controlled and managed in the same way? Consumers should be able to get a fair price for a mass-produced item.

Forty percent of the petrol sold in this country is produced locally by Sasol. Sasol could reduce the price dramatically and still make good profits. I certainly respect what Sasol has achieved in the past, but it can't live in the past.

It must leave the glory of the past behind and start focusing on the interests of consumers. Sasol is putting the shareholders where its customers should be. That is an old-fashioned way of doing business and it's wrong.

What about the argument that the need for black empowerment will force the government to keep the current system in place?

There's no need for this system to be perpetuated. The black empowerment players will make money in petrol. Indeed, if government agreed to remove the edifice, I would be happy to consider giving or sharing our garages with a black empowerment group.

What about the argument that it is unfair to expect owner-run petrol stations to compete with huge retail chains which can afford to discount petrol because they have so many other goods to sell?

By cutting the price of petrol, you attract more customers who will consume more of your other goods. There's also the concern that the chains will dominate the market and will not pass on cost-savings to the consumer.

I'd say that if it was decided, for whatever reasons, that supermarket chains could not sell petrol then I would accept that decision as long as the government did free up the market and allowed competition. Idealistically, consumer sovereignty should reign. Throughout the years we've fought anything that gets in the way of that.

Remember how the farmers were left to fend for themselves when the government removed the support structures in the agricultural sector?

The efficient farmers survived. Similarly, the efficient petrol stations will survive competition from us. Small traders that are efficient will always survive and will keep us on our toes. But there's also the concern about all the petrol attendants losing their jobs. That's about 40 000 jobs in total.

We have said that if the industry is deregulated and price-cutting is allowed, we would abide by a ban on self-service for five years. This would provide time to secure alternative employment. And you certainly don't need self-service to be able to cut prices. Once the edifice is removed, the prices can come down.

Given that you've told the board you won't leave the company until you win the petrol war, have you any idea how long more it will take?

I'm not sure. Initially when the government started dismantling the support structures in agriculture, I was quite hopeful but now I'm not quite so sure. Sometimes it feels like going against a brick wall.

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