Selling fuel at a loss: how much price reduction can we really expect?

Real punch or PR stunt? Since Élisabeth Borne announced on Saturday that distributors could sell their fuels at a loss for a few months, in order to allow them to “further lower prices” at the pump, the consequences of such a measure have been widely discussed. “With this unprecedented measure, we will have tangible results for the French, without subsidizing fuel,” said the Prime Minister in an interview with Le Parisien this weekend.

If the head of government did not attempt to estimate the drop in prices that this measure could lead to, Olivier Véran took fewer precautions. “We are almost talking about half a euro potentially less per liter,” assured the spokesperson for the executive on the set of the “Grand Jury RTL-Le Figaro-M6” on Sunday. “We are not saying that gasoline will drop to 1.40 euros in all stations in France for six months. We say that there may be commercial operations,” he nevertheless clarified. His Macronist colleague Pieyre-Alexandre Anglade, president (Renaissance) of the European Affairs Committee at the National Assembly, also estimated that, “if we go up to 25% reduction compared to the sale price, "It can save up to 47 cents on a liter of gasoline, it's a considerable gesture."

A drop of 50 cents per liter deemed “delusional” by a senior official from Bercy, on condition of anonymity, quoted by Le Parisien this Monday. All you have to do is look at the multiple cost price operations launched by major retail brands in recent months. On these occasions, fuel only drops a few cents per liter. The sector in fact uses gasoline and diesel as a loss leader, taking only small margins from their distribution. If Olivier Gantois, the boss of Ufip Énergies et Mobilités, judged on Franceinfo that the measure announced by the Prime Minister could only “go in the direction of lowering prices at the pump”, he also pointed out the fact that “the net margin of distributors is of the order of 1 cent” per liter. “We might expect them to reduce their prices by a few cents but that won’t go very far,” underlined the president of the professional organization of the oil industries.

In a note published on Sunday, the Asterès firm even judges that this announcement, which is purely an incentive, could have almost no effect. “It is unlikely that fuel will be massively sold at a loss,” writes its chief economist Sylvain Bersinger. “Such a sale at a loss is unlikely without compensation from the State. (...) It is difficult to imagine companies that would agree to work while losing money, since it would then become preferable for them to cease their activity,” he says. In any case, “the gain would only be a few cents per liter at best,” confirms the economist, estimating that “the margins of pump attendants are low, around two cents per liter of fuel.”

Furthermore, even if there is a drop in prices at the pump, it will not be in all of the approximately 11,000 service stations in France. Small traditional stations are already sounding the alarm. “In any case, we cannot afford to offer to sell the fuel at a loss, even if we had the right to do so. Only large and medium-sized stores can… It is therefore a downright unfair measure!” Francis Pousse, president of the Mobilians professional union, which represents 5,800 service stations (excluding supermarkets), was indignant to Le Figaro. “My members live 40, 50% or even more from the sale of fuel, so if they sell at a loss, I give them three months,” he warned AFP.

We must also not exclude the risk that this measure generates “perverse effects” in mass distribution, where 60% of fuel is sold, according to Sylvain Bersinger. “Motorists could earn a few cents per liter at large supermarket service stations. But it is possible that the latter, benefiting from the captive clientele that they would thus have attracted, take the opportunity to increase their prices on the shelves so as to compensate for the loss made on the sale of fuels,” judges the economist. According to Le Parisien, the Ministry of the Economy itself does not neglect the risk of "an increase in the prices of other products, indirectly", while recalling that "these large stores have also made commitments in terms of blocking of food prices.