No " Free Lunch " !

Some wit once observed that there was no such thing as a " free lunch ".    He was alluding to the fact that when " give away " deals are closely examined, the cost is always factored in to the bottom line.

Such is the case in the petrol price war being waged between grocery giants - Coles and Woolworths.   Several factors have come together in recent days.  We are nearing the end of the school holidays in New South Wales.  The Australian dollar has dropped in value against the US dollar - and political events in oil producing countries has sent the price of crude soaring to dizzy heights.  As a result, petrol has reached this year's high of well over $ 1.50 a litre.

Both the grocery giants are offering price relief to car owners.  Full page advertisements in national newspapers offer a discount of sixteen cents a litre from Coles and seventeen cents a litre from Woolworths - and these offers will end on July 18.

To qualify for this cheaper petrol, customers must spend a hundred dollars on a single purchase at one of the brand's supermarkets !

We are assured by the petrol selling industry that independents trade on margins of just two or three cents a litre on petrol sales and that is why most have morphed into " Seven Eleven " type stores.    They rely on petrol to bring customers into their stores and hope to make a better margin from the other merchandise offered.

It stands to reason that the grocery giants have factored in the cost of this " give away " when setting their shelf prices.  It is a classic case of the " loss leader " style of marketing.  Pick a popular item and price it below cost, and pick up the difference by adding a fraction to all the other goods that are not on " special ".

Of course,  there are winners and losers in this situation.    Pensioners and those others who do not run a car are subsidizing the petrol discounts by paying higher shelf prices, and those who do run a car, but buy just a few items below that $ 100 purchase level - are getting a negative reward.

One of the skills of the advertising people is their ability to create an " illusion ".
This " cheap petrol " is a case in point.   It is thinning the ranks of both independent stores selling groceries - and decimating the number of independent petrol stations in our cities and towns.

If it reaches an obvious conclusion, even that offer of a " free lunch " will quickly disappear !