Comment | The 'Gull Effect' on petrol prices is great - until it withers away

COMMENT:

Watching the petrol price at a new Gull station increase by 18 cents in just two months served as a reminder that marketing hype doesn't always live up to the reality.

In the lead-up to the opening of its new service station in Glen Eden, Gull posted a banner at the site proclaiming that the "Gull Effect" was coming to the suburb.

This phrase, first coined by the Automobile Association, refers to the trend showing that the introduction of a Gull petrol station forces neighbouring competitors to drop their fuel prices.

This was certainly the case in Glen Eden – for a while.

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When the petrol station first opened in the West Auckland suburb, the price for 91 was an affordable $2.14 per litre – well below anything offered by the neighbouring stations, which had in some cases already exceeded the $2.30 mark.

Calling at Glen Eden locals! The Gull Effect has landed in your neighbourhood 🎉 Gull Glen Eden, located at 265 West...

Posted by Gull New Zealand on Tuesday, 21 August 2018

Things seemed to get even better in August, when Gull ran a network-wide discount of 10c off per litre for 91 - making the Glen Eden station the cheapest in Auckland at $2.04 per litre.

Residents applauded the promotional rate by queuing up outside the open-air self-serve station to fill up their tanks at a time when everyone in the country was bemoaning the steadily rising cost of getting from A to B.

But this is where the good times started to run dry.

The day after this promotion, Gull hiked the price to $2.17 per litre for 91.

While higher than what it was pre-promotion, this was still markedly cheaper than anything offered by the surrounding competitors.

Gull won added favour among residents when it announced it would delay the introduction of the new 3.5-cent excise tax to Wednesday rather than rolling it out on Sunday like the other petrol companies.

The increase did, however, come, pushing up the price to $2.21 – and there were two more lifts to follow.

The petrol price at the Glen Eden station now sits at $2.32 - a figure that doesn't quite match any preconceived ideas of the Gull Effect.

Asked why the price has increased so rapidly at the station, Gull pricing analyst Rohan Mehta told the Herald that there has been a steady increase across the entire network, not just Glen Eden.

"There has been a cumulative increase of 26 cents per litre, including GST, in the base price of regular petrol price since the beginning of August 2018 and we have tried to hold back on prices for as long as we could but these need to be passed forward now," Mehta said.

He also explained that it had become more difficult to keep prices down in Auckland, where strong competition, discounting structures and fuel taxes made it difficult for Gull to keep the prices as low as it does in the regions.

"If we were to take away the 11.5 cents of the regional fuel tax and 4 cents of the excise increase, the price at Glen Eden would have been $2.15 today," he said.

While the Gull Effect wasn't necessarily apparent in a given community, Mehta recommended looking broader across other suburbs.

"[Current pricing at Gull Glen Eden] is 17 cents below the highest-selling 91 price of $2.489 per litre which we believe is prevalent around Auckland airport, the South Island and Wellington," he said.

He added that although the company has increased its prices, it still did have an effect when entering the local market.

"On opening day we were 17 cents cheaper than most, and within a few days we had most of the competition drop and close the gap to match our prices," Mehta said.

That might be true, but the 18-cent increase in the past two months has all but wiped away the single factor that made Gull the most appealing option in the suburb.

Which is to say that the Gull Effect is great - until it's not.