KEY POINTS:
The latest round in the Battle of the Supermarket Titans has broken out - and the nation's petrol pumps is where the fighting is fiercest.
Shoppers are being offered a 10 cents per litre discount off fuel - if they buy more than $70 of groceries at either of the nation's two big supermarket chains.
The offer was first made by Progressive - the owner of Woolworths and Foodtown stores - with vouchers redeemed at Shell stations.
Foodstuffs - Progressive's rival in the national grocery duopoly - quickly responded with the same deal, allowing shoppers to get the same discount on fuel bought at either its own pumps or other BP stations.
Both of the deals end today, meaning shoppers have been given just a few days to take advantage of the new-style fuel price war.
It's all part of a new strategy by the supermarkets, desperate to gain market share from their arch-rivals, and cheaper petrol is used as the lure.
And the petrol chains that have joined up with the big supermarkets are loving it because they are now getting new business from their rivals who aren't part of a petrol deal.
Supermarkets are getting into the fuel business in many parts of the world. It has made a big impact in Australia, with Shell selling nearly 600 of its stations to the Coles supermarket group.
Their involvement has been blamed for "wiping out competition" since the alliances shut out smaller, independent fuel retailers who can't compete with the deep pockets of the big grocery chains.
While New Zealanders may look first at the cheap petrol, the latest promotions are all about the grocery war.
And it seems to be working. Latest research by ACNielsen shows 9 per cent of those surveyed have changed their grocery shopping because of the fuel discounts.
"Now I believe, by any measure, in such a hotly contested market that's a pretty strong result. It is significant," says Michael Walton, director of retailer services for ACNielsen.
But ACNielsen's research shows the fuel discounts have been an even greater bonanza for the fuel companies - BP and Shell - with 25 per cent of people saying they have changed where they buy their petrol.
This latest promotion - the 10 cents a litre discount - may be a sign that the market is again changing, with more sophisticated and targeted promotions needed to break out of the "4 cent a litre discount" that has quickly become standard fare.
Such a big discount - but only on a $70-plus shopping bill - is likely to get shoppers to change where they do their big weekly grocery shop, rather than "top-up" missions.
"With every supermarket offering discounts on fuel, it's no longer a competitive advantage and, in fact, this ACNielsen study shows they are having more impact on the petrol pump than on supermarket choice," said Walton earlier this year. This was when he predicted supermarkets would soon look for "differentiation, juicing up their offer with even more generous discounts".
Walton told the Herald on Sunday that new and inventive promotions were needed.
"Looking a year or two down the track, it would make sense that the next logical play for the supermarkets to make this kind of promotion work is to find new and inventive ways to spike consumer interest in it."
This might be higher discount levels for short periods - as seen this week - discounts for certain types of groceries, or only in some geographical areas.
Mark Forsyth, general manager of retailing for Shell NZ, says installing petrol pumps at Foodstuff's supermarket sites has not significantly changed the face of the fuel industry - they are viewed as just another competitor.
"We don't distinguish between a competitor that's a supermarket or one that's a fuel outlet," he says.
"We do our best to compete with all of them. Certainly, from our experience, we are very pleased with how our experience with Progressive has gone so far."
Supermarkets in Western Europe, the UK, Australia and America's West Coast have all entered the fuel retailing business, says Forsyth, "... on the basis it's another product they offer at their locations, just like pharmacies, dry cleaning or video stores.
"It's just another product they offer to their customers."
A supermarket can either decide to build its own network of sites, which takes time and is expensive, or join forces with an oil company, which is how Progressive has worked with Shell. It means Progressive has come from "nowhere in the fuel space" to a national arrangement of being able to offer fuel discounts to all customers in a short space of time.
Foodstuffs' South Island chief executive, Steve Anderson, says the supermarket chain is pursuing a "two-pronged approach" - putting self-service pumps on its car parks where it makes sense, but using redeemable BP vouchers for the rest.
BP supplies the petrol to the Foodstuffs supermarket pumps, under a "agent-dealer" relationship. Foodstuffs pumps on its behalf and is paid a pumping fee. Foodstuffs decides what the fuel price will be, not BP which owns the petrol.
The connection between supermarkets and fuel makes sense to people, says Anderson.
"If people have to put on their safety belts, then it becomes inconvenient - that's one of the key drivers for having fuel sites on car parks," he says.
Progressive spokeswoman Fiona Breen says the chain decided to go with the Shell arrangement, rather than build its own pumps, because it "felt that partnering with a business that had expertise in petrol retailing was a better approach for us to take than trying to do it ourselves".
She says: "We thought we could focus on what our core business is - and let them focus on what their core business is - but in developing a partnership with them."
It freed up customers to use their Shell dockets at pumps of their choice, rather than being restricted to particular supermarket sites.
She also thinks the way fuel discounts are offered will start to change. "I think it's inevitable the programmes will evolve - by all parties really."
One recent change was Progressive's Super Value and Fresh Choice franchised operations joining the scheme. That means all of Progressive's 150 supermarkets, barring a small number of franchised operations, are part of the fuel discount scheme.
"I guess we are trying to also show our commitment to being competitive in whatever space we are operating in," says Breen.
She would not be drawn on whether the duopoly that exists between the two big supermarket chains means each market move will simply be met by an identical move that will cancel the other out.
She is unable to anticipate what will happen in the future - or what their competitor's response will be to what Progressive did.
"That's probably a bit clutching at the air to predict that," says Breen.
"I would expect as any good competitor does that there will be a to-ing and fro-ing between us and our competitors in that space. And that is of benefit to the consumer as well.
"We're pleased with how it's going, yes. I guess we're confident of our offer. That's why we're getting more aggressive in that space."
Breen says there is "sometimes a bit of a misconception that the discount then goes towards somehow increasing grocery prices".
This is not how it works, with the fuel discounts a "promotional expense", which is born by the supermarket and not the petrol stations.
