Germany: Aral Introduces New Incentives for Service Station Network

Aral is testing a new business model that rewards operators for maintaining higher prices. The company says it's trying to bring stability in a volatile market.

The national newspaper Die Welt broke the story earlier this week after it had obtained internal memos detailing Aral's strategy. The company confirmed the trial and described the move as an attempt to bring stability to a market that has become increasingly volatile.

"The fuel station market is highly contested and requires new contracts so Aral fuel stations can stay competitive," Aral said in a statement. "The intense competition in the German fuel station market determines prices. Without prices conforming to the market, Aral would lose customers to the competition."

Last year, German fuel service stations upped their prices 196 times, lowering them gradually over a period of hours or days in an attempt to outmaneuver the competition before raising prices again and repeating the cycle. By comparison, there were only 43 such pricing rounds in 1999.

On average, German fuel service station leaseholders only make about 1 euro cent of profit on every liter of fuel they sell. As a result, less than 20 percent of the average operator's revenue comes from gasoline and diesel sales. Nearly two thirds is generated by other items like newspapers, cigarettes, snacks and beverages. Karin Retzlaff, of the Berlin-based Association of the German Petroleum Industry (MWV), says fuel station operators need to offer low fuel prices to lure customers into their lucrative shops.

Critics say technology has made it easier for the five companies that control 70 percent of Germany’s fuel retail market to adjust prices based on each other's actions.

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