The UK’s competition watchdog has said a decision by Asda and Morrisons to target higher fuel margins has weakened competition in the market.

An investigation by the Competition and Markets Authority (CMA) recently found that in 2023 Asda’s fuel margin target was more than three times what it had been for 2019, while Morrisons doubled its margin target over the same period.

The findings come several months after Asda bought petrol station group EG for around £2.3 billion. Under the the deal, completed in May, the retailer took over EG’s UK and Ireland business comprising 350 petrol stations and more than 1,000 food-to-go locations.

Traditionally supermarkets are the cheapest places to buy fuel, with Asda generally being the least expensive, which has anchored prices in the past.

However, following the decision for the retailers to hike prices, Sainsbury’s and Tesco did not respond to the fuel margin increase the way the CMA would expect in a competitive market, instead raising their prices in line with these changes.

The regulator said that the move indicates that competition has weakened in the market.

Diesel prices have also been slow to drop this year, which the organisation blamed in part on Asda reducing prices more slowly as wholesale prices declined and other companies selling fuel not responding competitively to that.

The CMA said that as a result of this, it estimates that drivers have paid 13 PPL more for diesel from January 2023 to the end of May 2023 than if margins had been at their historic average.

In response the authority has announced a new fuel finder scheme to give drivers access to live, station-by-station fuel prices on their phones or satnavs to "help revitalise competition".

"Drivers buying fuel at supermarkets in 2022 have paid around 6 pence per litre more than they would have done otherwise, due to the four major supermarkets increasing their margins," said Sarah Cardell, chief executive, CMA. "This will have had a greater impact on vulnerable people, particularly those in areas with less choice of fuel stations."

Morrisons said that it welcomed the CMA's recommendation for an open data fuel finder scheme.

"Morrisons remains extremely competitive on fuel pricing and although margins have increased, they remain very low," said a Morrisons spokesperson. "The calculation of margin on fuel does not include the costs of running a fuel business - such as energy, rents and payroll - which have substantially increased through the cost of living crisis while volumes have declined since Covid.

"The modest increase in the profitability in fuel has been an important part of our ability to invest in holding and lowering prices in store."

The CMA has also hit Asda with a £60,000 fine for failing to respond completely to a written request for information regarding the fuel market and sending a representative to attend a compulsory interview who was "not equipped to provide evidence on certain topics" that the organisation had identified in advance.

“The CMA’s comprehensive road fuel market review recognised Asda as the price leader and confirmed the presence of an Asda petrol station in a local area keeps prices down for all motorists," said an Asda spokesperson. "Despite record inflation, we have carefully managed our business to ensure Asda was the cheapest traditional supermarket for both groceries and fuel throughout the period reviewed by the CMA and this position is unchanged."

They added that the penalties relate to "two individual alleged technical breaches" in the way information was shared with the CMA over a 12-month period, during which time a "significant number of documents were shared with the CMA to aid their study and we engaged fulsomely with their enquiries".

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