Loss-Leaders and Lost Leaders
"Plucking the goose without making it scream"
Selling any product below cost sounds a bit silly, but using “loss-leaders” is a practice large retailers can use to create loyalty and attract new clients. The assumption is that the losses will be recovered as those clients buy a wider range of products. This practice has been illegal in France since 1963 in recognition of the unfair competitive advantage it gives large incumbents. Notwithstanding this, small gas-stations have gone almost extinct as the large super-markets can sell at almost zero margins.
This week, Macron and his team announced they want to provide exceptions to this sixty year old law - specifically for fuel resellers. Oddly there were no takers - selling at a loss is not a great plan when done at scale. Backing away from this, Marcon has suggested that the retailers sell "at cost" - to help consumers struggling with higher prices. What a nice guy.
He has also indicated that he wants to push this back up to refiners, accusing them of making “abusive (excessive) margins”.
«Il y a une chose sur laquelle on peut agir, c'est d'essayer [d'éviter] qu'il y ait des marges abusives qui se fassent sur le raffinage. [...] La première ministre va rassembler tous les acteurs de la filière cette semaine, et on va leur demander de faire à prix coûtant» (Figaro)
If successful, this will be the final nail in the coffin of European refining. Later when Europe imports all its petrol (gasoline) and diesel - bonjour pricing power for the sellers!
Dollars and Nonsense
Whilst all this is a bit bonkers - the real story is hidden in the ideology of the current crop of Western Suicide-Squad politicians.
To understand the “pain at the pump” in Europe one has to look at fuel-tax
- 64% of the price of petrol and 59% of the price of diesel is fuel-tax.
Unleaded is €1.94/litre (which is, wait for it… $7.6/ US Gallon).
Thus, if there was no Fuel Tax - unleaded would be €0.69/l (or $2.74/gallon).
Using the classic gas-lighting that Europeans should be used to by now, Macron is trying to focus public anger on the "abusive margins" of the refiners and the retailers. Look over there, a squirrel!
Eat the Poor
So why not help the struggling consumer by reducing those taxes a bit? After all, one might suggest that the taxes are “excessive” and “abusive”?
It should be of no surprise to my regular readers that this short answer from Macron contains a lot of context that main-stream media won’t highlight.
Macron’s reply to “why not reduce the fuel taxes?” is simple:
Firstly, “our health system depends on these taxes” , as do the depopulated “rural regions” - which is quite the admission, given the high levels of income, corporate, wealth, inheritance and sales taxes in France. Once again, we can see that oil is not subsidized but actually a provider of tax income in most consuming countries (as well as in producers). Talking of subsidies….
Secondly, Macron cannot touch the fuel tax, because it is “funding the energy transition”. Oh yes, that. Twenty-something years on and not even close to flying alone.
The window is closing
Considering the anger that high fuel-prices caused in 2018 - one would think that the message “why should we pay more to get to work, so some rich guy in Paris can buy a subsidised Tesla” - would be top-of-mind for Macron. It will require little more for Marine LePen to jump on the rising tide of anti Net-Zero sentiment. The Overton Window on the Energy Transition is moving. When politicians could simply promise it would be Cheaper and Greener - it was an easy vote winner. As that lie gets exposed by physics and economic reality - the cost-of-living will become the vote winner.
Macron should look to Sunak not Trudeau for guidance
Meanwhile, for €3.99....
