The State of Play-Retail Service Stations

The retail service station sector continues to change and this item summarises some of the major changes in recent months.

CALTEX

Caltex have indicated that the majority of their network franchise service station sites will change to company operation by 2020-1. In addition, Caltex are implementing their The Foodary concept to their convenience stores at the service station and plan to open a standalone The Foodary outlet with no petrol offering at all. With more than 1,900 service stations Caltex is Australia's largest fuel network

COLES EXPRESS

Coles Express indicates they are willing to exit the market, telling the Australian Financial Review (15/10/18 Sue Mitchell). New Coles managing director Steven Cain says he is willing to exit the $35 billion retail fuel market (710 Coles Express convenience stores) at the right price to end a deal that has saddled the retailer with Australia's highest petrol prices and led to a one-third slump in sales volumes over the past two years. Mr Cain said that Coles,( which has since demerged from Wesfarmers), is experimenting with a convenience store format that sells on-the-go foods such as sandwiches and snacks and a range of grocery staples, but crucially does not sell fuel. Asked if Coles, like Woolworths, would consider exiting the low-margin fuel business, Mr Cain said: "Our approach going forward will be like the Wesfarmers one – if someone comes along and offers the right price for the business clearly we'd look at it." However, he also said Coles Express, which accounts for 18 per cent of the retail fuel market, was "something of a powerhouse" and was a business that had further upside. Coles' pump prices are routinely several cents higher than those at rivals such as Woolworths and Caltex, BP and 7-Eleven and it is rapidly losing market share due to an uncompetitive fuel supply agreement with the recently listed Viva Energy, which took over the Coles contract in 2014 after buying Shell’s retail fuel and refinery businesses. Coles Express comparable fuel volumes slumped 15.9 per cent in the September quarter.

WESFARMERS sells COLES

Retail World (Editor-16/11/18) reports that Wesfarmers shareholders have voted overwhelmingly to demerge Coles into a $20 billion standalone business.  Wesfarmers bought Coles in 2007. Subject to regulatory approval, the ASX will list Cole’s shares and it looks set to become a top-30 ASX-listed company to rival Woolworths (according to news.com.au.) Wesfarmers Chair Michael Chaney said: “As shareholders, we will end up with separate interests in two businesses – a standalone Coles (Includes Coles Express service stations and Coles Supermarket stores), and Wesfarmers without Coles (includes Bunnings, Target, K Mart, Officeworks and 15% in the stand alone Coles). Having already disposed of the Bunnings UK business, widely seen as a disastrous venture, Wesfarmers says the demerging of Coles will help shift investment towards businesses with higher potential for earnings growth in the future.

NEW PAYMENT TECHNOLOGY

BPme smartphone app allows a customer to pay for their fuel from their car. Open the app in car before filling; select pump and payment method; then refuel and go.

FuelPay® is a new feature at Caltex. The App that lets you pay for fuel without the need to pay in store. Simply refuel your vehicle, open the app and enter your pump, and tap ‘Pay now’.

WOOLWORTHS

Woolworths sells its 540 Woolworths service stations to the British company EG group (a brand new Australian retail  player) for 1.72billion as reported in the Sydney Morning Herald 9/11/18 ( Patrick Hash). The sale follows an earlier deal worth $1.8 billion between Woolworths and BP falling through after it blocked by the ACCC. EG operates more than 4700 service stations in Europe and North America, including under the Euro Garages and Esso brands.

Woolworths said it had entered a 15-year agreement with EG that will maintain its 4¢ a litre fuel discount shopper dockets across the network, and enable Woolworths Rewards points to be earned on fuel transactions across its network. Woolworths will also sell wholesale food and groceries to the chain of service stations under the agreement.

The proceeds of the sale could provide valuable ammunition for Woolworths to either cut grocery prices or invest more in its supermarkets. Woolworths said it would consider a “range of options” for what to do with the $1.7 billion windfall, including paying it as dividends to shareholders.

"This transaction is a positive for our customers, our team and our shareholders," said Woolworths CEO Brad Banducci.

The deal needs approval from the Foreign Investment Review Board, and is expected to be completed early 2019. EG founder and co-CEO Mohsin Issa said Woolworths’ service stations offered a "fantastic opportunity" to grow its international footprint. “We are committed to investing in the site network, introducing leading retail brands, developing the alliance with Woolworths and working with the exceptional management team," Mr Issa said. EG mostly runs large-format petrol stations, selling fuel, and housing retailers and fast-food restaurants.

Fuel major Caltex will retain its long-term petrol supply deal for the Woolworths sites. Woolworths' finalising a sale of its petrol stations follows a tortured attempt to offload them to BP, which agreed to buy them almost two years ago. The ACCC blocked the deal in August 2017 over concerns it would reduce competition and result in motorists paying more for petrol - despite BP offering to sell a large number of its stores where there was geographical overlap.

BP eventually pulled the pin on the deal in July this year, saying the concessions that would have been required to satisfy the ACCC would make the deal commercially unviable.

OILCODE DISPUTE RESOLUTION

There has been a change in the Government Department which has coverage of Oilcode dispute resolution. For a number of years, an Oilcode Dispute Resolution Advisor (legal firm appointed by Federal Government) advised service stations on the resolution of disputes under Oilcode (part of the Department of Environment and Energy). Now, the Australian Small Business and Family Enterprise Ombudsman assistance team can help businesses to resolve disputes that fall under the Franchising and Oil Codes of Conduct. These mandatory industry codes, prescribed under the Competition and Consumer Act 2010, help participants in these industries understand their rights and responsibilities. Each of the codes includes dispute resolution processes. The Oil Code of Conduct is a mandatory code that regulates the conduct of wholesalers and fuel resellers who are involved in the sale, supply or purchase of declared petroleum products such as unleaded petrol and diesel. The Ombudsman Assistance Team can provide you information on the Code and access to mediation services. The Code states that parties must act in good faith. This means parties must act honestly, and not arbitrarily, with each other and cooperate to resolve the dispute.

Under the Code, the dispute resolution scheme applies to disputes arising:

1) where a wholesale supplier fails to supply a declared petroleum product to a customer

2) between the parties to a fuel re-selling agreement

3) in relation to other provisions under the Oil Code.

 If help is needed to resolve an oil code dispute, lodge an online form and a case manager will get back to you within 24 hours.

The relevant contacts are as follows: Phone: 1300 650 460 Email: info@asbfeo.gov.au

Website: www.asbfeo.gov.au/industrycodes/oilcode

BP AND ELECTRIC CARS

The Sydney Morning Herald (4/9/18 Cole Latimer) report that BP remains focused on its petrol stations but is in no rush to start integrating electric vehicle charging. BP had agreed to buy 543 Woolworths fuel and convenience stores around Australia but it was knocked back by the ACCC. BP’s vice president for global strategic planning, Dominic Emery, told Fairfax Media. “We won’t be rushing it in Australia. We’re continuing to look to grow organically but we have no decision on how we progress on this,” Mr Emery said. This slower organic growth includes electric vehicle integration at its service stations. “We’ve had a successful retail business in Australia for some time now. Electric vehicles are a penetrable market for us but there are no incentives or subsidies to ramp it up in Australia,” Mr Emery said. “I think for electric vehicles we’ll look overseas and learn from what others are doing and that will be applied in Australia.”

This stance is similar to BP’s rival Caltex, which sees electric vehicles as inevitability for the sector but also has no short-term plans to integrate the technology.

COLES AND VIVA ENERGY RENEW DEAL

Coles and Viva Energy have entered into a new deal following a prediction that its convenience earnings will drop by 60%. Source:  Lucy Marrett February 7, 2019

• According to News SBS.com.au, Coles chief executive Steven Cain said having some of Australia’s highest fuel prices had hurt business.
• The SBS said following the news of the agreement, Viva stock saw its best-ever daily performance, while Coles shares went down.
• According to the SBS, average weekly fuel volumes were 11.7 million litres lower in the first half of the 2019 compared with the same time last year.
• The new agreement will see an expected fuel growth of an average 75 million litres per week.
• Viva Energy will reportedly pay $137 million to renew its fuel partnership with Coles.
• In the new arrangement, Coles Express will sell fuel on an ‘agency basis’ – that is, on commission.
• Viva Energy will take control of the service station forecourt by setting retail prices and making marketing decisions. (Under the previous arrangement, Coles bought fuel from Viva wholesale then set its own retail prices.)
• Coles Express will continue to take care of the convenience component, using its FMCG expertise. But it will pay Viva an “enhanced royalty” from convenience-store sales.
• The terms of the revised alliance are not subject to any conditions precedent and are expected to come into effect in early March.