It’s a fascinating time to be working in the fuel-retail industry in Australia.
A steep escalation in the capital value of retail-fuel sites across Australia, coupled with the potential growth in earnings that can be harvested from time-poor consumers in the convenience sector, suggests that our industry is on the cusp of a revolutionary change – one that reduces fuel retailers’ exposure to economic loss from the lower petrol demand created by the introduction of more fuel-efficient vehicles in the Australian light-vehicle fleet.
“These trends have seen ACAPMA spending as much time providing information to the Australian investment sector as we have traditionally spent discussing fuelpricing issues in Australia,” ACAPMA CEO Mark McKenzie said.
“My personal belief is that we are on the cusp of a new age in petrol and convenience that will bust the traditional paradigm of a service station being just a facility that provides fuel with ‘chips, chocs and drinks’.” Evidence of the near-term opportunity in the fuel-retail industry is provided by three major announcements that have been made recently.
The first came from Viva Energy Australia (the supplier of Shell products in Australia) on June 21, with the formal launch of its initial public offering (IPO) for its fuel business to be listed on the ASX.
The launch followed an earlier announcement of its intent to list its Geelong (Victoria) refinery and nationwide fuelretail business on the ASX in May 2018, and later statements indicating that about half of the offering had been subscribed to by institutional investors before the launch of the public IPO.
The deal will see Viva become the second fuel-retail business to be listed on the ASX, alongside Caltex Australia.
The most recent media on this development tells us that Viva float is on track to raise at least $2.4 billion, the biggest IPO in Australia for more than four years.
Just two days later, BP announced it had abandoned its proposal to acquire Woolworths’ service-station business in the face of the ACCC’s opposition to the deal and the lack of an appropriate workaround.
Somewhat ironically, the deal would have resulted in the combined business having fewer sites in total flying the BP/Woolworths brand than the number that were already flying the Caltex/Woolworths brand before the deal was announced (although the ACCC’s concern largely centred on the resulting disproportionate concentration in several local marketing areas around the country).
It would be fair to say this was a bit of a blow for both parties. But, given that both organisations are gifted with outstanding management teams, it is only a matter of time before they have dusted themselves off and re-emerged with their plan Bs.
For Woolworths, plan B emerged sooner rather than later, with the announcement that it had struck a new deal with Caltex Australia.
In essence, the deal does not change the number of sites displaying either the Caltex or Woolworths brands, with Woolworths continuing to operate 531 sites and Caltex maintaining the number of Caltex-branded sites.
The deal does, however, provide Caltex with greater certainty in its fuel-supply deal with the retailer for the next 15 years, while increasing the number of sites across the country participating in the Woolworths loyalty program from the current 104 to 229 across the country.
What does it all mean for the industry?
Well, before we answer that question, it is worth noting that there has been one other major announcement by a fuel retailer in the past three months.
In March 2018, Wesfarmers announced its plans to demerge Coles from the group. While less eye-catching than the other announcements, this will also probably have a marked impact on the market, with a refocused (and leaner) Coles management team seeking to carve out a greater share of the highly competitive Australian fuel-retail market.
These three announcements provide a pointer to what is likely to happen over the next three to five years in our market.
“We’re entering the convenience revolution in our industry, where fuel retailers move to broaden their offerings to the point where convenience products become as important as fuel in their dayto- day operations,” Mr McKenzie said. “But this revolution isn’t just the playing field of the big guys.”
Dealers and independent businesses have moved heavily into this space over the past three to four years. Many of them are taking advantage of the buying power of co-operative buying groups such as UCB and New Sunrise to access a range of convenience items at competitive prices, together with convenience-retailing support services.
Mid-cap fuel retailers such as APCO, Tasco and Jack & Co have entered the convenience space with a finesse to match the efforts of the “big guys”.
Those of us who work in the industry know that competition in our market occurs on a site-by-site basis, not at enterprise level or a ‘whole-of-city’ level. Accordingly, all retailers (large and small) are now engaged in a battle to capture an increased share of the combined petrol and convenience market . within their local communities.
Different people will have different views on the impact of the recently announced moves on the future shape of the Australian fuel industry in the near term.
“What is certain, however, is that the shape of the petrol-convenience market will be very different five years from now,” Mr McKenzie said.