Coles feels pain at bowser as drivers shun higher fuel prices

John Dagge,
Herald Sun
October 16, 2018
EXCLUSIVE: COLES has lost upwards of 1.3 billion litres in annul fuel sales — enough to fill-up more than 400,000 cars a week — since it formed a supplier partnership with Viva Energy.
Petrol sales at Coles Express service stations have dropped by one-third since 2014 as the supermarket heavyweight consistently charges more than rivals.
The lack of a competitive fuel offer from Coles, which operates a network of more than 700 petrol stations, is troubling analysts as the nation’s second biggest supermarket chain prepares to begin life as a company listed independently on the stock exchange.
The problem is becoming more acute as petrol prices rise, making motorists more willing to seek out cheaper places to fill up.
“It’s certainly one of my key priorities to work with Viva and look for some win-wins,” new Coles chief Steven Cain told analysts this week.
“The team are doing a couple of experiments across the country to look at alternative price structures. It’s something both ourselves and our partner want to resolve.”
Swiss-based commodities trading titan Vitol bought Shell’s network of service stations and the Geelong refinery at the start of 2014. The transaction meant Vitol, which branded its Australian operations Viva Energy, became the fuel supplier to Coles.
Under the arrangement, Coles, owned by Perth-based conglomerate Wesfarmers, retains control over pump prices.
But Viva is charging Coles more for fuel than Shell did, particularly since 2017.
Coles has passed the price hike on to motorists rather than take the hit itself.
“Coles has been losing sales volumes in fuel for some time now,” IbisWorld analyst Jason Aravanis told Business Daily.
“Other players with significantly lower prices, such as 7-Eleven and United, really seem to be undermining Coles in this space.”
Mr Aravanis said it remained to be seen what approach Mr Cain would take with fuel, but noted it remained an important lure for shoppers.
“He isn’t one to take the situation as it is,” Mr Aravanis said.
Bank of America Merrill Lynch retail analyst David Errington questioned how much progress Mr Cain could make to improve the fuel offer, suggesting the supermarket boss was “sitting on a bit of a landmine here that he just can’t get out of”.
Wesfarmers chief Rob Scott this week said the volume of fuel sold by Coles had fallen from 90 million litres a week to about 65 million litres since Viva became its supplier.
The decline adds up to 1.3 billion litres a year, enough to fill about 416,650 average 60-litre fuel tanks a week.
The Australian Competition and Consumer Commission estimates Coles’ share of the fuel market has fallen from 25 per cent in 2014 when petrol sales stood at 18.1 billion litres to 19 per cent last year, when sales were 18.6 billion litres.
It has also named Coles as having the most expensive fuel across the nation.
Coles this week revealed the volume of fuel sales dropped about 16 per cent for the three months to September, compared with the same period a year earlier.
Fuel volumes at Coles Express were down 19 per cent in the year to June and 16 per cent the previous financial year.
The latest fall may have resulted in Woolworths overtaking its key rival in fuel sales.
Coles on Tuesday declined to elaborate on the trials it is running to improve its fuel offer.