Coles Express signals petrol price cuts as earnings plunge

Patrick Hatch and Cole Latimer
6 February 2019
The Age

Petrol prices are set to fall at Coles Express services stations under a new deal with its fuel supplier which it hopes will enable it to compete more sharply with rivals BP and Caltex.
The supermarket giant’s fuel sales have been falling because its pump prices were too high under its agreement with Viva Energy, and the Australian Competition and Consumer Commission has signalled it out as the most expensive fuel retailer in the country.
On Wednesday, Coles said that earnings from its Express division would fall almost 70 per cent this year and revealed it had signed a new agreement with Viva locking in the partnership to 2029.
Under the new deal, Viva will operate and set prices at the bowser. Coles will take a commission on each litre of petrol Viva sells, and run the convenience store operations at each service station.
Underscoring the need for change in the business, Coles released a trading update on Wednesday showing that average fuel sale volumes in the first half of this financial year were down to 62 million litres a week, compared with 74 million a week last year.
It forecast earnings from the Coles Express business would fall from $164 million last year to $50 million this year, which equates to a drop in earnings of about 7 per cent within the Coles business as a whole.
Coles Express chief executive Alister Jordan said that having each side of the partnership focusing on their speciality would make them more competitive.
“It allows us to rebuild the Coles Express business with Viva, where both sides are highly aligned and incentivised to grow the overall alliance,” Mr Jordan said.
Viva Energy chief executive Scott Wyatt said by shifting the control of the pump from Coles back to Viva the fuel price would likely drop.
“Historically, Coles set the retail pump price but we felt in order to grow our business we had to have control over how the pump price is set,” Mr Wyatt said.
“Part of this deal is focusing on improving our fuel offer and improving the competitiveness of pricing.”
He said the company was aiming at a modest increase in fuel sales, rising from the average of 64.2 million litres a week sold last year to between 70 and 75 million litres a week.
“This is a very significant milestone for the company,” Mr Wyatt said.
“We’ve taken the opportunity to reset the relationship and recognise things have changed.”
Loyalty scheme benefits such as earning Flybuys points on fuel sales and the 4¢ a litre shopper docket discount would continue, Coles said.
Viva’s shares were up 13 per cent to $2.17 by 1.30pm, while Coles, which was spun-off from Wesfarmers in November, was down 2.2 per cent to $12.45.