Woolies’ new deal with Caltex
WOOLWORTHS and Caltex have inked a new 15-year fuel supply agreement that also includes a partnership that will cover more convenience stores, wholesale food supply and its loyalty rewards program for customers.
Australia's largest supermarket operator plans to start wholesale food supply to more than 700 existing Caltex convenience sites as part of the deal.
Caltex will make a one-off payment of around $50 million to Woolworths this month under the deal, giving Woolworths an expected pre-tax earning boost of $80 million a year.
Woolworths Group chief executive Brad Banducci said the deal was valuable from a customer perspective in the immediate to short term, given increased opportunities for fuel discounts and rewards.
But he said Woolworths still intends to exit the petrol business and pursue an IPO or sale of its petrol business as retaining it was not optimal for long-term success and the money released from exiting could be put to better use.
Woolworths' petrol business has been working with Caltex since 2004.
The agreement comes two weeks after Woolworths cancelled the $1.8 billion sale of its petrol stations to BP after it was blocked by the Australian Competition and Consumer Commission (ACCC).
The deal would have seen BP buy Woolworths' 543 fuel and convenience stores.
"We just think we're not the natural owner and others who are more global or looking at the trends are much better placed to operate it," Mr Banducci said on Thursday.
"It still will be in partnership with us, so we think that there's a lot of benefit there."
Under the new agreement, Woolworths' four cents-a-litre fuel discount will expand across 125 new Caltex sites, on top of 104 existing sites.
Customers will also be able to earn points as part of Woolworths' rewards program at more than 700 Caltex sites.
"While we were disappointed with the termination of the BP agreement, we believe the customer benefits of our alliance with Caltex, combined with a new fuel supply agreement, will allow us to deliver a compelling outcome for both our customers and our shareholders," Mr Banducci said.
He also added that regardless of whether Woolworths keeps or spins off its petrol, offering the Caltex deal strengthens the business.
"It is a plan B, obviously," Mr Banducci said.
"We worked together with BP for well over a year-and-a-half to get that deal over the line and we remain disappointed on the announcements and decisions by the ACCC."
"The Woolworths Petrol business is in a good position to pursue its own growth agenda supported by a highly competitive fuel supply agreement and a strengthened management team, all underpinned by solid links to the Woolworths food business."
The regulator's refusal in December to green light the proposed deal boosted BP rival Caltex, which stood to lose a major fuel supply contract with Woolworths.
Meanwhile, Woolworths and Caltex plan to co-create a convenience offering under the Metro banner in up to 250 Caltex sites over the next six years, with 50 sites planned over the next two years.