This week’s surprise announcement by Coles that is quitting the service station game makes perfect sense, say retail experts, as fuel providers face an uncertain economy and an electric vehicle future.
The supermarket giant revealed on Wednesday that Viva Energy, the company that already ran the Shell-branded servos, will buy its 710 Coles Express stores nationwide.
The move might seem confusing because supermarkets are increasingly investing in convenience-concept stores due to the high cost of city sites and consumers buying fewer items at a time. But retail experts say it’s a savvy move to reduce future costs.
Woolworths sold its 540 fuel convenience sites to EG Group for more than $1.7 billion in 2019.
Sale a ‘smart move’
Gary Mortimer, Queensland University of Technology consumer and retail expert, said offloading service stations was a smart move by the supermarket heavyweight, given the amount of competition in the convenience store sector, and the effect of fuel prices on consumer spending.
While Coles Express will eventually be rebranded, Coles will continue to supply its own brand product range to the service stations – just as in rival Woolworths’ deal with Caltex and Ampol.
Customers will also have access to the retailer’s Flybuys program and four-cent-per-litre fuel docket discount.
This means Coles and Woolworths are still making money from their product ranges without having to manage fuel prices or service stations.
“The convenience store sector is a highly-competitive sector, with lots of major players like 7-Eleven in the market,” Dr Mortimer said.
“The challenge of running a service station or petrol convenience business is that a lot of your store sale revenue is tied to fuel pricing.
“We know that when fuel prices are up, consumers are less likely to … make an in-store purchase. So that’s a little bit more challenging to run than a basic supermarket.”
Money-saving deal
Coles’ sale of its fuel and convenience stores means the retailer will be off-the-hook for $816 million worth of lease liabilities, fuel price pressures, and the refurbishments necessary to keep up with Australia’s electric vehicle future.
University of Tasmania retail expert Louise Grimmer told The New Daily Coles’ move reflects the challenges Coles Express faced throughout the pandemic.
Coles Group 2022 annual report found lockdowns during the first half of the financial year led to reduced fuel volumes. The recovery of Coles Express outlets was stunted as flooding coincided with higher global fuel prices.
More than 30 Coles Express sites closed due to floods, with three remaining closed at the end of the financial year.
“This move allows Coles to reduce risk across its portfolio and to concentrate on its strengths in food and liquor sales,” Dr Grimmer said.
Brian Walker, Retail Doctor Group founder and CEO, said by choosing to specialise in the food and groceries market, Coles could also be saving itself from the costs of growing demand for EV infrastructure.
While there isn’t yet a huge market for EVs in Australia as the country drags its heels on electric uptake, the Albanese government has introduced legislative changes to parliament in a bid to incentivise people to buy EVs, and car manufacturers are introducing more models to the local market.
By washing its hands of the fuel side of its business, Coles is saving itself the trouble of moving with the direction Australia’s car industry is slowly taking.
“The move to electric vehicles [means] the space, the petrol tanks, all that’s going to change,” Mr Walker said.
“That’s going to take funds and it’s going to take specialisation to transform it.”
The $300 million sale is expected to be completed by the end of this financial year, pending regulator approval.
