Coles has signed a new deal with petrol partner Viva Energy after predicting earnings from its convenience store division to plunge this year more than 60 per cent.
Coles chief executive Steven Cain told analysts on Wednesday that having some of Australia’s highest fuel prices had hurt business, citing declining fuel volumes and lower earnings.
Viva stock enjoyed its best-ever daily performance on the news, closing 26.5 cents higher, or 13.77 per cent, to $2.19. Coles shares were down 32 cents, or 2.51 per cent, to $12.41.
Average weekly fuel volumes were 11.7 million litres lower in the first half of the 2019 financial year compared with the same period a year prior.
“What you can see from this trajectory is the future was not sustainable and we’ve lost enormous amount of volume over the years,” Mr Cain said.
Coles Convenience no longer has to pay brand fees to the Coles’ Supermarket division following the Wesfarmers demerger, and expects to earn $50 million before interest and taxes this financial year.
Under the new agreement Coles and Viva Energy expect fuel volumes to grow to an average of 75 million litres per week.
Mr Cain told analysts that if volumes remained where they were – about 60 millions litres per week – at the back-half of 2018, the business was on-track to break even.
Viva Energy will pay $137 million to renew its fuel partnership with Coles and gain the right to set fuel prices.
Coles will remain responsible for operating the Coles Express retail stores and will receive a commission per litre of fuel sold at Viva’s Shell filling stations, while Viva will receive an enhanced royalty on convenience sales.
Viva Energy and Coles Express will jointly offer loyalty programs and rewards to leverage profit for both organisations.
“Together, we represent Australia’s leading fuel and convenience offer and we look forward to growing the Alliance with Coles Express in the years to come,” Viva Energy chief executive Scott Wyatt said in a statement.
The new 10-year agreement come into effect from March 2019.