Following a two-year review of the operating model for its convenience-retail business, Caltex Australia aims to move to company operation of all its retail-franchise sites by mid-2020.
The convenience-retail operating-model review began after the 2015 launch of the business’s ‘freedom of convenience’ strategy, under which Caltex has been transformed from a refiner-marketer to a company with a fuel and infrastructure business and a separate, but interconnected, convenience-retail business.
According to Caltex, the review determined the best way for Caltex to achieve its retail-growth objectives was to take control of its franchised businesses.
“Company operation of this core business is key to accelerating the changes required to provide a more consistent customer experience, roll out new platforms, standardise services and simplify supply arrangements,” Caltex Australia said.
At the end of 2017, a total of 314 sites within the 810 Caltex retail consumer network were company operated. This compares with 152 sites at December 31, 2016, and 233 at June 30, 2017. Caltex franchisees operate 433 sites.
Caltex aims to transition all retail franchise sites to company operations by mid-2020. It estimates the total cost of the transition will be between $100 million and $120 million over the next three years. This covers:
- Anticipated transition costs involving a dedicated transition team, direct labour costs (training, on-boarding), implementation costs and anticipated downtime and store ramp-up.
- Consideration paid to franchisees if they agree to the reduced tenure.
- Acquisition of working capital and fixed assets in accordance with franchise agreements.
“Franchising has been an integral part of growing the retail business,” the company said. “Caltex appreciates that this is a significant decision and it will affect many of our franchisees. Caltex will work with our franchisees to manage the impact of this change, including by offering franchisees transition support and offering employment to all franchisee employees.”
The transition announcement was made alongside the release of Caltex Australia’s 2017 full-year results. It reported a replacement-cost operating profit of $621 million, up 18 per cent on the previous corresponding period and marginally above the 2017 profit guidance of $600 million to $620 million.
The company also commented on the rollout of The Foodary pilot, launched in 2017 and with 26 stores now operating under the format.
“While there is significant variation by site (driven by site location, timing of opening, nearby competitive offers), the early results are encouraging, with strong customer feedback and an average non-fuel sales uplift of 35 per cent,” Caltex Australia said of The Foodary initiative.
“There have been some significant learnings with ongoing development work around our fresh supply chain and labour model. Caltex intends to launch between 50 and 60 The Foodary sites and five to 10 Nashi high-street convenience sites in 2018 at a capital cost of approximately $100 million, ahead of a wider rollout in later years.”
