Caltex is to review its operations – including its franchise model – as it prepares to push further into convenience retailing in a bid to drive growth to counter a looming loss of earnings from severing a large contract to supply Woolworths-branded petrol stations from year end.
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BP is hoping to complete the $1.8 billion acquisition of the Woolworths petrol stations by year end, with Caltex moving to ensure the lost earnings will be offset by acquisitions or further operating efficiencies.
The loss of the Woolworths business comes as Caltex is ramping up efforts to push into the convenience retailing sector, via tie-ups with the likes of Sumo Salad, Boost Juices, Guzman Y Gomez, along with laundry and parcel pick-up (for internet transactions) service operators. Non-fuel sales already run at $1.1 billion a year, which gives it a ready platform that it is now moving to expand with greater convenience store sales. The recent purchase of Melbourne sandwich and coffee bar operator Nashi, which has nine outlets, was part of that push.
Caltex has been refining its new convenience retailing concept at its petrol stations, recently launching The Foodary at a petrol station in Sydney, with the expectation it could take another year or two to refine the model sufficiently to support a broader roll-out across its network nationwide. The company told analysts on Tuesday that a five-year development plan was under way, but it would only be in years three to five that there would be a "meaningful level" of contributions from the convenience store revamp.
Caltex operates directly about 100 sites of the about 650 Caltex sites nationwide, but that number could rise.
"As we expand our convenience offering, the franchise model will need to change to reflect that business mix," chief financial officer Simon Hepworth said. "Whether that means more company-operated versus franchise outlets is a good question. We shouldn't prejudge the outcome" of the operational review that is under way.
Caltex has suffered significant public pressure after the disclosure by Fairfax Media of the underpayment of some employees by some of the franchisees of the group's nationwide network of petrol stations. Following an audit, five franchisees have been terminated, the company confirmed on Tuesday, although that audit has yet to be completed.
Additionally, Caltex has had an external review of its franchise model done to ensure franchisees can turn a profit. It said on Tuesday the review "has confirmed the model allows franchisees to make a profit, draw a wage, and pay employees in accordance with lawful wage rates".
Caltex typically operates the higher volume outlets, officials said.
In 2016, the company earned a net profit of $610 million up from $522 million, paying a final dividend of 52¢ a share, down from 72¢ paid a year earlier.
