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Operations Report - Convenience Retail

Convenience Retail

2018 was a landmark year for the Convenience Retail business as we established the strategic foundations that provide a strong base for future growth. Supported by a stable and profitable fuels business, each pillar of our transformation is based around making life easier for our customers and team members – this is what the essence of convenience means to us.

The petrol and convenience markets are highly competitive and growing. Operating in a relatively underdeveloped market in Australia, coupled with changing customer expectations and an ever-increasing digitally-enabled world, the opportunity for the Convenience Retail business to grow is significant. The petrol and convenience sector is currently valued at over $8 billion in Australia but represents only a small subset of the broader convenience market.

Moreover, we have put the foundations in place that will drive our future success – in 2018 we have defined our core retail formats, invested in IT to deliver unrivalled customer service, taken steps to deliver consistent experiences across our network with the transition from franchise to company-owned sites and progressed our strategic partnership with Woolworths, which will be an important part of our future. We head into 2019 with momentum and are focused on executing our growth strategy.

Annual Report 2018 Case Study

Building a safe and customer-focused retail culture

In 2018, Convenience Retail saw an increase in reported safety incidents as the business transformation led to greater focus on the operations of our new company operated stores. Our commitment is to continue to focus on transition processes and targeted training programs to improve this result and the safety of our almost 5,000 Convenience Retail employees.

Leading the fuel market

Fluctuating crude oil prices continued to challenge the retail fuel market in 2018. High board prices hit and this had an impact on demand across the market. Total Convenience Retail fuels sales volumes were 4.9BL in 2018, 4% lower than the 5.1BL of fuels sales in 2017 – reflecting total market volume weakness.

Caltex has unique levers in place to maintain a market leading position in retail fuel. This includes our StarCard business solution, our partnership with Woolworths which drives customer value and loyalty through Woolworths Rewards, the ongoing integration of technology to improve the customer experience and our new retail formats.

On top of this, the integration with our Fuels & Infrastructure business, the largest importer of fuel in Australia, is critical; with the scale of these wholesale operations a competitive advantage.

While the outlook for volume in 2019 is flat, we are confident we will benefit from our unique strengths and network.

Our network strength is our advantage

Our large, well-located retail real estate network gives us a significant advantage. The Convenience Retail network includes ~800 Caltex-controlled sites, more than 70,000 StarCard customers and 3 million transactions each week. With large scale comes the need for a unified approach and capability.

The decision to transition to a company operated network will enable us to simplify our operations, provide customers with more consistent experiences and accelerate change in our convenience retail offer. In 2018, we successfully transitioned 182 stores from franchise to company operation. We now have agreed transition plans with all but a few franchisees and are on track to operate our network by 2020.

In addition to this transition to drive greater consistency, we are evolving to reshape and unlock the value of our network by redefining our offer with clear points of difference along with building a customer-centric team culture.

Developing market leading Convenience Retail formats

The opportunity to make life easier for our customers through our formats fuels our passion to execute with excellence. Our format strategy, which includes The Foodary, StarMart and Caltex Woolworths Metro (launching in 2019), was further developed in 2018 and is now well defined and understood. These formats meet the diverse needs of our customers.

In 2018, we opened a further 32 The Foodary stores, including our 50th store in Manly, Sydney. This breakthrough format is fast becoming famous for its barista-made coffee, food for now and our quick service restaurant (QSR) partners. Popular QSR restaurants such as Boost Juice and Guzman y Gomez are tapping into a new demographic previously not captured and drive further traffic and incremental sales at our stores. The Foodary format is also outperforming on fuel and we’re seeing strong shop gross margins, with return on investment significantly improving over time.

Ensuring The Foodary is right at each site is critical and over the last 12 months we have invested time in better understanding the drivers for success. With a reinvigorated focus on ensuring we have the right format, product mix, services and marketing, we will ensure this offer continues to grow.

StarMart continues to be a key driver for us and in 2018, we focused on getting the basics right with refreshed self-serve coffee and delivering value to customers through key promotions, such as our Meal Deal offer. Meal Deals save customers up to 30% on meals throughout the day and differentiate us from our competitors. We know our customers are enjoying this – we more than doubled our Meal Deal sales year-on-year.

Driving customer advocacy and satisfaction is also a key priority, and our newly launched Voice of the Customer program allows us to hear directly from customers. Since our national launch in April, we have received close to 210,000 surveys and over 68,000 customer ‘high fives’ calling out great customer service. Since launch, our overall Net Promoter Score has grown from 63 to a high of 74 in December, averaging 68 since launch.

Partnerships are key to our success

Our expanded and extended partnership with Woolworths will accelerate capability and de-risk execution of our transformation. Two key elements of this agreement were executed in November 2018 with the expansion of the 11 million-member strong Woolworths Rewards loyalty program to Caltex stores. In less than two months, we distributed over 140 million points to over 1.3 million customers who scanned their Woolworths Rewards cards at our stores. We also expanded and doubled our network which offers the four cents off per litre, taking this value-driven offer to more than 220 stores. These initiatives continue to improve both the fuel and shop offer for our customers.

In 2019, we’ll unlock the value of the Caltex Woolworths Metro format and continue our work with Woolworths on wholesale grocery supply. Executing these parts of our agreement will be a key priority.

Strategic partnerships with NRMA, Hyundai and Toyota also launched in 2018. These offer their customers exclusive fuel discounts allowing us to recruit new customers.

Our sponsorship assets continued to build awareness of our brand with partners in the Caltex Socceroos and Supercars. Caltex ambassador, Autobarn.

Lowndes Racing driver and Supercars legend, Craig Lowndes, conquered Mount Panorama to win his seventh Bathurst 1000. We also partnered with Australia’s greatest footballer, Tim Cahill, to celebrate our national football team performing at the FIFA World Cup. Transforming five StarMart stores into ‘CAHILLTEX’ engaged customers and built further brand awareness, while paying homage to a retiring great of Australian football.

Finding new ways to make a difference in a digital future

Expectations from our customers are higher than ever and our new FuelPay app delivers a faster way to pay for fuel. Available at over 600 stores, FuelPay allows our customers to fill up, skip the queue and pay with three quick taps on their mobile device. The launch was backed with a national marketing campaign across radio, television, social media and digital advertising. FuelPay has been downloaded more than 150,000 times, selling 6.7 million litres through the app.

Innovation is critical to our success and launching our inaugural innovation program, Caltex Spark, allowed us to work closely with start-up and scale-up businesses to look at potential new opportunities. The 12-week program led to a partnership with Halo, an on-demand mobile fuel service allowing customers to schedule a fuel delivery straight to their car using an app which is launching in 2019. Trials with car selling service CarBar and sustainable packaging company Pak360 are also ongoing.

Focused on executing in 2019

We’re energised by the progress we’ve seen in 2018, and the opportunities that 2019 brings. As we strive to deliver a market-leading convenience retail offer that makes a difference for our customers, we’ll continue to adapt and evolve in the changing marketplace and in this highly competitive landscape.

Our key priorities for 2019 are simple – we will focus on executing the building blocks set up in 2018. This includes building on our established formats, launching our new Metro format, improving wholesale supply of products to stores with our partner Woolworths, further leveraging our new partnerships, delivering sustainable fuel profits and creating an environment our team members enjoy working in every day.