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Operations Report - Convenience Retail

Convenience Retail

In 2019, Caltex progressed the execution of its Convenience Retail strategy in a challenging operating environment.

Major milestones included the launch of new store formats, including the first Caltex Woolworths Metro stores, the continued transition of franchise sites to company operations and a renewed focus on operational excellence, with new initiatives in labour optimisation, technology, safety and inventory management.

These developments are a critical part of our transformation toward being a market leader in the convenience retail sector.

  • 4.8 billion litres of fuel sold 
  • Retail network review conducted with clear store format strategy
  • Opened the first Caltex Woolworths Metro stores in North Ryde and Kingsford, New South Wales
  • 112 stores transitioned to company operation in 2019 
  • Shop contributions increased by 8% in the second half
  • Uber Eats delivery service launched at 325 stores

Financial performance

In 2019, softer economic conditions impacted retail fuel margins and our overall financial performance. Convenience Retail delivered an EBIT result of $201 million, a decline of 35% on 2018. 

Total retail fuels sales volumes declined 2.2% to 4.8 billion litres, compared to the industry decline of 2.3%. Caltex also made market share and premium fuel share gains, which was also a highlight.

We will leverage our leading fuel supply chain expertise, our high-quality retail network and customer focus to deliver continued improvements in performance in 2020 as part of our goal to be Australia’s first choice for fuel.

Retail network review 

In 2019, we began a review of our approximately 800 company-controlled retail stores, aimed at ensuring our customer offer is tailored to meet individual site and local area customer needs. The review considered local market and site characteristics and broader network synergies to ensure that the execution of our strategy delivers earnings growth with appropriate returns for shareholders. 

In August, we announced that 500 sites within our company-controlled network have a clear opportunity to deliver growth through disciplined execution and can deliver stronger returns from an enhanced convenience offer. Following this announcement, in November we announced a proposed property Initial Public Offering (IPO) of up to 49% interest in 250 freehold sites that sit within the core group of 500 retail sites. 

The review also identified around 50 metropolitan freehold sites as having a higher value through alternative use. In September, we commenced a process to divest the first tranche of 25 sites and in December we announced the sale of these sites for approximately $136 million.

For the remaining approximately 240 sites in our company-controlled network, we continue to undertake work to determine the best way to capture value, while ensuring Caltex maintains its approximately 2,000 site-strong branded and StarCard accepting network.

Format strategy in place 

Another outcome of our retail network review was the finalisation of our three-tiered approach to retail store formats. Our strategy is focused on three store tiers, which will be tailored to match each site and local market. 

The opening of our first two Caltex Woolworths Metro stores, our ‘flagship’ store format, was an important milestone in 2019. Caltex Woolworths Metro has a clear customer value proposition and leverages the market-leading qualities of both Caltex and Woolworths to set a new standard of service, product quality and range. Metro delivers a new level of convenience that will disrupt the sector and drive growth.

The upgrade of Caltex Five Dock to a new The Foodary format provides a strong example of how we can be efficient with capital and operating costs while still delivering an enhanced experience for our customers. This new ‘tier two’ format facilitates both fast convenience with hero products and self-serve capability.

The third and final part of our format strategy is ‘self-serve’, which is a safe, reliable and competitive offer that can be rolled out at the right locations with lower capital and operating costs. Our first ‘self-serve’ sites in Ryde and Sandgate in New South Wales have been delivered, with lessons to be integrated into our strategy for implementation going forward.

We now have 66 The Foodary stores across our network and we have learned that these stores, with the right quick service restaurant (QSR) partners, such as Boost Juice and Guzman y Gomez, drive additional sales and incremental earnings. Our retail network review looked at the best opportunities to incorporate QSRs into our strategy and in 2020 we will examine further opportunities to launch more QSRs into the right parts of our network.

Partnerships key to our growth

In addition to our partnership with Woolworths and strong relationships with QSR partners such as Boost Juice, we are unlocking improved customer service and volume growth using technology and new partnerships. 

The Caltex Australia app is a proven success. It provides a frictionless and convenient solution for customers to pay for their fuel. It provides a clear way for us to drive both customer loyalty and visitation frequency and it has over 330,000 downloads and growing. In 2020, we will relaunch the app with new features and functionality, such as the integration of Apple Pay, to further improve the customer experience.

In 2019, we also finalised partnerships with Uber Eats and HaloGo, which are key parts of our strategy. Uber Eats is now offered at 325 of our locations and provides customers with access to Caltex products, fresh fruit, fresh drinks and snacks at home. Our partnership with HaloGo, an on-demand mobile fuel service that allows customers to schedule fuel delivery straight to their car, was formed through our Caltex Spark innovation program. HaloGo launched in November 2019 delivering Caltex Vortex fuels to customers when they need it.

Our fuel partnerships with organisations such as Uber, Toyota, NRMA and Hyundai are continuing to drive loyalty by leveraging their marketing channels to access a much wider customer base and deliver growth in volumes. And as mobility evolves, our partnership with Evie Networks will see us trial our first electric vehicle charging site in 2020. 

Transition to company operations 

In 2019, we continued the transition of our retail sites to company operations. A total of 112 franchise sites were transitioned during the year, bringing the total number of company-operated sites to 631. By the end of 2020, 99% of the network will be company operated. 

The decision to transition to a company-operated network has simplified our operations, provided our customers with more consistent experiences and accelerated change in our competitive convenience offer. It is a significant transformation program that underpins our future growth strategy.

Operational excellence remains a focus 

Our retail excellence team has the safety of our people and customers at the core of every action we take and ensures we deliver a consistent and exceptional customer experience first time and every time. This is important because, with the transition of sites to company operations, we now have a larger base of employees serving customers in a greater number of locations across Australia.

In 2019, we continued to build the foundations of operational excellence, with new initiatives in labour optimisation, technology, safety and inventory management. A major initiative was the implementation of Kronos, which has enhanced our rostering capability through greater visibility of our labour spend and enabled a faster response to store needs. This capability has helped maintain a focus on productivity and has reduced administrative hours so store managers can spend more time on the shop floor. 

We have also simplified communication systems in our stores, establishing a clear rhythm of how and when we communicate to the frontline through a ‘bundling of change’ approach, which optimises execution and ensures our entire business is communicating the same messages to customers at the same time. 

Our Voice of the Customer (VOC) program, introduced last year, was complemented by the introduction of a third-party audit program that reviews the customer experience, the store’s physical condition and merchandise. Access to this data has helped us provide feedback to individual sites to action to improve the customer experience. This change has proven to drive greater repeat visits and frequency

In 2019, we completed significant work in inventory management to streamline processes and build the foundation for reducing inventory on site, and to have greater visibility of inventory balances. As a result, we have been able to improve product availability and minimise stock loss. This work was delivered closely with our tiered format strategy and has helped us better utilise space, optimise range and layout across all stores and is enabling us to drive improvements in productivity and supply chain costs.

In 2019 we continued to work towards improving safety culture

Finally, in 2019 we continued to work towards improving safety culture and behaviours to reduce the quantity and severity of incidents across our business. We have unfortunately seen an increase in safety incidents as sites transition to company operations. While these incidents are predominantly low consequence, we are focused on establishing the right safety culture through new programs, including more regular store communications and safety cards that reinforce awareness of common safety risks. 

In 2019, we also increased safe work practice observations for manual and high-risk tasks, with over 5,000 observations recorded. This will continue to be a focus in 2020.