As soon as the revised alliance agreement comes into effect in March, Coles said it expects earnings before interest and taxes for its convenience business to be in the order of $50 million in fiscal 2019. Under the new agreement, Coles and Viva Energy expect fuel volume growth to an average of 75 million litres per week. Viva Energy will pay $137 million to renew its fuel partnership with Coles on a new 10-year contract. The new 10-year contract will come into effect in March 2019. “We believe the benefits of the new agreement are compelling for all customers, team members and shareholders. We look forward to working with Viva Energy to re-establish the alliance as Australia`s leading distributor of gasoline and convenience,” said Steven Cain, Cole`s CEO. Scott Wyatt, Chief Executive Officer of Viva, said the revised agreement will allow each party to use its core skills in a competitive and integrated offering. Viva Energy is one of Australia`s leading energy companies and supplies about a quarter of the country`s liquid fuel needs. It is the exclusive supplier of high quality shell fuels and lubricants in Australia through an extensive network of more than 1,200 service stations across the country.
Coles Group Limited has signed an agreement with Viva Energy Limited to restructure the terms of the Fuel and Convenience Alliance (New Alliance) and has agreed to extend the alliance until 2029. As part of the 10-year agreement reached on Wednesday after two years of discussions and testing, Viva will set the retail price of fuel, collect full sales margin and collect higher royalties for the sale of convenience stores. Analysts cut Coles` profit forecast by as much as 10 percent after the recent retailer signed a new fuel supply contract with Viva Energy, which will decimate gasoline profits and force Coles to boost convenience store sales. Australian energy company Viva Energy (ASX: VEA) will provide a one-time payment of $137 million to extend its fuel and comfort partnership with coles Group (ASX: COL) and retain the right to set fuel prices for consumers in Coles Express stores. “Investors were expecting some drop in Coles` profits, as the deal with Viva`s further cut [but] the size of corporate profits is somewhat surprising,” said one analyst, who declined to be named. “The amount of fuel has decreased significantly and we understand that this is not a sustainable situation,” Cain said. “We see this as a benefit to Coles customers and also as a good deal for both companies.” Customers and suppliers will see no change in the merchandising and service levels they have been familiar with when visiting a Coles Express store, as coles` Convenience will continue to operate Alliance`s websites as usual. Coles Convenience`s potential wholesale opportunities exist outside the alliance to power Viva Energy`s broader network of independent retailers.
“The fact that the weekly volume of school fuel has decreased by about 38% over this period – which has led to a decrease in foot traffic and the opportunity to sell convenience products – is an important message for our industry,” said McKenzie. Viva will pay Coles $137 million in compensation next month – which is equivalent to Coles Express 2018 revenue – to reflect the transfer of value. “The new alliance will provide a more consistent and competitive fuel offering across the Shell network and [Vivas] will better optimize the national supply chain and refining companies,” he said. With a forecast of a 60% increase in profit, the 685-person Coles Convenience Store has signed a new long-term fuel distribution contract. Viva Energy will pay $137 million to renew its fuel partnership with Coles and secure the right to set the price of fuel. The company stated that volumes and improvements in fuel margins at