“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. 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. 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. 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. 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. The new 10-year contract will come into effect in March 2019. Viva Energy will pay $137 million to renew its fuel partnership with Coles on a new 10-year contract. 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. Coles will continue to manage convenience offerings under the terms of the alliance agreement, leveraging its extensive fmCG retail expertise and considerable purchasing power for food to strengthen convenience offerings, but will pay Viva a better royalty on the sale of convenience stores. Coles and Viva appear to have used this knowledge to conclude a new agreement that offers a high degree of agility with respect to future changes in the gasoline convenience market, assigning responsibility for each element of their gasoline-comfort offering (fuel and convenience) based on each organization`s respective strengths.
The announcement has been the subject of persistent public criticism from the national competition authority (and the automotive federations) regarding the consistently high average fuel prices calculated in recent years in the Coles Express gas station network of 780.