Viva Energy, owner of the Shell brand in Australia and 50% stakes in Liberty and Westside, will take over the pricing and marketing of fuel for the Coles Express network, it was announced Feb. 6.

Sources tell OPIS Australia this deal will make Viva the largest fuel-pricing network in Australia.

Viva supplies Shell fuels and lubricants to some 1,200 locations across Australia and has been aggressively growing their station count. The Coles network comprises an estimated 780 sites, sources tell OPIS Australia.

Viva and Coles Express also said they are extending their already-existing Alliance to 2029 under new arrangements that will support future growth and make its network of stores "Australia's leading fuel and convenience store business."

While Viva will take responsibility for Coles retail fuel pricing and marketing, Coles will remain responsible for operating the stores and providing convenience store offerings.

The agreement allows Viva to collect the full retail fuel margin and receive an enhanced royalty on convenience store sales. Coles will collect the convenience store margin and receive a per-liter commission on fuel sales.

Viva and Coles also will jointly participate in marketing and loyalty programs to build a larger customer base and grow fuel volumes and "to continue to work together to expand the fuel and convenience network operated under the Alliance."

The new arrangement also calls for the two companies to work together to develop, introduce, market and benefit from renewable fuel options in the future. 

Viva will make a one-off payment of $137 million to Coles to be funded by existing debt in consideration of the change in the commercial arrangement between the two companies.  

The deal is expected to take effect in early March 2019 and is not subject to any conditions or review, the two companies announced. 

In terms of fuel pricing across Australia, it remains to be seen what changes eill happen once Viva takes over the pricing function. Market observers tell OPIS Australia that Coles typically prices "significantly higher than the market" and has even come under scrutiny from the ACCC.

Viva says that it wants to expand its volume under the restructured Alliance, and presumably that would come via more competitive pricing.

The existing 4-cents-per-liter and Flybuys rewards program will remain, sources tell OPIS Australia.

Sources speculate that Viva may very well wish to use this to provide greater consistency across the broader Shell network.

Coles said that the "new Alliance is expected to deliver a more competitive customer offer, provide an opportunity to expand the network and better align contributions and incentives for each party to jointly grow the business going forward."

Coles also pointed out that the arrangement means "Coles will no longer have direct exposure to retail fuel price movements."

--Ben Brockwell, bbrockwell@opisnet.com

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