BP is set to become one of Australia's largest fuel and convenience retailers with the recent announcement of a $1.79 billion deal to buy Woolworths' petrol stations business. It is reported that under the deal, Woolworths will offload 527 Woolworths-owned fuel convenience sites and 16 development sites to BP. Both parties will equally fund the current “Woolworths Rewards” 4c per litre fuel discount for a minimum of 10 years, with plans to expand the discount to other BP sites.
BP Australia President Andy Holmes said “This new partnership is great news for all Australian consumers, who will in future be able to enjoy the combination of BP’s premium fuels, a world class convenience food offer and an enhanced loyalty program”.
While all reports to-date have focused on the 4c per litre fuel discounting and the impacts on competition, there are still a lot of unanswered questions about who will be controlling BP’s retail offer pending approvals of the deal by the ACCC. While just speculation at this point, you only need to look at the M&S Simply Food UK tie-up with BP, to get some insights into the future direction that BP and Woolworths will be taking in this market.
As reported by the UK’s Telegraph on the 26th December 2016, BP is in talks with grocery retailers in three new countries about launching convenience stores on petrol forecourts, as it seeks to emulate the success of its M&S Simply Food tie-up in the UK. Tufan Erginbilgic, BP’s chief executive of refining and marketing, said it was pushing the model as a “global strategy” for it’s convenience offer, selling branded goods and BP’s Wild Bean Café brand alongside M&S products.
So what does this mean for distributors and product partners in this market? Well for a start you would have to say that any current ranging and supply arrangements with BP are temporary at best. Currently Metcash services the BP network with many of their product needs, however given the integration of the “Woolworths Rewards” program allowing customers to both redeem and earn discounts on in-store purchases, I cannot see Woolworths agreeing to support this arrangement long-term.
While BP has stated an enhanced loyalty program, they have provided little insights into how this will work and if this will include their current Velocity Rewards program or not. Current suppliers feeling the axe of Coles and Woolworths range rationalisation must also be wishing that this year would end, as this latest announcement potentially flags further erosion of a suppliers opportunity to stay on-shelf within the organised convenience channel. And suppliers lucky enough to remain on-shelf are not going to have a picnic either, paying a premium to remain on-shelf, and now faced with the very real prospect of competing against Woolworths branded goods within the Grocery and Convenience channels.
There is no doubt that this is a good deal for both BP and Woolworths, and anyone who thinks that this is just a shuffling of the deck chairs by Woolworths from Caltex to BP is wrong. BP have a proven model in the UK with M&S, and Woolworths will bring to the table a wealth of expertise from their “Metro” program, that will give a much needed boost to BP’s tired foodservice offer.
So once again we see another example of consolidation that will have huge impacts within the convenience channel, and a further warning to suppliers, manufacturers and distributors of the dangers of placing all your efforts into a select few rather than diversifying and spreading your risk.
Suppliers are already starting to feel the effects of the supermarkets range rationalisation (see article Supermarkets big wake-up-call) and now the potential consolidation of convenience volume into the supermarket channel, has significant impacts on a suppliers ability to remain relevant in an ever-changing marketplace.
The only certainty for 2017 is more uncertainty, and this latest announcement should serve as a further warning to suppliers, manufacturers and distributors, large and small, that nothing in this market is guaranteed.
Craig Matthews is the MD of Stock Box, with over 30 years industry experience in retail development, specialising in independent retail programs.