Caltex has a long history in the Australian fuels market. Its history began in the 1940s when AMPOL (recall its marketing tag of being the ‘Quiet Australian’) was listed on the Australian Securities Exchange (ASX). Shortly after, Caltex and AMPOL opened refineries (1950s and 1960s) and the two companies competed against each in the Australian fuels market for more than 40 years. During this time, AMPOL acquired TOTAL Australia and Caltex bought Golden Fleece.

In a major market move during 1995, AMPOL and Caltex merged to become the largest fuel refiner-marketer in Australia at the time – and the only fuel company that was wholly Australian owned.

A lot has changed in since 1995 and Caltex has been at the forefront of much of this change. Notable developments include Caltex’s partnership with Woolworths in 2003 and the successful conversion of the Company’s Kurnell refinery to a fuel storage terminal in 2014 – 58 years after the refinery was first commissioned on the shores of Sydney’s historic Botany Bay.

“But it would be fair to say that Caltex has encountered a few hurdles since 2015 – some not of its own making – leading to open questioning by industry commentators and market analysts alike about the strategic direction of the company in recent years”, said ACAPMA CEO Mark McKenzie.

Perhaps the most obvious challenge has been a weakening in the commercial relationship with its retail partner Woolworths, ultimately resulting in the acquisition of the Woolworths fuel retail business by Euro Garages. Uncertainty about the future of this relationship was first sparked by the proposed acquisition of the Woolworths fuel business by BP Australia in December 2016 – subsequently abandoned in June 2018 – followed by a further 12 months of commercial uncertainty as Woolworths sought, and finally secured, an alternative suitor in Euro Garages.

“But Caltex has faced additional adverse headwinds during this whole period of uncertainty about the future relationship with Woolworths, including the mixed results of its Freedom of Convenience Strategy, the public argument with the Fair Work Ombudsman in relation to alleged wage underpayment, and a marked deterioration in its’ relationship with franchisees and dealers”, said Mark

A likely key question for the incoming CEO could therefore centre around the future of the Freedom of Convenience Strategy. Market analyst JP Morgan suggested in a statement following the announcement this week that they “expect CTX to walk away from its Convenience Retail EBIT growth uplift target of A$120-$150M by 2024 (and $30M in FY20) given difficulties experienced so far…”

In a sentiment that is being openly expressed about the state of the broader market, JP Morgan went on to state that they had previously “noted concerns regarding industry site numbers growing ahead of fuel volumes, store sales and population, and the negative impact” (i.e. increased intensity of competition) “of the changes at Coles Express as it seeks to regain lost volumes while independents have become more accepted and have reinvested in better sites”

“A related question that might also need to be addressed surrounds the nature of Caltex’s future relationship with its franchisees and dealers”, said Mark

“Will, for example, Caltex continue with its strategy of seeking to ‘own and operate’ all fuel retail sites or will it change direction and instead decide to rebuild the goodwill that has undoubtedly been lost in its relationship with these businesses in recent years – and arguably been crucial to the success of the company in the market over its long history”, said Mark

What is very evident in the market at the moment, given the rise of the large independents (e.g. OTR, Metro Petroleum, United Petroleum) and the apparent success of allowing dealer flexibility in market presence, is that strategies that provide site operators with a high level of market flexibility and autonomy are proving to be successful in the petrol-convenience market.

“What is emerging from our observations, is that network petrol-convenience models that provide a high level of autonomy in product choice and shop branding appear to be working more effectively than generic ‘corporate’ propositions, that appear to assume the convenience needs of all local communities are the same (with increased sales revenue more than offsetting the higher unit costs that come with a local scale)”, said Mark

“Such market realities might well have a bearing on future considerations within the Caltex Group”, said Mark.

Ultimately, only time will tell whether Caltex chooses to use the departure of its largely successful CEO, Julian Segal, as the catalyst for a review of its strategic decision.

“But one thing is for sure. With its long history of operation and deep expertise in the operation of the Australian fuels market, it will only be a matter of time before Caltex has picked itself up, dusted itself off and is back mixing it with the best in our deeply competitive petrol-convenience market”, concluded Mark