No more franchising for Caltex

By Sarah Stowe | 27 Feb 2018 View comments

Caltex is to pull out of franchising.

The fuel and convenience store business has revealed it plans to take back its core business and ease out of the franchise model by mid 2020, a venture that will cost up to $120m.

According to the latest company report, reverting its retail to corporate-run operations will lead to more consistent customer experience, allow the business to roll out new platforms, standardise services and simplify supply arrangements.

As at 31 December 2017, Caltex franchisees operate 433 sites in the 810 strong network, with 314 sites company operated.

Caltex is expecting the transition to company operations to cost about $100 million to $120 million over the next three years.

This expenditure will include, firstly, the anticipated transition costs covering dedicated transition team, direct labour costs (training; on boarding), implementation costs and anticipated downtime/store ramp up

The spend will also cover consideration paid to franchisees agreeing to the reduced tenure; and the acquisition of working capital and fixed assets in line with franchise agreements.

Between $70m and $80m (before tax) of the total program costs is expected to be expensed over the next three years (depending on transitions timing and tax deductibility). The remainder relates to capital items.

Franchising has been an integral part of growing the retail business for Caltex.

The company report acknowledges the significance of this decision

on franchisees and has indicated it intention to work with franchisees to manage the change, including the offer of transition support and the offer of employment to franchisee employees.

Caltex has freehold ownership of 417 retail service station sites, including 288 metropolitan, four highway and 125 regional sites. There is also ownership or part-ownersip of 18 terminals, 65 fuel depots and five major pipelines.

The business now has 26 new convenience retail stores operating as The Foodary and initial results have been encouraging, according to Caltex.

The firm reports strong customer feedback and an average non-fuel sales uplift of 35 per cent. ,

Caltex will open between 50 and 60 such sites, as well as up to 10 Nashi high street convenience sites this year, at a capital cost of about $100m, ahead of a wider roll out in later years.