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In a long-awaited move, Coles Myer has finally unveiled a deal to acquire the rights to operate 584 Shell petrol station sites in Australia for less than AUD100 million (USD59.2 million). The move is expected to boost annual sales by about 12% as the retailer looks to reinvigorate flagging sales at its supermarket divisions. The venture will contribute in excess of AUD3 billion (USD1.8 billion) in additional annual sales when fully rolled out.

The agreement gives Coles more than twice as many sites as the 277 owned by rival Woolworths. Coles Myer Chief Executive John Fletcher indicated the alliance was set to grow. "Five hundred and eighty-four is just a starting point", adding that future supermarkets may have Shell stations attached. About 800 Shell stations will remain outside the alliance, although more could shift into the grouping at a later date. The sites will carry both Shell and Coles’ logos, with Shell’s brand on the petrol pumps and Coles Express on the forecourt c-stores.

The alliance between Coles and Shell involves a wholly-owned subsidiary of Coles Myer becoming the operator of Shell’s service stations. The offer is planned to commence at more than 150 locations in Victoria in July 2003. Given a successful Victorian rollout, a national rollout is expected to be completed by mid-2004. Using its retail expertise, Coles will develop a quality convenience store offer, while the group will also set fuel and shop prices at each of the service stations it operates. Shell will be the exclusive fuel supplier and provide the service station property. Coles will also introduce a fuel discount offer to its Coles, Bi-Lo and Liquorland grocery customers that will provide an additional discount off already competitive pump prices, similar to the extremely successful scheme introduced by Woolworths.

Establishing a fuel discount scheme to rival that of Woolworths has been seen as a matter of "urgency" for Coles. The group has sat back and watched Woolworths grow its +Plus Petrol network to 277 stores since 1996, with further rapid expansion planned. Between 1998/99 and 2001/02, petrol sales rose by 254% to reach AUD1.1 billion (USD0.6 billion), or 4.6% of Woolworths’ total sales. In addition, Woolworths’ petrol discount scheme, which offers shoppers at its stores a discount of up to 6 cents a litre at its petrol stations, has been highly successful for Woolworths, boosting sales at Woolworths’ supermarkets by between 1% and 2%.

Woolworths' success has not gone unnoticed. Coles Myer has been under pressure not just to grow sales, but also to offer a scheme to bind shoppers to the company following the phasing out of its shareholders discount card last year. The group had been in discussions with Shell since November 2002, initially focusing just on introducing a petrol discount scheme at Shell’s stations. However, by taking operational control of the Shell sites, the move catapults Coles above Woolworths, which has sought organic growth, and into a leading position in the sector. The acquisition of further batches of Shell stores could follow in the future.

However, it looks likely that Woolworths will fight tooth and nail with Coles Myer to maintain its competitive edge in the marketplace. In what has been seen as a direct threat to Coles, Woolworths has stated that it will not sit back and tolerate competitors offering better discounts in an attempt to undermine its successful petrol discount scheme. Woolworth’s CEO Roger Corbett explained that its petrol offer "is really a decided advantage (and) we wouldn't allow our competitors to do anything for our customers that we're not doing better." It will now be interesting to see exactly what Woolworths will do in response.
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