Franchisees under the pump

It is understood Caltex is close to completing its new model. It is believed this is based on a franchisee having five to eight sites, which means the number of franchisees left in the Caltex network of about 200 would be cut to 60. Caltex Australia said some employees would be leaving the company and others would be disciplined over a memo proposing the use of fear and other unacceptable tactics in negotiations with service station franchisees.

The Australian
April 30, 2004

Franchisees under the pump
Katherine Jimenez

CALTEX has warned its service station operators that one in five franchisees who do not participate in its co-branded petrol alliance with Woolworths will be worse off and could close.

According to a source who attended a Caltex franchisees' presentation in New Zealand last month, Caltex marketing managing director Mark Burrows said 20 per cent of non-participating alliance members were not expected to be viable.

Only some franchisees will be able to join the proposed rollout of 110 co-branded stores with Woolworths.

In a further twist to the dispute between Caltex and its service station franchisees, The Australian has obtained a two-page letter sent to 10 hand-picked franchisees from around the country for a scheduled meeting next month to rubber stamp the new Caltex retail model.

This is likely to involve cutting the number of franchisees by making them own multiple service stations rather than a single site.

Crucially, the approach appears to bypass the elected franchisee council, which represent all members. And the document shows that on the agenda for the meeting next month is "the exit of inappropriate operators" — thought to refer to Caltex franchisees.

This latest news comes at a sensitive time for Caltex, which is in the middle of legal action with a group of franchisees which claims the co-branded alliance with Woolworths hurts non-participating members. It also comes in the wake of Caltex and Woolworths finalising a long-term arrangement for the rollout of 110-plus co-branded sites.

A Caltex spokesman last night said that Mr Burrows told the franchisees' meeting that up to 20 per cent of non-participating members would be "negatively impacted by the alliance, some by a small amount and others by a large amount".

It is understood Caltex is close to completing its new model. It is believed this is based on a franchisee having five to eight sites, which means the number of franchisees left in the Caltex network of about 200 would be cut to 60.

The Caltex spokesman said the model was one option but that "no decision had been made".

However, the same source said Caltex business managers had been in discussions with franchisees under a program called "the winner profile", which he claimed was a "psychological evaluation for potential multi-site operators".

Earlier, chairman Dick Warburton, told shareholders at the Caltex annual general meeting that it would continue its price support arrangement for all franchisees and said "in the event a service station does become uneconomic, then arrangements will be made to provide assistance enabling the franchisee to leave the site". On a positive note, Mr Warburton foreshadowed stronger refiner margins over the next 12-18 months.

He said, management expected Asian refiner margins to "remain sound" in the medium term but stopped short of giving a profit guidance. This disappointed investors and shares fell 4c to $8.10.

Caltex chief executive David Reeves later said he was comfortable with analysts' first-half estimates. He said the key Asian market underpinned that confidence, adding that while prices had come off from $US10 a barrel in January, they were holding up at about $US6.50. "We have no reason to believe supply will diminish. In fact it's been accelerating quite substantially across Asia," he said.


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