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2026.09.29 | TB | Energy | Viva Energy Fuel Station Economics

原标题：Viva Energy – Expansion Criteria & Fuel Station Economics

#energy

Third Bridge · 2026-09-29

Analyst-led • 16 Sep 2026

Companies: BP. GB, ALD AU, VEA AU, GYG AU

Christopher Chan (CC) Director at Reuben Rose Group

Jet Woo (JW) — Third Bridge Sector Analyst

Agenda

Key Insights

Introduction

JW [00:00:06]: Welcome to Third Bridge's Interview entitled Viva Energy – Expansion Criteria & Fuel Station Economics. I am Jet Woo, and I will be facilitating today's Interview with Mr Christopher Chan, former Asset Manager, Commercial and Industrial at Viva Energy Australia Ltd.

Before we start today's Interview, please state I agree or I disagree to the following statement: You understand the definition of material non-public information and agree not to disclose any such information, or any other information which is confidential, during this Interview.

CC [00:00:44]: I agree.

JW [00:00:46]: Could you please begin with an introduction to your background?

CC [00:00:51]: Christopher Chan here on the Interview, formerly the asset manager for Industrial and Commercial at Viva Energy. I was in that role from January 2023 to January 2026, based here in Melbourne, Victoria.

Questions

00:01:14] What are your views on Viva Energy's current management strategy for its fuel station business?

CC [00:01:31]: With Viva Energy, as the market would be aware, it went and expanded its fuel station footprint in Australia. Formally, it had predominantly Coles Express sites, which was a joint venture partnership between Viva Energy and Coles. On top of that, they recently purchased the OTR business, which was based out of Adelaide back in… I think that had settled in March 2024. On top of that, they also have the brands in Liberty and also Shell dealer sites. The view of the management at the time was to make Viva Energy the number one retail fuel provider in Australia, which is why they went on an acquisition process to try and expand its footprint. Obviously, as mentioned before, the most notable one was the OTR acquisition. From what I understand and my time there, there's somewhere in excess of close to 1,200 stores around the country, occupying the three brand names I just spoke about before. That's where the strategy is at the moment in its initial footprint. I think the key thing here now is how to try to deliver the profitability of those sites, which we'll talk about, I think, in the rest of the Interview. Given the challenges in store sales and selling fuel, it's been a bit of a challenge for the business to try to make that a profitable business.

JW [00:03:25]: The key challenges right now are to optimise Viva's store sales and fuel sales. Is that correct?

CC [00:03:31]: Correct. It's about optimisation of the business they've got where they can probably rationalise the cost structures in the build of the sites and also the operational sites as well and trying to remain competitive against other competitors in the market.

00:03:52] How would you split Viva's 1,200 stores by OTR [On the Run], Liberty or the unattended format?

CC [00:04:03]: I think just as a percentage-wise, Reddy Express, you're looking at somewhere around the 30-40% mark. That still probably is the major portfolio of sites, which was ex-Coles Express, now Reddy Express. Behind that, you probably have another 30%-odd of OTR sites, which is probably the next second biggest brand. Then after that, you've got Liberty and Shell, what I'd call Shell brand dealer sites, which will be somewhere around the 20-25% mark. What I will note here is that a lot of the Reddy Express sites that are Reddy Express will convert to OTR. You'll find that moving forward that the OTR sites will be the major brand moving forward as the main offering in the market, not Reddy Express.

JW [00:05:03]: Out of all these stores across Viva's board, what number of stores are performing below expectations?

CC [00:05:18]: Good question. Look, it's probably somewhere between 20% to 30%-odd would be stores that I believe that are probably underperforming. The reasons behind that would be a couple of things. One is probably poor location. The actual sites themselves aren't trading well because of the location and demand for the product. That's either obviously selling fuel or convenience. I think the layouts of some of the old stores haven't been upgraded. The customer experience when coming into the store is not great. That's probably had an effect on it. I think also the competition has been pretty tight, which probably had an effect on the performance of some of those stores. Then one of the things that's happened here in Victoria is that historically, tobacco has been a big part of the shop sales. With the rise of illicit tobacco stores around Melbourne, in particularly, that's had a detrimental effect in the trading of those sites because historically, tobacco has played a big part of the profitability of the stores. I think if you add those around those four or five points, that's been a major reason why some of those sites have been underperforming. I'm aware that we are looking at closing some of those sites down and not renewing the leases or looking to surrender those leases.

JW [00:07:08]: How significant of a contributor would you say tobacco is in percentage?

CC [00:07:17]: I reckon for store sales, it's probably somewhere in the vicinity of around 30-40%.

JW [00:07:22]: Very significant.

CC [00:07:24]: Yes, it is because smokers are going into the stores and buying cigarettes, buying tobacco products at sites at other smaller sites where the… It's a fraction of the cost of what they sell in the service stations fuel sites. That's probably made a big part in the reason why there's underperformance. As a result of that, they're not buying fuel and not buying other products as well. By not having those customers coming in, that's been a significant issue for the business when I was there.

JW [00:08:02]: It's a flywheel effect. You go there for one thing and then you buy something else.

CC [00:08:07]: Correct. Smokers is going to come in, they're going to buy a packet of cigarettes that most likely they'll get their fuel there and they'll probably buy coffee and some food. By not having those people as a draw card into the sites, then it means that they're going elsewhere and not doing that additional spend with other products that the fuel sites offer.

00:08:29] You mentioned that Viva's store and fuel sales have been challenged. Breaking down the company's specific store format, are there specific challenges for each format that differ?

CC [00:08:53]: Yes. If I break it down, I think if we go to the larger brand in the network, which is the old Coles Express, Reddy Express. I think the formats or the layouts of those stores aren't great. I think it's quite dated. It hasn't been updated. The customer experience going there isn't good. I think historically, store sales in those sites have been fairly poor, mainly because of the range they offer. It's a limited range. When you go in and I'll talk about it more when you go into an OTR site, you've got a good offering. There's more products on the shelves and there's more choice, whereas with the Coles Express, you don't have that visibility of a good offering. I think that and the store layout has probably had a significant part in the challenges for Reddy Express. Then I think, obviously, we spoke about the tobacco sales as well. I think that's had a big impact on cross sales and cross products and across basically customers coming in and impacting the… What I'd call basket size when you come in.

Historically, Coles Express also has its voucher programme with Coles. That in itself probably has a bit of an impact as well because the margins in fuel are fairly tight across the network. With the OTR, it's probably the premium brand in the network, which I'd call a full service offering. I think on paper, it definitely is a superior premium offering, but I think there's a couple of things that probably has its challenge. One is they tend to have more staff managing those sites because they have a bespoke offering such as barista coffee and drive-thrus, whereas they don't have that Reddy Express. I think one is higher labour and higher wages, which then presents a challenge on making the store profitable. I've talked about the coffee offering and talked about the drive-thru. It's quite complex, so it's not simple. You've got one person running in on the counter servicing customers that are coming for fuel and then you've got someone also trying to manage the drive-through in some of those locations.

As opposed to Reddy Express, you might only have one person on the counter at the OTR site, you may have three. You almost need to have enough coverage of sales to cover the staff wages. I think there's been a lack of innovation in their offering in the last two years, and a lot of the competitors are playing catch-up. You need strong core demographics and strong market in order to justify the spend to develop the store. I think that's where the problem is for OTR. With Liberty, which is the other main brand, it's always been… It's a franchise model, a dealer model. The challenge there is to manage standards because the stores are individually owned by different operators. It's a bit hard to have the same customer experience. Once again, similar to Reddy Express, they have a limited retail offering. Historically, I haven't seen any Liberty sites that have other additional services such as EV or QSRs. I think the thing of Liberty where it has its place in the market, it's always been a discounter for fuel, and that's been the main driver. I think all three of them, that's probably where the challenges are.

00:13:03] Viva's management guided that it is looking to convert about 25-30 stores to unattended self-service stations. How do you see those formats?

CC [00:13:20]: There is a major competitor in the market that's doing that at the moment. I think it only works in high-volume traffic areas. It certainly doesn't work in all parts of Australia. I think it needs to be in the metropolitan area and needs to have high-volume traffic. The tick there is that there's no labour cost and there's no… You can then also slim down the margins. I think the biggest issue there is that there's competition and also the price cycles, I think you'll have issues there. The only offering that I'm aware of that Viva have with unmanned and self-services in Corio in Geelong with its hydrogen station. It was the first hydrogen station that was built. That's self-serve for hydrogen and also self-serve for diesel fuel. I think if you go down a self-service route, you almost take away the convenience side of the business. A key component of the business is shop sales. By not having that, you almost need to replicate that by maybe having vending machine type offering, where if someone does want to buy a drink or want to buy food, you can still got that offering. I think you need to implement that. That offering only works in high-volume metropolitan areas, it won't work in regional areas.

JW [00:14:56]: Would you say that the margin structures for unattended stations are quite different and lower?

CC [00:15:06]: Yes. I think you can afford to lower your fuel price because you're not paying wages and you're not paying for the run of the cost of the site, that's utilities and your CAPEX and your OPEX are quite minimal because you're not having to do the full build-out. I think it's still to be tested. U-Haul, I think, is a major brand out there that's trying to move into that space of self-service non-attended sites, but I'm yet to see any material evidence of whether or not that's translating into a profitable site. There might be some scope behind it because of the fact that you've got no staff and you've got no expenses running other than just going in there and just having someone self-serve. I think it's yet to be seen whether that's going to be a viable option moving forward in Australia.

00:16:06] How significant is the fuel discounting for Viva's unattended stores?

CC [00:16:13]: It's pretty significant given the cost of living here in Australia, every dollar counts for most consumers. If you can find an offering that's cheaper, then people are going to go there just based on the fact that it's cheaper fuel. I think there's still a market for that, but whether you can make money out of it is still yet to be seen.

JW [00:16:37]: What would you say is the fuel discount rate in terms of percentage?

CC [00:16:41]: Looking at least a minimum 10%. Yes, minimum. If someone up the road is selling it at AUD 2.59 per litre, you might get that down to AUD 2.25, AUD 2.20. That AUD 0.25-0.30 a litre is quite significant if you're doing a full tank refill. The fuel quality is the same, then it doesn't really matter at the end of the day because all you're really there is getting a fuel and you're moving on and people are conscious of spending any more than they have to.

00:17:25] Would you say that the self-service stations' trend is impacting the competitive dynamics of the regular full-service stations?

CC [00:17:37]: I think so. That's where probably the likes of Viva Energy need to innovate and improve their offering, and that's why they're putting in QSRs to have an attraction point because people still need to wait. I think that's probably still a viable option that we're not going to discount fuel, but we'll provide a superior offering. I think they'll still capture that type of market, particularly people with time poor. Tradespeople are the biggest customers historically, where they can go in because they're between jobs get their fuel. Generally, they'll have a fuel card in a lot of senses, if we're looking at Viva, the shell card is a big plus. They'll go in there, get their fuel, buy cigarettes, buy a coffee, buy some food, use a toilet. I think if you can still have that offering, you'll still be able to capture some of that market.

00:18:31] What percentage of Viva's total fuel stations do you anticipate will be self-service over the next 1-3 years?

CC [00:18:46]: I can only speak from my experience at Viva, but I believe that at the moment, there's no… I don't believe there's any direction in going down the unattended self-service route at this point in time. There will be components of self-service that they will offer. A lot of the sites have car washes. Historically, when you've gone into an automatic car wash, you've had to walk into a store and buy a ticket or buy a voucher in order to scan and go through the automatic car wash. OTR implemented an app. What it means is that you don't actually have to go in and buy the actual car wash voucher and then get back in the car and drive through the car wash. I think there'll be some elements of self-service. I think at this stage, they'll still man their sites and they'll still provide a premium offering. I think that's what they want to concentrate on rather than the, in my opinion, a self-service unmanned solution.

00:19:48] Regarding when Viva's fuel station is built, what key metrics are expected within the first 12-24-month period in terms of traffic volume, revenue mix or gross or EBITDA margins?

CC [00:20:08]: When I was there, we were looking to acquire a site, the traffic count, and it depends on whether we're talking heavy vehicles or run-of-the-mill traffic. At the very least, it need to be somewhere around 10,000 vehicles per day on average as an expected volume for traffic. In terms of fuel volume, you're looking at probably around somewhere between 3-3.5 million to somewhere around five million litre per month would be the average that we would look at. Your margins, you're looking around 10%. Then in terms of profitability for convenience, you're probably looking around that 30% mark. That's what the expectations would be to make decisions around whether…

JW [00:21:05]: Are these gross margins?

CC [00:21:08]: Yes, gross margins. If you're going to build a site that's on a greenfield site in order for board approval to spend that money, you need to at least demonstrate the modelling around that, that's what the capabilities of that site can generate.

00:21:28] What do you think drives greenfield vs brownfield fuel station expansions?

CC [00:21:38]: Definitely for greenfield, corner sites with high traffic volume has always been the number one component when looking at reasons to get down a greenfield site. Obviously, the strategic location where it is in a metropolitan, if it's in a generally greenfield will be in out of growth zones within Australia. You then need to look at the growth plan around the potential site. Are they building more houses? Are there more schools being built? Is the state government supporting the residential growth plan? That's probably the two key ones. Other things you'd look at is, is there an ability for the site to be big enough to put additional offerings, and that would be QSR, drive-thru, car wash. Can you bolt on additional services? They're the three key things that when I was there that we would look at. Then obviously, other things such as not that's a huge part of it, but can you put EV chargers out there? Is there a support for EV chargers? That's the key things.

With brownfield, it needs to have strong traffic flow from the start. You need to also look at the rate of return. Historically, brownfield drivers is whether you can convert that site to an automatic OTR conversion. Traffic has to be there. There has to be some historical data around how it's traded, whether you can get that or not is something that can be discussed. Then you then need to look at the lower CAPEX vs the new build. I think brownfield has different drivers to greenfield. Historically, greenfield has been the better option than brownfield mainly because of the fact that there's more upside on greenfield than there is in brownfield because you're condensed to what you've got, whereas greenfield, it's a blank canvas, you can manipulate the site layout to suit your needs, whereas brownfield, you're stuck with the current layout. You may be able to do a full rebuild, but you're stuck with the current parcel size, whereas greenfield parcel size are much larger and you can do a lot more.

00:24:16] Looking at greenfield sites' CAPEX, how do you think about Viva's allocation for the pumps, the convenience stores, the additional ancillary services or EV charging?

CC [00:24:32]: The store size has to be a minimal size footprint. The analogy behind it is the biggest building you've got, the better the offering, which then equals to a better customer to the route, which is more sales. With the pumps, there are a minimum level of pumps that each site needs to have to make it profitable. Ideally, the more pumps and bowsers can fit the better the offering. If it's a big enough site, having a truck diesel offering is also important as well, particularly if you can put in a truck canopy in there. It will differ from site to site, but they're the key things that Viva would look at.

JW [00:25:17]: Are EV charging, other F&B drive-throughs or car washes important?

CC [00:25:28]: Yes, they are. Ideally, a perfect site would be to be able to put in a large control building, a large truck canopy of a truck offering, a large offering for your run-of-the-mill traffic, a QSR, a drive-thru and a car wash.

If you have those attributes, then historically, that would be the way that Viva want a greenfield site to be built mainly because it ticks all the boxes for a full service offering from food and obviously to car washes and obviously, to try and pick up some of that high-volume traffic from trucks, particularly if it's on a main truck route.

JW [00:26:26]: How does that impact fuel stations' economics if you're able to have all those ancillary services?

CC [00:26:36]: The most profitable sites have been sites that offer all those things I just mentioned. No doubt that the more truck traffic you come through, the more fuel volume you're selling, the more fuel volume you're selling, the more sales and the more sales you make and the more profit. Having something like that definitely helps the profitability of the site. Obviously, there's a larger CAPEX and OPEX. Ultimately, at the end of the day, having more traffic volume come through will lead more sales both on fuel and on convenience and obviously, food, which is the QSR side.

JW [00:27:15]: Do the sites with higher truck volumes are likely to perform better vs civilian volumes?

CC [00:27:24]: Correct. All of Viva's sites, the offering I mentioned are the most profitable sites in a good location as well.

00:27:36] How many of Viva's 1,200 fuel stations do you think could capture the truck demand?

CC [00:27:53]: Look, I'm just having a bit of a estimate here, but I'd say probably 20% roughly. They will be in highways, key intersections in metropolitan areas, key truck routes. Obviously, location plays a big important part, but obviously, the footprint and the size layout obviously makes a big difference as well. Big highway, big metropolitan sites are the ones where these type of offerings are generally located.

00:28:44] How do you see Viva's fuel station economics trending over the next 1-3 years? Are there a few drivers that might be impacting EV adoption and high fuel prices?

CC [00:29:01]: Yes. I think if you're looking at fuel economics, I think margins are declining in fuel. It's economics that unfortunately, Viva don't control. I think the other issue would be the retail uplift that you get from OTR conversions because as I mentioned before, a lot of the Reddy Express sites are going to be converted to OTR. There's really not a proof of concept whether or not the actual money being spent to transition the old Reddy, Coles Express sites into OTR will translate into more profitability. I think that is a space that still needs to be seen, and you probably will get that in the next 2-3 years because I think at the moment, there's still a slow rollout to have those conversions done. I think the other part of it is the build costs or CAPEX costs have gone higher. That now impacts the profitability of the site because to actually build and develop a site is a lot more than what it was three years ago, five years ago.

You're now having to budget and model for more costs, which means that the site has to trade much more. There's not a lot of room of error that if you get the site wrong and you spent the money on the site and you can't trade, then it becomes a poor site. I think that's probably a key factor. Then obviously, the rise in EV cars, the less reliance now on fuel, given that we're heading down to a transition into renewable energy and zero emissions. I think now the popularity EVs play an important part. I think fuel volume will still be an issue in selling fuel given the fact that there's a popularity now in EVs, but that's why Viva are looking at fuel as maybe a bit of a loss leader to drive traffic through that if you're not going to make fuel that at least people can still come in and buy food and still use the convenience component of the business.

00:31:26] You mentioned that the margins for the fuel stations are declining. How significant is this decline?

CC [00:31:36]: I'd say now that on average, when I was there, fuel margins are probably around AUD 0.26 a litre. I think that's probably now dropped to about AUD 0.18 a litre. Dropped significantly, mainly because of the pressures of the competition out there. There's been probably a significant issue with margins.

JW [00:32:03]: Are you expecting this AUD 0.18 per litre to decline further over the next 1-3 years?

CC [00:32:13]: I think it will flatten out. I think obviously, I think it depends on the world economic, the world affairs that we're in at the moment, which is well documented, plays a big part in the fuel economics. I think at the moment, I'm not sure if it can go any lower than what it is at the moment. I think at the moment, I think it will just flatten out. I don't believe, in my opinion, that it will go any lower. It's pretty much at a low base.

00:32:45] You mentioned that fuel stations' CAPEX costs have increased. How significantly has it increased? How much more could these costs increase going forwards?

CC [00:32:56]: I reckon costs have gone up by 30%. That's due to higher costs for labour to do the build and also the build products and the building materials have gone up as well. They played a big part in the build costs, which means that the any sites need to trade a lot better than what they did previously. There's not a lot of room for error.

JW [00:33:26]: Are you expecting this to continue to trend upwards?

CC [00:33:30]: Yes, I believe so. I think in Australia, there's higher inflation. Until inflation gets checked here in this country, I expect wages, materials to keep going up over time, which then puts pressure on the cost to build.

JW [00:33:49]: How much more do you think it could go up by over the next 1-3 years?

CC [00:34:00]: At least I think a minimum 10-15%, I would have thought.

JW [00:34:04]: Is this YoY or within the three-year period?

CC [00:34:10]: No, I think over the three-year period, you're looking at probably at least a minimum of 10-15% over that period for increase in the CAPEX. Unless there's a change of government policy and inflation is lower, then you're still going to keep, costs are still going to drive up.

00:34:32] In August 2026, BEVs [battery EVs] hit a record level of 25% of all new vehicle sales. How do you think Viva is positioning itself to capture this growing opportunity?

CC [00:34:50]: Where it's relevant and where it can do it, and that's part of the network planning, they're putting a rollout of EV chargers in sites where it's economical to do that. They've actually recognised that EVs are here to stay and eventually, it will replace fuel. From my understanding, they've rolled that out across the network. Obviously, it's about then integrating those EV charges with the convenience and QSR offerings. At the moment, I believe a full charge for an EV is around 45 minutes, half an hour to 45 minutes. If someone is bringing in an EV vehicle into Viva site, they can recharge their vehicle. Then hopefully, if they're not waiting around, they can go into the building or the QSR and ideally buy a coffee or buy some food. I think there's not a lot of money in EVs, but it's an attraction point to go in and use the products and services, particularly if they've got a strong convenience offering and a strong QSR offering.

JW [00:35:57]: Will this also be a loss leader model?

CC [00:36:01]: Yes, correct. Yes. Profitability in EVs at the moment is still yet to be seen. At the moment, there's not a lot of money to make out of EVs. I think a full charge is around AUD 8, whereas as I mentioned before, per litre, you're making between AUD 0.18-0.26 a litre depending on where the margins are. If you do the numbers there, there's still more money in fuel than there is in EV. That's probably where the QSR convenience offering is pretty important.

00:36:37] What are typical site margin improvements you can see for Viva's QSR side?

CC [00:36:58]: I think you're looking at probably around somewhere between 15% and 20% margin, I would have thought would be where the improvements are. I think car washes and things like that, it's probably a little bit more. That will be upwards of around 30%. I think the QSR offering will depend whether there's a drive-thru or not and the location. I thought as a general number, that's what I think where the margin improvements would be for non-fuel offerings.

JW [00:37:40]: Is it difficult to get specific QSR partnerships?

CC [00:37:48]: With OTR, they have a licence relationship with many of the QSRs. Publicly, they've got a relationship with GYG, Hungry Jack's, Subway, Oporto. I'm just trying to think they've got Moe's Dogs, Wokinabox, Krispy Kreme. Depending on which state the sites are located in, they've got franchise license agreements with many of these QSR operators. I think where there's an ability to put those in, they will. That's probably the strength of probably why they purchased the OTR offering had that licence franchise agreement with those brands.

JW [00:38:41]: What are the margins for those QSRs?

CC [00:38:49]: Look, I think it's probably going to be probably around that 15-20% mark. It depends on which offering. I know that during my time there, the best QSR offering was GYG, and that was probably doing in excess of 20-25% plus Hungry Jack's was the two offerings that seem to be far superior than the other ones. (Talking over each other 39.24) sub-20%, sub-15%, but I felt that the GYG offering and the Hungry Jack's offering was far superior.

JW [00:39:32]: To secure approvals for specific QSR concepts, would you need to negotiate directly with the brand parent companies?

CC [00:39:44]: Yes. They would have a licence agreement where they could put these QSRs. Without giving too much confidential detail, there would be a licence agreement between OTR or Viva Energy, the master franchise and where they could locate those particular QSRs and (talking over each other 40.14) locations. Obviously, these master franchises will have agreements with other operators. There's obviously an issue there around competition and which areas they could put it. It's not a straightforward negotiation as such. It obviously depends on the location and more importantly, the site layout, whether you could fit the QSR, but also the fact that you still need to have some permission from the master franchise to be able to put that offering in there.

00:40:42] How many of Viva's 1,200 stores do you think have successful QSR franchises?

CC [00:40:53]: I think I wouldn't say 100%, but I'd say probably a good 80% of them perform well and trade well. The sites that have QSRs, whether they're franchise QSRs or QSRs that are external, you'll find that most of those sites trade profitably.

00:41:18] How do the economics of Viva's OTR, Liberty self-service and the Reddy Express formats differ?

CC [00:41:43]: I'll just rule out self-service there. There is no self-service offering that I'm aware of other than the hydrogen station diesel stop that's in Corio. Clearly, there's no real thoughts around that because I'm not really sure how that particular site performs. I would have thought that because it's minimal labour there's real limited retail offering, if any, that would probably have the lowest margin out of anything. I think OTR on the spectrum would probably have the highest margin because it has a stronger customer offering with a QSR barista coffee and obviously a more enhanced food offering through hot dogs and the bakery offering. Obviously, that comes with a higher cost to build and obviously a higher labour cost. Liberty, which is all that franchise model probably has a mid- to low margin. That's generally led by fuel discounting. The operation is fairly simple, but also has a limited retail uplift because the offering is not as superior. The Reddy Express would probably historically has been mid-margin, medium to substandard convenience offering and then probably a mid CAPEX behind it. Given that Reddy Express is transitioning across to OTR branding, I'd say that the OTR branding format moving forward would be the one that you'd want to concentrate on in terms of the economics moving forward.

00:43:41] Viva plans to complete its independent retail supply chain rollout by November 2026 and exit the Coles product supply agreement. How impactful could that be to the economics between OTR and Reddy Express?

CC [00:44:07]: I don't think it's going to be a major issue. Obviously, I didn't rate the Coles products arrangement. I didn't think that it's product that it offered was any more superior. In fact, I believe that the OTR offering actually is far superior than what the old Coles Express, Reddy Express sites had. In fact, I'd say that… Almost say that it probably outperforms it. I think the Reddy Express side of things, sales have obviously declined. Obviously, we've talked about the illicit tobacco sales. I think now the move is right in terms of moving across from Reddy Express to OTR. To answer your question, I don't believe that the Coles product supply ending this year is going to have a major detrimental effect on the performance. I think it might be better that they can move away from that agreement. Then they'll give them a bit more flexibility around what they can deliver in those sites without having the Coles agreement in place.

00:45:26] How would you say Viva's Convenience and Mobility segment might trend in the next 1-2 quarters?

CC [00:45:48]: Of this year, the end of the year. I think there's still challenges there. There's been a lot of internal changes with direction of management. They've got a new CEO that just started, which is public knowledge. Teresa Rendo just started that role in, I think, August, who replaces Jevan Bouzo, who was the previous CEO of convenience. I think she's come from a retail background, but not a fuel background. There'll be some challenges for her from that perspective of delivering the business profitably, but also delivering the network rollout that is looking to do over the course of the next two quarters. I think it's pretty much what you see this space. There are other issues that are at play in terms of internal agreements between OTR for ownership of OTR and Viva Energy. I think ultimately of the day, there is a clear platform to try and take the rollout as fast as we can, but there are challenges with obviously restructure of existing agreements, new management and then obviously, the economics of building and developing these sites. I think there's still going to be a challenge in the next six months.

00:47:27] How would you compare Viva's fuel station offerings vs its competitors?

CC [00:47:41]: I think the superior offering, OTR offering is a very good offering, but it needs more innovation. I think the closest competitor that comes to it is 7-Eleven, which is making a real big expansion push into the retail fuel space. I believe that there will be more groups out there looking at the OTR model as the blueprint to move forward as what customers and consumers will want in a fuel offering. That's the one spectrum of the market, but given the current challenges with cost of living in Australia, you will also have that market that are interested in cheap fuel, which unfortunately, at this point in time, outside of the Liberty model, historically, Viva and OTR have been fuel discounters. They're going to have to do something different in order to attract customers into their sites. That's where the superior offering of a better store layout and having a food offering such as the QSR will get people into the stores.

JW [00:48:56]: Do you see Ampol, BP, Mobil Oil or Chevron doing the same?

CC [00:49:06]: My understanding of that segment of the market is that they're still pushing out with the same model. My understanding is they're not really expanding, none of the major providers expanding. You'll find now that there's room now for second-tier fuel operators to come into the market that predominantly have a lower CAPEX because they're a smaller operation, and they're able to be a little bit more nimble and flexible around the way that they deliver their services. I think now that the push and competition won't come from mainstream first-tier fuel operators, but the second and third tier.

JW [00:49:46]: Are there notable players within that tier?

CC [00:49:50]: Yes. I think I just mentioned 7-Eleven, I think outside the major 7-Eleven and then obviously, in Melbourne, where I'm based APCO has a very strong offering. I think some of the franchise models that have a good offering through BP will also play a big part in it as well. You'll find that there's a lot of dealer operators that may brand BP or they may brand Ampol. They will definitely be groups that will definitely push as the main competitors, in my opinion, operating cost, smaller team, better flexibility.

00:50:46] How big do you think players such as Ampol, BP, Mobil Oil or Chevron are as a percentage of stations in Australia right now?

CC [00:50:54]: Look, I think it's probably no more than 15% at the moment. I think they're looking to expand. Otherwise, the dominance of the market has still been Viva Energy, BP, Ampol. The other group that probably I didn't mention that's having a big footprint is United Petroleum or United fuel sites have a fairly strong offering as well.

00:51:25] How much do you expect tier 2 to tier 3 operators' footprint to increase in United Petroleum or United Fuel sites over the next 1-3 years?

CC [00:51:42]: You're talking about store expansion.

JW [00:51:45]: Yes.

CC [00:51:47]: I think they're the only… Based on my views, none of the major providers are expanding and the second and third tiers are the ones that are buying sites and developing sites. The big tiers are only developing what they've got in their pipeline, which they had initially. In terms of actual acquiring new sites, they're not doing it. All the activity is coming from second and third tier fuel operators.

JW [00:52:17]: How significant are the margins between the tier 1 vs the tier 2-3 players?

CC [00:52:31]: I can't really comment on it because I haven't worked or got knowledge of how the margins work with second or third tier fuel operators. It's a bit hard for me to sort of provide a comment on that. My view would be that from an external perspective that if they're out there purchasing sites, developing, building and operating, then it would suggest to me that their operating margins and the way that they've been able to model their business seems to be far superior than the first-tier fuel operators. That's my general observation is that seems to perhaps the economics of the way they do business is a lot more commercial without having the call it, the overlaying cost of a bigger business, they don't have that. I think the second thing is to make decisions a lot faster without shareholder approval or board approval.

00:53:35] Where do you think tier 1 vs tier 2-3 players could save on operating costs?

CC [00:53:42]: I think you're talking about the second or third tiers. I think they're flexible enough that they can move their implementation of sites is a lot more flexible, whereas with the top-tier groups, they have standard blueprints of what must happen, whereas I think the second and third tier have a lot more flexibility. I'll give you an example. They could buy a site and they'll be at a perhaps put more on the actual site than, say, a first tier, which means that they have more of a superior offering, whereas the first tiers may not have that ability to do that. It might be because of licensing agreements whereas second and third tiers don't have that same problem. I think it's that ability to make decisions faster.

It's be able to make decisions to negotiate with maybe smaller groups that provide better costing, particularly build, whereas with the big tiers, they have to stick with mainstream builders because it's because of who they are, whereas the second you don't need to do that. They can go to a smaller builder or a smaller group to construct and they can save the cost there because they can negotiate a lot harder with smaller groups, whereas big groups have their set costs. I think that's probably where the difference is at the moment. They don't have to have… If you have a licensing group master franchise, they don't have to have that. They can go to anyone and anyone and negotiate. I think that's where the second and third tiers have that uplift at the moment, and that's why they're the ones that are actually out there expanding.

JW [00:55:33]: I was thinking that if you have a lot more stores, you would be able to negotiate favourably based on your economies of scale. Would you agree?

CC [00:55:44]: Doesn't work that way. Yes, there is to a certain degree with certain things, but it also is a disadvantage as well because you're stuck with an agreement that you can't get out of because it's a head office agreement, whereas the independent fuel operator out there said, "No, no, I don't have those issues."

JW [00:56:08]: Is there anything else that you would like to highlight regarding Viva?

CC [00:56:17]: No, no, that's pretty much it for me. Hopefully, I've given enough input and overview from my perspective anyway.

JW [00:56:28]: I think it's been a very helpful session. Thank you so much for your time.

CC [00:56:34]: Thank you.

Transcription ends at 00:56:40 of the recorded material