Research Report: Woolworths' Petrol Business Sale to EG Group

This research report analyzes Woolworths Group's decision to sell its petrol business to EG Group and enter into a commercial alliance. The report examines the immediate impact on Woolworths' share price, noting a significant increase following the announcement. Key drivers for this positive response include the 15-year contract with EG Group, the continuation of Woolworths' popular fuel discount program, and a new wholesale food supply agreement. The alliance allows Woolworths to focus on its core business and leverage EG Group's competitive product sourcing, while EG Group benefits from Woolworths' established brand and customer base. The report also discusses the organizational response to the deal, including media conferences and internal restructuring. Potential risks and benefits, such as stronger-than-expected growth in food sales versus increased pricing intensity, are considered. The report concludes that the alliance is likely to benefit Woolworths Group by enabling it to focus on core operations, enhance its brand image, and access new customer bases through EG Group's international presence.

Running head: RESEARCH REPORT
Research Report
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Selected Article- “Woolworths Group to sell petrol business and enter into commercial
alliance with EG Group”
Company’s share price before and after the announcement
It has been identified that Woolworths Group Limited today announced that the firm
has developed a binding agreement to sell its 540 Woolworths-owned fuel convenience sites
to EG Group for A$1.725 billion. This initiative has reinforced the market position of the
company as after the announcement of the initiative, share price of the company has
increased to 29.96 AUD1. Share price of Woolworths before the announcement of entering
into commercial alliance EG was around 25.01 AUD. Group is a global leader in fuel and
convenience retailing, operating almost 4700 sites across Europe and North America. There
are significant factors that act as the drivers of growth in share price. The alliance was formed
under the contract of 15 years and consequently, this long-term plan has significant impact on
the shareholders as well. Organization’s popular 4% fuel discount remains across its network
for long period of time. Consequently, consumers of Woolworths continue to earn rewards
points on fuel and merchandise purchase across the globe2.
Another significant factor that drives the overall growth and the share price of the
company is the organization commences a new wholesale food supply agreement to the
network by delivering extensive product range as well as competitive price. The agreement is
considered to be continuing to strengthen the opportunities the consumers have for greater
value when buying the products of Woolworths3. Consumers keep this relationship with the
1 'Woolworths Group To Sell Petrol Business And Enter Into Commercial Alliance With EG Group -
Woolworths Group' (Woolworthsgroup.com.au, 2019)
<https://www.woolworthsgroup.com.au/page/media/Latest_News/woolworths-group-to-sell-petrol-business-
and-enter-into-commercial-alliance-with-eg-group/> accessed 18 January 2019.
2 'Woolworths Offloads Petrol Business To EG Group For $1.7B' (Australian Financial Review, 2019)
<https://www.afr.com/business/retail/woolworths-offloads-petrol-business-to-eg-group-for-17b-20181109-
h17q51> accessed 18 January 2019.
3 'Australia's Woolworths To Sell Petrol Business To EG Group For...' (U.S., 2019)
<https://www.reuters.com/article/us-woolworths-grp-divestiture-eg-group/australias-woolworths-to-sell-petrol-

2RESEARCH REPORT
brand because with the purchase of the item, they also receive rewards program as well as the
discount offer that the brand continues to provide. Clearly, there is a positive growth in sales
found due to extensive list of products and service came along with the agreement.
The organization has observed thousands of new consumers are visiting the outlet
and inclined to avail the deals. However, it is also been identified that EG group has also
benefitted from the alliance because EG group can also benefit from the competitive strategy
such as competitive product sourcing4; hence, Woolworths itself is supposed to provide world
class convenience offer which adds further scale to Woolworths FoodCo. Another significant
reason for growth in share price because the initiative to bind with the EG group has enabled
the firm to focus on more deals and discounts and this was possible because the overall
operation cost of petroleum operation was minimized.
The firm has leveraged this reduced cost of operation to attract its existing and new
consumers. It has also been identified that petroleum business was never a core business of
Woolworths and despite the same, the firm had to bear the additional cost of petroleum
operation for limited amount of profits. Consequently, the overall sale of the Woolworths had
a marginal growth which is further reflected on share price of the company. However, after
the agreement with EG Group, the organization is not supposed to bear the cost of its non-
core products, while its consumers still enjoy the accuracy of service with the benefits
coupled with the rewards programs. This initiative has no negative influence on the external
stakeholder of the company, but the company remains profitable with new and existing
consumer base.
business-to-eg-group-for-1-25-billion-idUSKCN1NE0DA> accessed 18 January 2019.
4 'EG Group Buys 540 Woolworths Sites In Australia For A$1.725Bn - Forecourt Trader'
(Forecourttrader.co.uk, 2019)
<https://forecourttrader.co.uk/news/fullstory.php/aid/15881/EG_Group_buys_540_Woolworths_sites_in_Austra
lia_for_A$1.725bn.html> accessed 20 January 2019

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The sale which holds 540 Woolworth-owned petrol station, is a fundamental part of
Australian retailer’s effort to eliminate non-core business and go ahead the competitors like
Coles both in domestic and competitive market. In addition to this, overall sales of the
company has increased because business has the access to its new consumers by its new
partner who are supposed to sell wholesale food as well as groceries to the chain service
station as the norm of the agreement. As the brand now has international presence through
the alliance with EG Group, due to increasing sales margin, brand value of the organization
has also increased. This positively influences the share price of the brand both in global and
domestic market.
Organization’s response to the new article
The organization has effectively dealt with the announcement as there were several
media conferences, in which both the organizations have shown a supportive trademark
towards each other. In one of the media conference, the heads of Woolworths Ltd. has
mentioned that “A long-term wholesale food supply arrangement could ensure that EG Group
can gain benefits from competitive producing and sourcing with the inclusion of
Woolworths’ own brand to deliver a world class convenience offer which will further scale to
Woolworth FoodCo5”. The organization EG group has also added the fact that Woolworths’
service has an understanding opportunity to enhance its international footprint. The initiative
has totally made the rivals anxious about their own strategy in the supermarket sector because
finalising scale of Woolworths certainly follows a tortured attempt to threat other petroleum
giants like British Petroleum. However, to finalize the plan, board members of both the
organizations have mentioned that deal requires a clear approval from the Foreign Investment
5 'Woolworths Group To Sell Petrol Business And Enter Into Commercial Alliance With EG Group -
Woolworths Group' (Woolworthsgroup.com.au, 2019)
<https://www.woolworthsgroup.com.au/page/media/Latest_News/woolworths-group-to-sell-petrol-business-
and-enter-into-commercial-alliance-with-eg-group/> accessed 18 January 2019.

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Review Board and it is expected to be accomplished early in the coming year. In addition to
this, it has also been identified that EG group seems to be committed to invest in
Woolworths’ site network as they introduce leading brands by enhancing the alliance with
Woolworths as well as working with the exceptional management team6.
On the other side, CEO of Woolworths has also mentioned that “transaction is a
positive for the consumers, organization’s team as well as shareholders. This agreement is
supposed to continue to reinforce the opportunities organization’s customers have for great
value when dealing with Woolworths. To implement the initiative properly and to ensure that
it goes in accordance to the goals, the existing Woolworths Petrol Management and operation
is supposed to transfer to EG Group after the sale is completed.
Furthermore, in response to the initiative, the organization has announced that its
chief legal officer as well as organization secretary Richard Dammery could step down from
the role and will further a crucial role in petroleum management in the coming year.
Furthermore, as a part of the deal, the organization Woolworths is supposed to start a new
wholesale food supply agreement to the proposed network to provide extensive product range
as well as an amount of competitive advantage7. In addition to this, in order to complete or
implement the initiative, Woolworths is supposed to transfer all existing Woolworths Petrol
management as well as operation teams to EG Group. As the part of the implementation plan,
retailer also has a series of options for the use of proceeds such as the initiative on capital
management.
It has also been identified that Woolworths is supposed to maintain some sort of skin
in the long-term commercial relationship with the inclusion of existing 4 cent a litre discount
6 'Australia's Woolworths To Sell Petrol Business To EG Group For...' (U.S., 2019)
<https://www.reuters.com/article/us-woolworths-grp-divestiture-eg-group/australias-woolworths-to-sell-petrol-
business-to-eg-group-for-1-25-billion-idUSKCN1NE0DA> accessed 20 January 2019.
7 Jie, F., Parton, K. and Chan, C., 2015. Australian beef supply chain integration: case studies of the two largest
Australian supermarkets. International Journal of Supply Chain and Operations Resilience, 1(2), pp.121-138

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on fuel along with the loyalty point scheme. It has also been anticipated that Woolworths
decision to sell out its petroleum business could improve or help the business to win the head
to head battle with the long-term super-market competitors Coles and ALDI8. Likewise, as
the part of the initiative, shareholders of Wesfarmers are supposed to agree to the demerger of
Coles business at a general meeting and this gives the supermarket chain the capability to
focus on the core business of selling groceries at growingly competitive market.
As discussed earlier, by implementing the initiative, the organization found an easy
access to keep its step in the international market. Undoubtedly, the organization will have
new customer base through a third party partner and the initiative also enhance the brand
image of the organization in the international market as the partnered organization EG Group
already developed and maintained a high brand value both in global and international market.
While the organization makes no change to earnings forecasts given the transaction is still
supposed to comply with approval or consent of Foreign Investment Review Board9. Hence,
the major upside down risks associated with the initiative, upside risk to the valuation could
include stronger-than expected growth in Australia Food Sales, larger than expected increase
in group EBIT margin as well as smaller than expected losses sustained by discount store
companies like Big W. On the other side, downside risk may include increased pricing
intensity, more competitors entertaining the supermarkets and slow rate of sales.
Furthermore, in conclusion, it can be mentioned that the agreement will further benefit the
organization Woolworths Group, as there is a clear requirement the marketers have to apply
innovative approach to deal with the marketing odds.
8 Spillan, J.E. and Ling, H.G., 2015. Woolworths: An Adizes Corporate Lifecycle Perspective. In Business
History Conference. Business and Economic History On-line: Papers Presented at the BHC Annual
Meeting (Vol. 13, p. 1). Business History Conference.
9 Gama, M., 2018. Killer trade: Capitec, Woolworths. finweek, 2018(19 July), pp.13-13.

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Footnotes and Bibliography
'Australia's Woolworths To Sell Petrol Business To EG Group For...' (U.S., 2019)
<https://www.reuters.com/article/us-woolworths-grp-divestiture-eg-group/australias-
woolworths-to-sell-petrol-business-to-eg-group-for-1-25-billion-idUSKCN1NE0DA>
accessed 20 January 2019.
'Australia's Woolworths To Sell Petrol Business To EG Group For...' (U.S., 2019)
<https://www.reuters.com/article/us-woolworths-grp-divestiture-eg-group/australias-
woolworths-to-sell-petrol-business-to-eg-group-for-1-25-billion-idUSKCN1NE0DA>
accessed 18 January 2019.
'EG Group Buys 540 Woolworths Sites In Australia For A$1.725Bn - Forecourt Trader'
(Forecourttrader.co.uk, 2019)
<https://forecourttrader.co.uk/news/fullstory.php/aid/15881/EG_Group_buys_540_Woolwort
hs_sites_in_Australia_for_A$1.725bn.html> accessed 20 January 2019.
Ferguson, R., 2011. The Brontes Went to Woolworths: The Bloomsbury Group. A&C Black.
Gama, M., 2018. Killer trade: Capitec, Woolworths. finweek, 2018(19 July), pp.13-13.
Jie, F., Parton, K. and Chan, C., 2015. Australian beef supply chain integration: case studies
of the two largest Australian supermarkets. International Journal of Supply Chain and
Operations Resilience, 1(2), pp.121-138.
Knox, M., 2015. Supermarket monsters: The price of Coles and Woolworths'
dominance (Vol. 6). Black Inc..
Spillan, J.E. and Ling, H.G., 2015. Woolworths: An Adizes Corporate Lifecycle Perspective.
In Business History Conference. Business and Economic History On-line: Papers Presented
at the BHC Annual Meeting (Vol. 13, p. 1). Business History Conference.

8RESEARCH REPORT
'Woolworths Group To Sell Petrol Business And Enter Into Commercial Alliance With EG
Group - Woolworths Group' (Woolworthsgroup.com.au, 2019)
<https://www.woolworthsgroup.com.au/page/media/Latest_News/woolworths-group-to-sell-
petrol-business-and-enter-into-commercial-alliance-with-eg-group/> accessed 18 January
2019.
'Woolworths Offloads Petrol Business To EG Group For $1.7B' (Australian Financial
Review, 2019) <https://www.afr.com/business/retail/woolworths-offloads-petrol-business-to-
eg-group-for-17b-20181109-h17q51> accessed 18 January 2019.