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The Challenge fuel business is made up of 85 independently owned retail service stations with 55 in the South Island and 30 in the North.
CRT has been involved in fuel reselling and distribution for some 40 years across the South Island. During the past two years the business has grown significantly and expanded nationally.
The North Island business has grown larger than the South Island due to the percentage of large volume commercial users CRT supplies. This is a key reason why this opportunity, which is not a capital cost of great significance to CRT, fits so well and will be very beneficial for farmers, and CRT shareholders in particular.
Historically most companies delivered rural bulk fuel in the same tankers that supplied commercial customers and service stations. To some extent this distribution method masked the true cost of serving those rural customers. Changes in the distribution model during the last decade have made the true cost of distribution to this sector more transparent. It is a sector of the market made expensive through typically high kilometres travelled to make low volume deliveries.
This cost structure, and the move to private, “non-branded” distributors in most cases, does pose some threat to rural fuel users.
Fuel is a major input in agriculture, yet the size of the rural fuel market is comparatively small. The attraction of this move with Challenge is that CRT now has a very significant fuel volume spread across retail, commercial and rural users. The distribution model CRT has developed can restore some of those synergies of the same tankers delivering fuel to all three customer types.
Most importantly, CRT now has scale in the fuel business sufficient to ensure that it provides real co-operative competition to the market. If it wasn’t for the scale the business had achieved, it would never receive opportunities such as this.
There are other strong synergies with the Challenge group, with the retailers being predominantly provincial New Zealand businesses. Since CRT’s proposal was first put to the Challenge retailer group at their conference in September 2009, it has forged a strong co-operative relationship with them, and the executive of Chevron, to achieve agreement on the Challenge brand and distribution.
In summary, this move assists CRT’s strategic goal of delivering maximum benefit to its shareholders through achieving national scale. Further, the efficiencies gained and surpluses generated from this new business will be of direct benefit to all shareholders.
For more information about CRT and Challenge Fuel contact us on 0800 666 626 or email us at info@crtfuel.co.nz
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