Fuel retailer Z Energy has set some ambitious targets for in-store retail growth as the company looks ahead to a lower fuel demand outlook and declining tobacco sales.
Convenience retailing has been a key area for Z Energy and remains material, the company outlined in an investor presentation last week.
It also revealed for the first time the impact the targeted smokefree 2025 campaign would have on tobacco sales, which currently make up more than 40 cent per of total non-fuel revenue, or 20 per cent by gross margin.
The company is expecting tobacco sales to decline by $65 million from $189m to $124m in 2025 and flags some additional risk of being excluded from the category (although it may also maintain share of the market through a reduced number of tobacco outlets generally).
In its presentation, Z said its goal was a 20 per cent increase in convenience retail revenue to $500m by 2025.
While declining tobacco sales will be offset somewhat by growth in the tobacco substitute market, Z will still have to grow non-fuel, non-tobacco sales by more than 16 per cent a year for the next three years to meet its targets, Forsyth Barr estimates.
In the next four years Z is targeting to grow revenue from tobacco substitutes by 25 per cent to $34m, beverages by 22 per cent to $90m, snacks 14 per cent to $48m and Z Espress (coffee) by 23 per cent to $130m.
General manager Andy Baird said with Smokefree 2025 he expected a steady year-on-year decline in tobacco revenue and was focusing on the sales of different products as consumer behaviour changed.
Consumer buying patterns have changed due to Covid-19 with less frequent shops while online grocery sales and prepare at home meal kits have become more popular.
"Our approach is to grow our fresh food on the go offer, especially coffee, bakery foods and fresh salads and sandwiches," Baird said.
The company had a lot of success in these categories especially since launching pre-order coffee in their Z App last year, he said.
The investors day also focused on the transition to a low carbon future.
Z Energy chief executive Mike Bennetts said for a smooth transition to a low carbon future the company would optimise it's core business.
"We have already outlined how moving to imports will free up approximately $150m of additional working capital, having already released $30m from refining less product last year, and we will provide more detail on our earnings outlook and capital management," he said.
In May the company, which also operates the Caltex brand, delivered a net profit after tax of $57 million for the 12 months to March 31, an increase of 165 per cent on the previous year.
Revenue fell 29 per cent to $3.52 billion, reflecting the continuing pressure of reduced demand and a squeeze on refinery margins.
However, Z predicted earnings would increase in 2022 with "incremental Ebitdaf upside of $85m-120m" over the next three years.
In its presentation last week, Z said its core fuel business would remain strong for at least a decade.
"Our view is that although annual growth in petrol and diesel demand will slow markedly from 2025 and turn negative from 2026 for petrol and 2028 for diesel, it will not reduce as quickly as the [Climate Change Commission] predicts. We see demand for both fuels remaining substantially higher than the commission does out to 2040."