Shares Slide as Viva Energy Suffers Hit to Tobacco Sales

Viva Energy has seen its share price fall sharply after revealing a significant decline in sales during the first half of the year, driven primarily by a steep drop in tobacco revenue. The fuel supplier and retailer reported a 10 percent year-on-year fall in its convenience sales, with tighter tobacco regulations impacting consumer demand and reshaping its earnings landscape.

By midday AEST, Viva shares had fallen by more than 10 percent to $1.96, leading losses across the ASX 200 and sparking concern among investors. The company released preliminary figures that show its convenience arm earned $835 million in revenue for the six months to June, a marked decrease from the same period last year.

The sharp contraction in convenience sales has been attributed to a 27 percent plunge in tobacco sales, which were heavily affected by recent changes to packaging legislation. The regulatory shift, designed to reduce smoking rates, led to fewer purchases and significantly reduced volumes across the sector. While the downturn in tobacco revenue was partially offset by improvements in gross margins elsewhere in the convenience business, the damage was enough to pull down the overall figures.

The broader Convenience and Mobility (C&M) segment, which includes both convenience retail and fuel operations, recorded a marginal decline of 0.5 percent in total sales compared to the prior year. Notably, fuel margins improved throughout the second quarter, helping to stabilise performance in a challenging retail environment.

Despite the hit to convenience revenue, Viva Energy remains on track to deliver on its profit guidance. The company expects earnings before interest, taxes, depreciation and amortisation (EBITDA) across its C&M and Commercial and Industrial divisions to reach approximately $310 million. This figure is positioned above the midpoint of the guidance range previously outlined by the business.

At the group level, overall EBITDA is forecast to come in at around $300 million, according to unaudited estimates. This reflects strong contributions from the company’s energy and infrastructure divisions, although these gains are being partially eroded by corporate expenses and operational costs.

Viva’s latest results underscore the challenges traditional convenience retailers face as legislative changes continue to influence consumer behaviour. With tobacco historically representing a significant portion of convenience store turnover, businesses in the sector are now being forced to adjust their strategies and product mix in response to declining sales in that category.

In particular, the introduction of stricter tobacco laws, including plain packaging requirements and enhanced health warnings, has accelerated the shift away from cigarette consumption. These regulations, while aimed at improving public health outcomes, have created new pressures on retailers reliant on tobacco for foot traffic and margin.

As a result, companies like Viva Energy are having to re-evaluate how they position their convenience offerings to remain competitive. Many are turning to higher-margin alternatives such as fresh food, coffee, and ready-to-eat options to help make up for the loss in tobacco revenue. Additionally, improvements in fuel retail pricing and supply chain efficiency are becoming essential in maintaining overall profitability.

The performance of the Convenience and Mobility business will remain under close scrutiny in the second half of the year, particularly as Viva navigates a changing retail landscape and evolving customer expectations. While the company’s fuel operations have demonstrated resilience and a capacity to deliver margin growth, the reliance on declining product lines such as tobacco signals the need for innovation across the network.

Viva Energy has continued to invest in modernising its service station network, enhancing store layouts, and improving digital engagement with customers. These efforts are part of a broader strategy to reposition the business for long-term sustainability amid shifting market dynamics.

Although the current results may raise concerns, Viva’s confidence in its earnings guidance and continued investments in its core operations suggest that the company is actively responding to the headwinds. How well it executes on its diversification strategy will determine whether it can stabilise earnings and regain investor confidence over the coming quarters.

As Australia’s fuel and convenience retail landscape continues to evolve, players like Viva Energy must remain agile, adaptive and forward-thinking to thrive in a more regulated and health-conscious market.

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