A Woolworths logo is displayed above one of the company's supermarkets in Sydney, Australia, February 26, 2016.
A Woolworths logo is displayed above one of the company's supermarkets in Sydney, Australia, February 26, 2016. Reuters/David Gray

Woolworths Group Limited has entered a deal with Caltex after their BP deal collapsed. The “Plan B” will see the supermarket giant becoming the primary wholesale food supplier to over 700 existing Caltex convenience stores.

On Thursday, Woolworths announced the long-term strategic partnership with Caltex across convenience, wholesale food, redemption, loyalty and fuel supply. Under the deal, Woolworths four cents per litre fuel redemption offering will be expanded across 125 new sites, in addition to the existing 104 Caltex redemption sites. Woolworths Rewards points will also be available on fuel and merchandise purchases at over 700 Caltex sites nationwide.

The company will also supply food to Caltex convenience sites. Both companies will co-create and roll out a convenience offering under the Metro banner to up to 250 Caltex sites over the next six years with over 50 sites planned in the next two years.

Woolworths said Caltex will make a one-off payment of $50 million to Woolworths as part of the deal. The estimated return of the agreement is $80 million before tax per year to Woolworths, which will accrue $1.2 billion over the next 15 years.

Caltex has been supplying fuel to the 534 service stations of Woolworths since 2004 for about $150 million a year. But the new agreement has slashed the amount by $80 million.

Brad Banducci, CEO of Woolworths Group, called the deal “Plan B” after the collapsed of their sale to BP. “While we were disappointed with the termination of the BP agreement, we believe the customer benefits of our alliance with Caltex, combined with a new fuel supply agreement, will allow us to deliver a compelling outcome for both our customers and our shareholders. Customers will have access to an extended redemption and loyalty network and an exciting new convenience food format,” he said.

“The Woolworths Petrol business is in a good position to pursue its own growth agenda supported by a highly competitive fuel supply agreement and a strengthened management team, all underpinned by solid links to the Woolworths food business.”

Woolworths said it would still pursue an IPO or sale of its petrol business.