What is the Future for Service Stations? Several far-reaching trends are disrupting the fuel retail market. One of the most powerful of these are the rise of alternative fuels (particularly electricity) for mobility, the emergence of new models in mobility, and the evolution of heightened consumer expectations around convenience and personalization. The impetus for these disruptions comes from a range of powerful new digital technologies-everything from artificial intelligence (AI) to robotics to the Internet of Things (IoT).
The ongoing shifts will change the contours of competitive advantage in the market and require a fundamental transformation of the standard business model. Fuel retailers must establish a comprehensive response that adjusts the products and services they sell, adapts their network and business model, alters the layout of the Gas Station Nearby and convenience stores, and harnesses new digital tools.
To assist companies understand what the long run will look like and what they can do today to conform to it, BCG has conducted an in-depth study in the fuel retail industry, detailing four totally different market environments that will likely emerge around the globe, each based on changes in mobility and consumer lifestyles. Fuel retailers can utilize these market environment scenarios to evaluate how their business might fare inside the years ahead under different conditions and also to position themselves to evolve over the short, medium, and long terms. Even though environments are different from the other person markedly, a significant area of the fuel retail network in a few markets could be unprofitable by 2035-even in the scenarios where new mobility models are less disruptive and fossil fuel sales usually do not decline precipitously. In a market environment where electric vehicles (EVs), autonomous vehicles, and new mobility models explode rapidly, approximately 80% from the fuel-retail network as currently constituted may be unprofitable in about 20 years.
To stop this kind of decline, fuel retailers must take action in three areas. First, they have to move coming from a vehicle-centric business structure to some customer-centric one in order to capture cool product and service opportunities. This effort entails reinventing the general customer journey and ultizing digital tools to prolong the client relationship beyond occasional visits for the service station. Second, retailers have to transform their network of service stations and assets. This process includes changing formats in certain locations to fulfill customer demand, divesting locations that will not be profitable, and purchasing assets that keep the push into new products and services. Third, they have to develop new capabilities-including digital expertise and, sometimes, capabilities related to entirely new areas including last-mile logistics or property.
To ensure that you adapt, fuel retailers must embrace a new mindset. Making modest changes or tweaks towards the business is not going to suffice. Instead, companies must fundamentally rethink their business and aggressively embrace innovation and new technology. Those that boldly seize the chance will find themselves in a winning position. Those which do not may be left behind.
The Forces of Disruption.
The pace of disruption in the fuel organization is breakneck, as alternative fuels grab share, advanced mobility models take off, and consumers expect greater convenience, quality, and personalization. (See Exhibit 1.) In every three areas, advances in digital technology-including big data and analytics, AI, the IoT, robotics and automation, and virtual and augmented reality-are driving and enabling change.
The Takeoff of Alternative Fuels.
Two forces are spurring the increase of electricity and other alternative fuels. The very first is the rollout of regulations aimed at limiting greenhouse gas emissions. As an example, the UK has mandated that, by 2040, brand-new cars and vans sold in the nation ought to be able to achieving zero greenhouse gas emissions, a requirement that will increase need for battery electric, plug-in hybrid electric, or hydrogen-fueled vehicles.
The second force is technology. As battery costs carry on and decline, automotive OEMs are investing heavily in EVs. By 2030, over a third of all the new vehicles sold is going to be fully or partly electric. This development poses an important threat to fuel retailers, especially those that operate numerous stations where fuel purchases make up a substantial share of profits.
Other alternative fuels are also starting to gain ground in some markets. For example, automakers including Toyota are purchasing developing hydrogen fuel cell vehicles. Meanwhile, in other regions around the world, a sizable proportion of vehicles already run using alternative fuels like liquefied petroleum gas (LPG) and compressed gas (CNG), and biofuels are increasing their share in the gasoline and diesel pools. Vehicles that use an alternative fuel such as LPG or CNG still require refueling through a traditional fuel retail location-unlike EVs, which users may charge in the home, at work, or perhaps in parking lots, and which therefore pose a substitution threat to Nearest Shell Gas Station.
The Emergence of Advanced Mobility Models
Nearly two-thirds from the global population will live in cities by 2030, and new digital-centric business models will be essential to ensuring efficient urban mobility. Already, ride-hailing services including Uber and Lyft have ushered in the first phase of the era of shared mobility, decreasing the car ownership aspirations of younger generations. By 2030, the shared mobility market will probably be worth nearly $300 billion-and through 2035, we project, shared mobility solutions will make up nearly 20% of on-road passenger miles.
As shared mobility will continue to gain ground, another significant shift will support it: the emergence of autonomous vehicles (AVs). Numerous companies-including both traditional OEMs like Ford and Toyota and new digital players including Google and Uber-are investing heavily in the development of autonomous driving capabilities. Because of this, we expect that nearly 25% of the latest cars purchased in 2035 will have the capacity to drive themselves without any human involvement whatsoever-with a lot of of the AVs apt to be electric. As autonomous vehicle systems replace human drivers, shared mobility services can become less expensive to customers, encouraging further development of such services.
The implications for fuel retailers are significant since the refueling or recharging of shared-mobility-service AVs will commonly occur as the vehicles are empty of passengers, at dedicated AV parking areas located outside urban areas. The end result will certainly be a decline in customer traffic at service stations and lower fuel and convenience store sales.
The Evolution of Consumer Expectations. Retail customers-including those shopping in convenience stores-are becoming more demanding over the board. They are trying to find high-quality, fresh, healthy food options; better value; and a lot more attractive store formats. In addition they want more personalized services and products as well as a seamless, convenient experience through options like self-service checkout.
Within this environment, retailers are leveraging an enormous level of data from their customers to gain an unprecedented level of insight with regards to their preferences. And those efforts will grow increasingly sophisticated. Whereas businesses before grouped consumers into segments, retailers in the future can target every person and tailor goods and services to that individual’s needs.
These dramatic changes in the retail environment will pose a significant challenge for fuel retailers, which are in position to lose customers both to more complex retailers that offer fast and easy purchases and to increasingly innovative e-commerce players. Actually, convenience will increasingly come to mean “delivered to the home,” as e-commerce businesses that offer instant delivery emerge being a significant alternative to the traditional convenience store. Companies including Amazon already are testing delivery by drone in an effort to substantially reduce last-mile delivery time. Others are addressing the last-mile challenge through partnerships with companies like Instacart and Uber. In america alone, investors have committed $9 billion to some 125 startups operating in this particular space. Additionally, retail players are leveraging technology to create a true omnichannel experience that seamlessly integrates offline and online retail. Voice-activated shopping, made possible from the IoT and also by AI, is emerging as being a powerful new model in both physical and virtual stores.
Other efforts aim to have the in-store experience more efficient and convenient. For instance, emart24 has presented unstaffed stores, and Farmer’s Bridge has created walk-in vending machines. Also unfamiliar with the scene are mobile stores including Robomart and Mobymart and chains such as AmazonGo and JD.com’s 7Fresh (in China) that offer automated checkout. Fuel retailers must take steps to create options that match the rate and ease these formats offer.
The World Is Evolving-And Local Implications Vary. The full impact from the trends which can be remaking the fuel retail business is going to be evident within the next 10 to 15 years. In the meantime, however, some markets will change more rapidly as opposed to others. For example, the demand for electric and other alternative-fuel-powered vehicles, the penetration of AVs, as well as the adoption of the latest shared mobility solutions is going to be greater in Northern Europe, North America, and a few fast-developing economies including China compared to most countries in Middle East or Africa, for instance.
Four Future Market Environments – To mirror the disparate pace of change in different parts of the planet, we have now identified four distinct market environments that will probably play out between now and 2035, all of that can have a different impact on fuel retailers’ profitability. (See Exhibit 2.) These four basic environments can serve as signposts for the future, helping companies identify signals of change available in the market and evaluate the impact on their business. Their key features are listed below:
Market environment 1: Fossil fuel remains king. This environment reflects conditions under our most conservative projections. Internal combustion engine (ICE) vehicles still predominate, with limited penetration of electric vehicles. People carry on and rely heavily on personal vehicles, with shared mobility solutions making up only 5% to 10% of road mobility. Within this environment, the consumer shopping experience will be digitally enabled, and seamless purchasing and checkout will likely be commonplace. Businesses will still target segments of customers (not individual customers), and traditional human-powered last-mile delivery will stay the norm. Despite the dominance of ICE vehicles, as well as population growth and the emergence of an expanding middle class in developing countries, interest in fossil fuel will stagnate or decline slightly. This is due partly to increasingly fuel-efficient vehicles as well as in part to advance-albeit limited-penetration of EVs. As a result, by 2035, under a “do nothing” scenario in which fuel retailers have not adapted to the changing environment, 25% to 30% of fuel retail outlets will earn returns below their weighted average cost of capital and be at risk of closure.
Market environment 2: There’s a new fuel on the block. Inside the second market environment, countries are in a transitional state before having achieved a vital degree of penetration of EVs. Within this environment, government regulations and incentives foster EV adoption, and electricity powers nearly half of the cars on the road. But electric charging infrastructure remains limited to public spaces in urban locations as well as public spaces and homes in surrounding suburbs, with little infrastructure available in rural and remote areas. Consumers in this environment will expect degrees of integration between offline and online shopping who go past the click-and-collect approach. Advanced digital in-store and out-of-store experiences-as an example, ordering products through personal digital assistants both at home and using automated checkout in stores-will likely be common. AI-driven innovation will permit highly personalized offerings in traditional stores and via self-driving mobile on-demand stores. Alternative last-mile delivery models using drones and autonomous robots will likely be on the rise. Although EVs won’t completely dominate this environment, their impact will likely be powerful. If fuel retailers tend not to adjust their model, the decline in their fuel sales will render 45% to 60% of Nearest Petrol Station potentially unprofitable by 2035 and definately will push the average return on capital employed (ROCE) from the sector to the low single digits.
Market environment 3: All rise, but none dominate. In this environment, adoption of EVs is widespread, however, there is also significant need for alternative fuels such as hydrogen, LPG, CNG, and biofuels, as governments as well as other entities support their development. Consequently, the overall share of fossil fuels is relatively low. Simultaneously, many consumers prefer shared mobility solutions to owning cars that largely go unused during the day. The upshot: nearly 20% of passenger kilometers in cities are traveled in certain shared mode of transport. Within this environment, the shopping experience will reach its maximum level of online and offline integration. Drones and autonomous robots will be commonplace, bringing products to customers’ doorsteps from urban micro-hubs. Humans will participate directly in only half of all last-mile deliveries. The financial situation for fuel retailers in this environment will be challenging. Although fuels including LPG and CNG will replace some of the lost volume of gasoline, they won’t completely cancel out the effect of rising EV use. By 2035, assuming that this fuel retail model doesn’t significantly change, we expect 60% to 75% of fuel stores to get at risk of unprofitability, with average sector ROCE in negative territory.
Market environment 4: Mobility movesbeyond standard fuels. Inside the most innovative of the market environments, EVs are dominant, and the AV revolution is well underway. About 10% to 20% of new cars sold will likely be both electric and fully autonomous. Non-renewable fuels will power just about a quarter of all the road mobility energy needs. Furthermore, the infrastructure necessary to serve a zwvzos fleet of AVs-to transport goods and people through the entire day, and also to charge overnight and throughout idle times in dedicated areas-are usually in place. On-demand mobility will take into account nearly 30% of passenger kilometers in cities, as increasing numbers of people go for shared mobility over vehicle ownership. The retail environment will likely be like the one outlined in market environment 3. But market environment 4 will demand fuel retailers to create even more dramatic change.