Is There a Future for Service Stations? Several far-reaching trends are disrupting the fuel retail market. Among the most powerful of these are the rise of alternative fuels (particularly electricity) for mobility, the emergence of new models in mobility, and also the evolution of heightened consumer expectations around convenience and personalization. The impetus for these disruptions comes from an array of powerful new digital technologies-everything from artificial intelligence (AI) to robotics to the web of Things (IoT).
The ongoing shifts will modify the contours of competitive advantage in the market and require a fundamental transformation from the standard business design. Fuel retailers must create a comprehensive response that adjusts the products and services they offer, adapts their network and business structure, alters the design of their Nearest Gas Station To My Current Location and convenience stores, and harnesses new digital tools.
To assist companies know very well what the near future will appear like and the things they can do to adjust to it, BCG has conducted an in-depth study of the fuel retail industry, detailing four completely different market environments that are likely to emerge around the globe, each defined by alterations in mobility and consumer lifestyles. Fuel retailers can start using these market environment scenarios to evaluate how their business might fare within the years ahead under different conditions and also to position themselves to adapt on the short, medium, and long terms. Even though the environments are different from each other markedly, a significant part of the fuel retail network in certain markets might be unprofitable by 2035-even within the scenarios in which new mobility models are less disruptive and fossil fuel sales tend not to decline precipitously. In a market environment where electric vehicles (EVs), autonomous vehicles, and new mobility models take off rapidly, as much as 80% from the fuel-retail network as currently constituted may be unprofitable in about 20 years.
To prevent such a decline, fuel retailers have to take action in three areas. First, they need to move from the vehicle-centric business design to a customer-centric one out of order to capture cool product and service opportunities. This effort entails reinventing the overall customer journey and using digital tools to increase the customer 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 satisfy customer demand, divesting locations that will never be profitable, and making an investment in assets that support the push into new products and services. Third, they need to develop new capabilities-including digital expertise and, sometimes, capabilities related to entirely new areas like last-mile logistics or real estate.
To actually adapt, fuel retailers must embrace a new mindset. Making modest changes or tweaks to 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 see themselves in a winning position. Those that do not may be left behind.
The Forces of Disruption.
The pace of disruption in the fuel company is breakneck, as alternative fuels grab share, advanced mobility models remove, and consumers expect greater convenience, quality, and personalization. (See Exhibit 1.) In most 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 rise of electricity along with other alternative fuels. The first is the rollout of regulations targeted 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 competent at achieving zero greenhouse gas emissions, a requirement that can increase interest in 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, more than a third of all the new vehicles sold is going to be fully or partly electric. This development poses a major threat to fuel retailers, particularly those that operate numerous stations where fuel purchases make up a substantial share of profits.
Other alternative fuels can also be beginning to gain ground in a few markets. As an example, automakers including Toyota are making an investment in developing hydrogen fuel cell vehicles. Meanwhile, in other parts around the world, a considerable proportion of vehicles already operate on alternative fuels including liquefied petroleum gas (LPG) and compressed gas (CNG), and biofuels are increasing their share in the gasoline and diesel pools. Vehicles designed to use an alternative fuel like LPG or CNG still require refueling through a traditional fuel retail location-unlike EVs, which users may charge in the home, at work, or even in parking lots, and which therefore pose a substitution threat to Shell Near Me.
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 is going to be important to ensuring efficient urban mobility. Already, ride-hailing services like Uber and Lyft have ushered in the first phase in the era of shared mobility, lowering the car ownership aspirations of younger generations. By 2030, the shared mobility market may very well be worth nearly $300 billion-and by 2035, we project, shared mobility solutions will make up nearly 20% of on-road passenger miles.
As shared mobility consistently 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 like Google and Uber-are investing heavily in the growth of autonomous driving capabilities. Consequently, we expect that nearly 25% of new cars available in 2035 will have the capacity to drive themselves with no human involvement whatsoever-with many of the AVs apt to be electric. As autonomous vehicle systems replace human drivers, shared mobility services can become less and less expensive for customers, encouraging further growth of such services.
The implications for fuel retailers are significant as 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-have become more demanding across the board. They are trying to find high-quality, fresh, healthy food options; less expensive; and much more attractive store formats. They also want more personalized goods and services and a seamless, convenient experience through options such as self-service checkout.
In this particular environment, retailers are leveraging a huge level of data using their customers to gain an unprecedented amount of insight with regards to their preferences. And the ones efforts will grow increasingly sophisticated. Whereas businesses previously grouped consumers into segments, retailers in the future should be able to target every person and tailor products and services to that individual’s needs.
These dramatic changes in the retail environment will pose a significant challenge for fuel retailers, which stand to lose customers both to more complex retailers that provide fast and simple purchases and to increasingly innovative e-commerce players. In reality, convenience will increasingly visit mean “delivered towards the home,” as e-commerce firms that offer instant delivery emerge being a significant alternative to the traditional convenience store. Companies such as Amazon are already testing delivery by drone as a way to substantially reduce last-mile delivery time. Others are addressing the last-mile challenge through partnerships with companies including Instacart and Uber. In the usa alone, investors have committed $9 billion for some 125 startups operating in this 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 through the IoT and also by AI, is emerging as a powerful new model within both physical and virtual stores.
Other efforts make an effort to make the in-store experience more efficient and convenient. For instance, emart24 has rolled out 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 provide automated checkout. Fuel retailers have to take steps to produce options that match the rate and ease that these formats offer.
The Planet Is Beginning To Change-And Native Implications Vary. The entire impact from the trends which can be remaking the fuel retail business is going to be evident inside the next 10 to 15 years. Meanwhile, however, some markets will change more rapidly as opposed to others. For instance, the demand for electric along with other alternative-fuel-powered vehicles, the penetration of AVs, and the adoption of new shared mobility solutions is going to be greater in Northern Europe, North America, plus some fast-developing economies including China than in most countries in Middle East or Africa, as an example.
Four Future Market Environments – To mirror the disparate pace of change around the entire world, we now have identified four distinct market environments that will probably play out between now and 2035, every one of which will use a different influence on fuel retailers’ profitability. (See Exhibit 2.) These four basic environments can serve as signposts for future years, helping companies identify signals of change in the market and measure the influence on their business. Their key features are the following:
Market environment 1: Fossil fuel remains king. This environment reflects conditions under our most conservative projections. Internal combustion engine (ICE) vehicles continue to predominate, with limited penetration of electric vehicles. People continue to rely heavily on personal vehicles, with shared mobility solutions making up only 5% to 10% of all road mobility. In this environment, the buyer shopping experience will be digitally enabled, and seamless purchasing and checkout is going to be commonplace. Businesses will still target segments of clients (not individual customers), and traditional human-powered last-mile delivery will always be the standard. Despite the dominance of ICE vehicles, as well as population growth as well as the emergence of the expanding middle-class in developing countries, demand for fossil fuel will stagnate or decline slightly. This can be due in part to increasingly fuel-efficient vehicles and then in part to help-albeit limited-penetration of EVs. Because of this, by 2035, within a “do nothing” scenario in which fuel retailers have not adapted to the changing environment, 25% to 30% of fuel retail stores will earn returns below their weighted average expense of capital and stay in danger of closure.
Market environment 2: There’s a new fuel on the block. Within the second market environment, countries are in a transitional state before having achieved a crucial level 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 and also to public spaces and homes in surrounding suburbs, with little infrastructure offered in rural and remote areas. Consumers in this environment will expect levels of integration between offline and online shopping that go past the click-and-collect approach. Advanced digital in-store and out-of-store experiences-for example, ordering products through personal digital assistants both at home and using automated checkout in stores-is going to 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 within their fuel sales will render 45% to 60% of Petrol Stations Near Me potentially unprofitable by 2035 and will push the normal return on capital employed (ROCE) of the sector to the low single digits.
Market environment 3: All rise, but none dominate. In this particular environment, adoption of EVs is widespread, however, there is also significant demand for alternative fuels including hydrogen, LPG, CNG, and biofuels, as governments as well as other entities support their development. Consequently, the entire share of fossil fuels is comparatively low. Concurrently, many consumers prefer shared mobility solutions to owning cars that largely go unused through the day. The upshot: nearly 20% of all passenger kilometers in cities are traveled in some shared mode of transport. In 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 just half of all last-mile deliveries. The finances for fuel retailers in this environment is going to be challenging. Although fuels like LPG and CNG will replace a number of the lost volume of gasoline, they won’t completely counterbalance the effect of rising EV use. By 2035, assuming that the fuel retail model doesn’t significantly change, we expect 60% to 75% of fuel stores to be at risk of unprofitability, with average sector ROCE in negative territory.
Market environment 4: Mobility movesbeyond fossil fuels. In the most innovative of the market environments, EVs are dominant, and the AV revolution is well underway. About 10% to 20% of all new cars sold will likely be both electric and fully autonomous. Non-renewable fuels will power just about a quarter of all road mobility energy needs. In addition, the infrastructure necessary to serve a zwvzos number of AVs-to transport goods and people throughout the day, as well as charge overnight and during idle times in dedicated areas-will be in place. On-demand mobility will take into account nearly 30% of all passenger kilometers in cities, as more and more people choose shared mobility over vehicle ownership. The retail environment will likely be like the one outlined in market environment 3. But market environment 4 will need fuel retailers to make even more dramatic change.