What is the Future for Service Stations? A number of far-reaching trends are disrupting the fuel retail market. Some of the most powerful of these are the rise of alternative fuels (particularly electricity) for mobility, the emergence of new models in mobility, as well as the evolution of heightened consumer expectations around convenience and personalization. The impetus for these particular disruptions comes from a range 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 industry and require a fundamental transformation of the standard business model. Fuel retailers must develop a comprehensive response that adjusts the goods and services they sell, adapts their network and business structure, alters the design of their Gas Station Near Me and convenience stores, and harnesses new digital tools.
To assist companies know what the long run will look like and the things they can do today to adapt to it, BCG has conducted an in-depth study from the fuel retail industry, detailing four very different market environments that will likely emerge around the world, each defined by alterations in mobility and consumer lifestyles. Fuel retailers can start using these market environment scenarios to analyze how their business might fare in the years ahead under different conditions and also to position themselves to evolve within the short, medium, and long terms. Even though environments differ from each other markedly, an important part of the fuel retail network in certain markets could be unprofitable by 2035-even in the scenarios by which new mobility models are less disruptive and fossil fuel sales usually do not decline precipitously. In a market environment by which electric vehicles (EVs), autonomous vehicles, and new mobility models take off rapidly, approximately 80% from the fuel-retail network as currently constituted may be unprofitable in approximately 15 years.
To stop this type of decline, fuel retailers have to take action in three areas. First, they need to move from the vehicle-centric business model to some customer-centric one out of order to capture new product and service opportunities. This effort entails reinventing the overall customer journey and using digital tools to prolong the consumer relationship beyond occasional visits for the service station. Second, retailers have to transform their network of service stations and assets. This method includes changing formats in certain locations to satisfy customer demand, divesting locations that will not be profitable, and making an investment in assets that secure 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 like last-mile logistics or real estate property.
To successfully adapt, fuel retailers must embrace a whole 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. People who boldly seize an opportunity will see themselves in a winning position. Those which do not may be left behind.
The Forces of Disruption.
The pace of disruption within the fuel organization is breakneck, as alternative fuels grab share, advanced mobility models remove, and consumers expect greater convenience, quality, and personalization. (See Exhibit 1.) In all 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 an upswing of electricity as well as other alternative fuels. The very first is the rollout of regulations aimed at limiting greenhouse gas emissions. For example, the UK has mandated that, by 2040, all new cars and vans sold in the nation should be able to achieving zero greenhouse gas emissions, a requirement that will increase demand for battery electric, plug-in hybrid electric, or hydrogen-fueled vehicles.
The second force is technology. As battery costs continue to decline, automotive OEMs are investing heavily in EVs. By 2030, greater than a third of all the new vehicles sold will likely be fully or partly electric. This development poses an important threat to fuel retailers, particularly those that operate numerous stations where fuel purchases make up an important share of profits.
Other alternative fuels are also beginning to gain ground in some markets. As an example, automakers such as Toyota are investing in developing hydrogen fuel cell vehicles. Meanwhile, in other regions around the globe, a sizable proportion of vehicles already run on alternative fuels including liquefied petroleum gas (LPG) and compressed natural gas (CNG), and biofuels are increasing their be part of the gasoline and diesel pools. Vehicles that use an alternative fuel including LPG or CNG still require refueling through a traditional fuel retail location-unlike EVs, which users may charge at home, at work, or perhaps in parking lots, and which therefore pose a substitution threat to Shell Gas Station Closest To Me.
The Emergence of Advanced Mobility Models
Nearly two-thirds of the global population will live in cities by 2030, and new digital-centric business models is going to be essential to ensuring efficient urban mobility. Already, ride-hailing services like Uber and Lyft have ushered within the first phase of the era of shared mobility, lowering 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 continues to gain ground, another significant shift will support it: the emergence of autonomous vehicles (AVs). Numerous companies-including both traditional OEMs including Ford and Toyota and new digital players such as Google and Uber-are investing heavily in the creation of autonomous driving capabilities. As a result, we expect that nearly 25% of new cars available in 2035 will have the ability to drive themselves without human involvement whatsoever-with a lot of of those AVs likely to be electric. As autonomous vehicle systems replace human drivers, shared mobility services can become less and 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 whilst the vehicles are empty of passengers, at dedicated AV parking areas located outside urban areas. The effect 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 over the board. They are looking for high-quality, fresh, healthy food options; less expensive; and much more attractive store formats. In addition they want more personalized goods and services as well as a seamless, convenient experience through options such as self-service checkout.
Within this environment, retailers are leveraging a huge quantity of data from their customers to get an unprecedented amount of insight regarding their preferences. And people efforts will grow increasingly sophisticated. Whereas businesses in the past grouped consumers into segments, retailers later on can target every person and tailor goods and services to that individual’s needs.
These dramatic modifications in the retail environment will pose a major challenge for fuel retailers, which stand to lose customers both to more technical retailers that provide fast as well as simple purchases as well as increasingly innovative e-commerce players. In fact, convenience will increasingly come to mean “delivered for the home,” as e-commerce companies that offer instant delivery emerge as being a significant alternative to the conventional convenience store. Companies like Amazon already are 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 like Instacart and Uber. In america alone, investors have committed $9 billion to some 125 startups operating within this space. Additionally, retail players are leveraging technology to make a true omnichannel experience that seamlessly integrates online and offline retail. Voice-activated shopping, made possible from the IoT and by AI, is emerging as a powerful new model both in physical and virtual stores.
Other efforts make an effort to create the in-store experience better and convenient. As an example, emart24 has rolled out unstaffed stores, and Farmer’s Bridge has created walk-in vending machines. Also a new comer to the scene are mobile stores like Robomart and Mobymart and chains like AmazonGo and JD.com’s 7Fresh (in China) that provide automated checkout. Fuel retailers need to take steps to create options that match the rate and ease these formats offer.
The Planet Is Beginning To Change-And Native Implications Vary. The full impact from the trends which can be remaking the fuel retail business will likely be evident within the next 10 to 15 years. Meanwhile, however, some markets will change more rapidly than the others. As an example, the interest in electric along with other alternative-fuel-powered vehicles, the penetration of AVs, and the adoption of new shared mobility solutions is going to be much higher in Northern Europe, North America, plus some fast-developing economies such as China than in most countries in Middle East or Africa, as an example.
Four Future Market Environments – To mirror the disparate pace of change in different parts of the planet, we now have identified four distinct market environments that will likely play out between now and 2035, all of that will possess a different effect on fuel retailers’ profitability. (See Exhibit 2.) These four basic environments can serve as signposts in the future, helping companies identify signals of change available in the market and assess 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 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 road mobility. Within this environment, the customer shopping experience will be digitally enabled, and seamless purchasing and checkout is going to be commonplace. Businesses will still target segments of consumers (not individual customers), and traditional human-powered last-mile delivery will always be the standard. Regardless of the dominance of ICE vehicles, as well as population growth as well as the emergence of the expanding middle class in developing countries, need for fossil fuel will stagnate or decline slightly. This is due partly to increasingly fuel-efficient vehicles as well as in part to further-albeit limited-penetration of EVs. Consequently, by 2035, within “do nothing” scenario by which fuel retailers have not adapted to the changing environment, 25% to 30% of fuel retail stores will earn returns below their weighted average cost of capital and become vulnerable to 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. In this environment, government regulations and incentives foster EV adoption, and electricity powers nearly one half of the cars on the road. But electric charging infrastructure remains confined to public spaces in urban locations as well as public spaces and homes in surrounding suburbs, with little infrastructure obtainable in rural and remote areas. Consumers in this particular environment will expect levels of integration between offline and online shopping who go past the click-and-collect approach. Advanced digital in-store and out-of-store experiences-for instance, ordering products through personal digital assistants at home or 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 be powerful. If fuel retailers usually do not adjust their model, the decline in their fuel sales will render 45% to 60% of Nearest Petrol Station To My Location potentially unprofitable by 2035 and will push the normal return on capital employed (ROCE) in the sector to the low single digits.
Market environment 3: All rise, but none dominate. In this environment, adoption of EVs is widespread, but 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 fairly low. Concurrently, many consumers prefer shared mobility methods to owning cars that largely go unused through the day. The upshot: nearly 20% of passenger kilometers in cities are traveled in certain shared mode of transport. In this particular environment, the shopping experience will reach its maximum amount of online and offline integration. Drones and autonomous robots is going to be commonplace, bringing products to customers’ doorsteps from urban micro-hubs. Humans will participate directly within just one half of all last-mile deliveries. The finances for fuel retailers in this particular environment will be challenging. Although fuels including 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 this fuel retail model doesn’t significantly change, we expect 60% to 75% of fuel retail outlets to become vulnerable to unprofitability, with average sector ROCE in negative territory.
Market environment 4: Mobility movesbeyond fossil fuels. Within the most innovative from 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. Standard fuels will power just about a quarter of road mobility energy needs. Additionally, the infrastructure required to serve a zwvzos fleet of AVs-to transport goods and folks throughout the day, as well as charge overnight and during idle times in dedicated areas-are usually in place. On-demand mobility will account for nearly 30% of all the passenger kilometers in cities, as more people go for shared mobility over vehicle ownership. The retail environment will likely be similar to the one outlined in market environment 3. But market environment 4 will demand fuel retailers to create even more dramatic change.