Is There a Future for Service Stations? Numerous 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 such disruptions comes from a multitude of powerful new digital technologies-everything from artificial intelligence (AI) to robotics to the net of Things (IoT).
The ongoing shifts will modify 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 services and products they sell, adapts their network and business structure, alters the design of their Gas Near Me and convenience stores, and harnesses new digital tools.
To aid companies know what the future can look like and what they can do in order to conform to it, BCG has conducted an in-depth study from the fuel retail industry, detailing four completely different market environments that will likely emerge all over the world, each defined by modifications in mobility and consumer lifestyles. Fuel retailers can use these market environment scenarios to evaluate how their business might fare in the years ahead under different conditions and also to position themselves to adapt on the short, medium, and long terms. Even though the environments differ from one another markedly, an important portion of the fuel retail network in certain markets might be unprofitable by 2035-even inside the scenarios in which new mobility models are less disruptive and fossil fuel sales tend not to decline precipitously. In a market environment by which electric vehicles (EVs), autonomous vehicles, and new mobility models take off rapidly, approximately 80% of the fuel-retail network as currently constituted may be unprofitable in approximately fifteen years.
To avoid such a decline, fuel retailers have to take action in three areas. First, they need to move from the vehicle-centric business structure to some customer-centric one out of order to capture cool product and repair opportunities. This effort entails reinventing the overall customer journey and making use of digital tools to extend the client relationship beyond occasional visits towards the service station. Second, retailers have to transform their network of service stations and assets. This procedure includes changing formats in a few locations to satisfy customer demand, divesting locations that is definitely not profitable, and investing in assets that keep the push into new products and services. Third, they have to develop new capabilities-including digital expertise and, in some cases, capabilities linked to entirely new areas such as last-mile logistics or property.
To actually adapt, fuel retailers must embrace a brand new mindset. Making modest changes or tweaks for the business will not suffice. Instead, companies must fundamentally rethink their business and aggressively embrace innovation and new technology. People who boldly seize an opportunity will discover themselves in a winning position. Those which do not may be left behind.
The Forces of Disruption.
The pace of disruption within the fuel business 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 and other alternative fuels. The very first is the rollout of regulations geared towards limiting greenhouse gas emissions. For instance, great britain has mandated that, by 2040, all new cars and vans sold in the country ought to be competent at achieving zero greenhouse gas emissions, a requirement which 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, more than a third of 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 account for a substantial share of profits.
Other alternative fuels are also starting out gain ground in certain markets. For example, automakers including Toyota are investing in developing hydrogen fuel cell vehicles. Meanwhile, in other parts around the globe, a sizable proportion of vehicles already operate 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 a different 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 perhaps in parking lots, and which therefore pose a substitution threat to Shell Petrol Station 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 will likely be important to ensuring efficient urban mobility. Already, ride-hailing services like Uber and Lyft have ushered in the first phase of the era of shared mobility, reducing the car ownership aspirations of younger generations. By 2030, the shared mobility market will probably 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 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 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 capacity to drive themselves with no human involvement whatsoever-with a lot of of these AVs probably be electric. As autonomous vehicle systems replace human drivers, shared mobility services can become less expensive to customers, encouraging further expansion of such services.
The implications for fuel retailers are significant since the refueling or recharging of shared-mobility-service AVs will commonly occur while the vehicles are empty of passengers, at dedicated AV parking areas located outside urban areas. The 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 grown to be more demanding throughout the board. They are looking for high-quality, fresh, healthy food options; less expensive; and more attractive store formats. Additionally they want more personalized goods and services along with a seamless, convenient experience through options including self-service checkout.
In this particular environment, retailers are leveraging a vast quantity of data using their customers to achieve an unprecedented level of insight regarding their preferences. And people efforts will grow increasingly sophisticated. Whereas businesses before grouped consumers into segments, retailers down the road can target every individual and tailor services and products for that individual’s needs.
These dramatic changes in the retail environment will pose a major challenge for fuel retailers, which will lose customers both to more advanced retailers that provide fast as well as simple purchases and to increasingly innovative e-commerce players. In reality, 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 standard convenience store. Companies including Amazon happen to be testing delivery by drone in an effort to substantially reduce last-mile delivery time. Other people are addressing the last-mile challenge through partnerships with companies including Instacart and Uber. In the United States alone, investors have committed $9 billion to some 125 startups operating in 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 by the IoT and through AI, is emerging as being a powerful new model within both physical and virtual stores.
Other efforts try to have the in-store experience more efficient and convenient. For instance, emart24 has rolled out unstaffed stores, and Farmer’s Bridge has developed walk-in vending machines. Also new to the scene are mobile stores such as Robomart and Mobymart and chains like AmazonGo and JD.com’s 7Fresh (in China) offering automated checkout. Fuel retailers need to take steps to create options that match the speed and ease these formats offer.
The Planet Is Evolving-And Local Implications Vary. The complete impact from the trends which can be remaking the fuel retail business will likely be evident inside the next ten or fifteen years. In the meantime, however, some markets will change more rapidly than others. As an example, the demand for electric and other alternative-fuel-powered vehicles, the penetration of AVs, as well as the adoption of new shared mobility solutions will likely be greater in Northern Europe, North America, and a few fast-developing economies such as China compared to most countries in Middle East or Africa, for instance.
Four Future Market Environments – To reflect the disparate pace of change in different parts of the planet, we now have identified four distinct market environments that will probably play out between now and 2035, all of that can possess a different impact on fuel retailers’ profitability. (See Exhibit 2.) These four basic environments can serve as signposts for future years, helping companies identify signals of change on the market and measure the impact 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 road mobility. In this environment, the consumer shopping experience is going to be digitally enabled, and seamless purchasing and checkout will likely be commonplace. Businesses will still target segments of consumers (not individual customers), and traditional human-powered last-mile delivery will stay the norm. Regardless of the dominance of ICE vehicles, as well as population growth as well as the emergence of an expanding middle class in developing countries, need for fossil fuel will stagnate or decline slightly. This can be due partly to increasingly fuel-efficient vehicles and then in part to further-albeit limited-penetration of EVs. As a result, by 2035, under a “do nothing” scenario where 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 become vulnerable to closure.
Market environment 2: There’s a brand new fuel on the block. Inside the second market environment, countries are in a transitional state before having achieved a crucial degree of penetration of EVs. In this particular environment, government regulations and incentives foster EV adoption, and electricity powers nearly 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 available in rural and remote areas. Consumers in this environment will expect amounts of integration between offline and online shopping which go beyond the click-and-collect approach. Advanced digital in-store and out-of-store experiences-for example, 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 is going to be on the rise. Although EVs won’t completely dominate this environment, their impact will likely be powerful. If fuel retailers do not adjust their model, the decline in their fuel sales will render 45% to 60% of Nearest Petrol Pump potentially unprofitable by 2035 and definately will push the typical return on capital employed (ROCE) from the sector towards the low single digits.
Market environment 3: All rise, but none dominate. In this particular environment, adoption of EVs is widespread, there is however also significant need for alternative fuels such as hydrogen, LPG, CNG, and biofuels, as governments as well as other entities support their development. As a result, the general share of non-renewable fuels is comparatively low. Simultaneously, many consumers prefer shared mobility answers to owning cars that largely go unused throughout 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 50 % of all last-mile deliveries. The financial situation for fuel retailers within this environment will likely be challenging. Although fuels including LPG and CNG will replace a few of the lost volume of gasoline, they won’t completely offset 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 retail stores to get in danger of unprofitability, with average sector ROCE in negative territory.
Market environment 4: Mobility movesbeyond standard fuels. Within the most innovative from the market environments, EVs are dominant, as well as the AV revolution is well underway. About 10% to 20% of all new cars sold is going to be both electric and fully autonomous. Fossil fuels will power just about a quarter of all road mobility energy needs. Furthermore, the infrastructure necessary to serve a zwvzos number of AVs-to move goods and individuals throughout the day, as well as charge overnight and through idle times in dedicated areas-will be in place. On-demand mobility will account for nearly 30% of all passenger kilometers in cities, as more people choose shared mobility over vehicle ownership. The retail environment will be like the one outlined in market environment 3. But market environment 4 will require fuel retailers to make even more dramatic change.