What is the Future for Service Stations? Several 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, and also 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 Internet of Things (IoT).
The ongoing shifts will modify the contours of competitive advantage in the business and require a fundamental transformation of the standard business structure. Fuel retailers must develop a comprehensive response that adjusts the goods and services they sell, adapts their network and business structure, alters the layout of the Nearest Gas Station and convenience stores, and harnesses new digital tools.
To aid companies know very well what the future will look like and the things they can do today to adjust to it, BCG has conducted an in-depth study in the fuel retail industry, detailing four completely different market environments that are likely to emerge around the globe, each based on modifications in mobility and consumer lifestyles. Fuel retailers can start using these market environment scenarios to evaluate how their business might fare inside the years ahead under different conditions and to position themselves to adapt within the short, medium, and long terms. Even though environments vary from each other markedly, a substantial part of the fuel retail network in a few markets may be unprofitable by 2035-even in the scenarios by which new mobility models are less disruptive and fossil fuel sales do not decline precipitously. In a market environment where electric vehicles (EVs), autonomous vehicles, and new mobility models remove rapidly, up to 80% of the fuel-retail network as currently constituted may be unprofitable within 15 years.
To stop this type of decline, fuel retailers must take action in three areas. First, they have to move from a vehicle-centric business design to a customer-centric one out of order to capture new product and repair opportunities. This effort entails reinventing the overall customer journey and using digital tools to increase 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 meet customer demand, divesting locations that will never be profitable, and investing in assets that keep the push into new products and services. Third, they should develop new capabilities-including digital expertise and, in some cases, capabilities related to entirely new areas such as last-mile logistics or real estate property.
To successfully adapt, fuel retailers must embrace a brand 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 opportunity will find 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 explode, 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 the rise of electricity as well as other alternative fuels. The very first is the rollout of regulations targeted at limiting greenhouse gas emissions. For example, the UK has mandated that, by 2040, brand new cars and vans sold in the nation should be competent at achieving zero greenhouse gas emissions, a requirement which will increase need 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 new vehicles sold will be fully or partly electric. This development poses a significant threat to fuel retailers, especially those that operate numerous stations where fuel purchases account for a substantial share of profits.
Other alternative fuels will also be starting out gain ground in a few markets. For 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 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 such as LPG or CNG still require refueling through a traditional fuel retail location-unlike EVs, which users may charge in your own home, at work, or perhaps in parking lots, and which therefore pose a substitution threat to Shell Gas Station Near Me Now.
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 will be critical to ensuring efficient urban mobility. Already, ride-hailing services including Uber and Lyft have ushered in the first phase from 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 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 such as Ford and Toyota and new digital players including Google and Uber-are investing heavily in the development of autonomous driving capabilities. As a result, we expect that nearly 25% of the latest cars sold in 2035 will have the ability to drive themselves without human involvement whatsoever-with a lot of of these AVs apt to be electric. As autonomous vehicle systems replace human drivers, shared mobility services can become less expensive for customers, encouraging further expansion of such services.
The implications for fuel retailers are significant as 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 effect will 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 across the board. They are looking for high-quality, fresh, healthy food options; less expensive; and more attractive store formats. They also want more personalized products and services along with a seamless, convenient experience through options like self-service checkout.
In this environment, retailers are leveraging an enormous amount of data from their customers to gain an unprecedented level of insight regarding their preferences. And those efforts will grow increasingly sophisticated. Whereas businesses previously grouped consumers into segments, retailers down the road can target every individual and tailor products and services to that individual’s needs.
These dramatic alterations in the retail environment will pose an important challenge for fuel retailers, which will lose customers both to more complex retailers offering fast as well as simple purchases and also to increasingly innovative e-commerce players. In reality, convenience will increasingly visit mean “delivered for the home,” as e-commerce companies that offer instant delivery emerge being a significant option to the standard convenience store. Companies including Amazon happen to be testing delivery by drone as a way 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 also by AI, is emerging as a powerful new model both in physical and virtual stores.
Other efforts try to create the in-store experience more effective and convenient. For instance, emart24 has rolled out unstaffed stores, and Farmer’s Bridge has created walk-in vending machines. Also new to the scene are mobile stores including Robomart and Mobymart and chains like AmazonGo and JD.com’s 7Fresh (in China) that offer automated checkout. Fuel retailers need to take steps to create options that match the rate and ease that these formats offer.
The World Is Evolving-And Local Implications Vary. The entire impact of 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 than others. As an example, the interest in electric and other alternative-fuel-powered vehicles, the penetration of AVs, and the adoption of the latest shared mobility solutions will likely be greater in Northern Europe, North America, and some fast-developing economies such as China than in 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 world, we have identified four distinct market environments that will probably play out between now and 2035, all of that will use 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 available in the market and assess the impact on their business. Their key features are as follows:
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 still 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 be commonplace. Businesses will still target segments of clients (not individual customers), and traditional human-powered last-mile delivery will stay the standard. Inspite of the dominance of ICE vehicles, as well as population growth and the emergence of an expanding middle-class in developing countries, need for fossil fuel will stagnate or decline slightly. This can be due in part to increasingly fuel-efficient vehicles and in part to advance-albeit limited-penetration of EVs. Consequently, by 2035, within a “do nothing” scenario where fuel retailers have not adapted towards the changing environment, 25% to 30% of fuel stores will earn returns below their weighted average price of capital and become vulnerable to closure.
Market environment 2: There’s a brand new fuel on the block. Within the second market environment, countries are in a transitional state before having achieved a vital degree of penetration of EVs. In this particular 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 and to public spaces and homes in surrounding suburbs, with little infrastructure available in rural and remote areas. Consumers in this 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 is going to be on the rise. Although EVs won’t completely dominate this environment, their impact is going to be powerful. If fuel retailers tend not to adjust their model, the decline inside their fuel sales will render 45% to 60% of Gas Near Me potentially unprofitable by 2035 and can push the typical return on capital employed (ROCE) from the sector for the low single digits.
Market environment 3: All rise, but none dominate. In this particular environment, adoption of EVs is widespread, but 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. Because of this, the general share of fossil fuels is relatively low. Simultaneously, 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 some shared mode of transport. In this environment, the shopping experience will reach its maximum amount of offline and online integration. Drones and autonomous robots will be commonplace, bringing products to customers’ doorsteps from urban micro-hubs. Humans will participate directly within just 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 some 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 stores to get at risk of unprofitability, with average sector ROCE in negative territory.
Market environment 4: Mobility movesbeyond non-renewable fuels. Inside the most advanced in the market environments, EVs are dominant, and also the AV revolution is well underway. About 10% to 20% of all the new cars sold is going to be both electric and fully autonomous. Standard fuels will power no more than a quarter of road mobility energy needs. Additionally, the infrastructure necessary to serve a zwvzos fleet of AVs-to move goods and folks through the entire day, as well as charge overnight and through idle times in dedicated areas-are usually in place. On-demand mobility will account for nearly 30% of all passenger kilometers in cities, as increasing numbers of people go for shared mobility over vehicle ownership. The retail environment will likely be just like the one outlined in market environment 3. But market environment 4 will demand fuel retailers to create even more dramatic change.