What is the 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 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 Internet of Things (IoT).
The ongoing shifts will alter the contours of competitive advantage in the market and require a fundamental transformation in the standard business design. Fuel retailers must establish a comprehensive response that adjusts the products and services they offer, adapts their network and business model, alters the layout of their Gas Stations Near Me and convenience stores, and harnesses new digital tools.
To assist companies know very well what the future will look like and whatever they can do in order to conform to it, BCG has conducted an in-depth study of the fuel retail industry, detailing four very different market environments that are likely to 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 adapt over the short, medium, and long terms. Even though environments differ from each other markedly, a substantial portion of the fuel retail network in some markets could 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 explode rapidly, as much as 80% of the fuel-retail network as currently constituted may be unprofitable in about 20 years.
To prevent this type of decline, fuel retailers must take action in three areas. First, they have to move from the vehicle-centric business design to your customer-centric one out of order to capture cool product and service opportunities. This effort entails reinventing the general customer journey and making use of digital tools to increase the customer relationship beyond occasional visits to the service station. Second, retailers have to transform their network of service stations and assets. This process includes changing formats in a few locations to meet 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 have to develop new capabilities-including digital expertise and, sometimes, capabilities associated with entirely new areas such as last-mile logistics or real estate property.
To successfully adapt, fuel retailers must embrace a new mindset. Making modest changes or tweaks for the business will never suffice. Instead, companies must fundamentally rethink their business and aggressively embrace innovation and new technology. The ones that boldly seize the chance will discover themselves in a winning position. Those which do not may be left behind.
The Forces of Disruption.
The pace of disruption inside 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. First is the rollout of regulations aimed at limiting greenhouse gas emissions. As an example, great britain has mandated that, by 2040, brand new cars and vans sold in the country should be capable of 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 all new vehicles sold will be fully or partly electric. This development poses an important threat to fuel retailers, particularly those that operate numerous stations where fuel purchases account for an important share of profits.
Other alternative fuels can also be beginning to gain ground in a few markets. For example, automakers like Toyota are purchasing developing hydrogen fuel cell vehicles. Meanwhile, in other regions around the globe, a substantial proportion of vehicles already operate on alternative fuels such as liquefied petroleum gas (LPG) and compressed natural gas (CNG), and biofuels are increasing their share in the gasoline and diesel pools. Vehicles that use an alternate fuel such as LPG or CNG still require refueling via 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 Gas Station Near 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 will be important 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, decreasing 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 account for 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 including 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 brand new cars available in 2035 will are able to drive themselves without any human involvement whatsoever-with a lot of of the AVs likely to be electric. As autonomous vehicle systems replace human drivers, shared mobility services will become less expensive to customers, encouraging further growth 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 result 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-have become more demanding across the board. They are searching for high-quality, fresh, healthy food options; less expensive; and a lot 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 quantity of data from their customers to gain an unprecedented level of insight regarding their preferences. And people efforts will grow increasingly sophisticated. Whereas businesses before grouped consumers into segments, retailers later on will be able to target every individual and tailor services and products to that particular individual’s needs.
These dramatic alterations 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 and to increasingly innovative e-commerce players. In reality, convenience will increasingly visit mean “delivered to the home,” as e-commerce businesses 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 as a way to substantially reduce last-mile delivery time. Others are addressing the last-mile challenge through partnerships with companies such as Instacart and Uber. In america alone, investors have committed $9 billion to some 125 startups operating within this space. Furthermore, 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 also by AI, is emerging being a powerful new model in both physical and virtual stores.
Other efforts make an effort to make the in-store experience more efficient and convenient. For example, emart24 has rolled out unstaffed stores, and Farmer’s Bridge has developed 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) offering automated checkout. Fuel retailers have to take steps to produce options that match the speed and ease these formats offer.
The Planet Is Evolving-And Native Implications Vary. The full impact in the trends which can be remaking the fuel retail business is going to be evident inside the next ten or fifteen years. For the time being, however, some markets will change more rapidly than the others. As an example, the demand for electric and other alternative-fuel-powered vehicles, the penetration of AVs, and the adoption of the latest shared mobility solutions is going to be greater in Northern Europe, North America, and a few fast-developing economies like 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 planet, we now have identified four distinct market environments that will probably play out between now and 2035, every one of which will possess 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 on the market and measure the influence 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 all the 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 customers (not individual customers), and traditional human-powered last-mile delivery will stay the norm. Inspite of the dominance of ICE vehicles, as well as population growth and also the emergence of an expanding middle-class in developing countries, need for fossil fuel will stagnate or decline slightly. This will be due to some extent to increasingly fuel-efficient vehicles and then in part to further-albeit limited-penetration of EVs. As a result, by 2035, within a “do nothing” scenario where fuel retailers have not adapted towards the changing environment, 25% to 30% of fuel retail stores will earn returns below their weighted average cost of capital and become at risk of 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 amount of penetration of EVs. In 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 restricted 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 online and offline 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 shops-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 do not adjust their model, the decline inside their fuel sales will render 45% to 60% of Closest Petrol Station To Me potentially unprofitable by 2035 and will push the average return on capital employed (ROCE) of the sector towards the low single digits.
Market environment 3: All rise, but none dominate. Within this environment, adoption of EVs is widespread, there is however also significant need for alternative fuels including hydrogen, LPG, CNG, and biofuels, as governments and other entities support their development. Because of this, the general share of standard fuels is comparatively low. Concurrently, many consumers prefer shared mobility solutions to owning cars that largely go unused during the day. The upshot: nearly 20% of all the passenger kilometers in cities are traveled in some shared mode of transport. In this environment, the shopping experience will reach its maximum level of offline and online integration. Drones and autonomous robots will likely 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 financial situation for fuel retailers in this environment is going to be challenging. Although fuels such as 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 outlets to get at risk of unprofitability, with average sector ROCE in negative territory.
Market environment 4: Mobility movesbeyond standard 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 the new cars sold will 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 number of AVs-to transport goods and people throughout the day, and also to charge overnight and through idle times in dedicated areas-will be in place. On-demand mobility will account for nearly 30% of passenger kilometers in cities, as more and 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 demand fuel retailers to help make even more dramatic change.