What is the Future for Service Stations? A number of 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 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 market and require a fundamental transformation of the standard business design. Fuel retailers must create a comprehensive response that adjusts the goods and services they offer, adapts their network and business design, alters the layout of their Gas Station Closest To Me and convenience stores, and harnesses new digital tools.
To help companies understand what the long run can look like and the things they can do in order to adapt to it, BCG has conducted an in-depth study from the fuel retail industry, detailing four completely different market environments that will probably emerge around the world, each defined by changes in mobility and consumer lifestyles. Fuel retailers can use these market environment scenarios to analyze how their business might fare within the years ahead under different conditions and to position themselves to adapt over the short, medium, and long terms. Even though environments differ from one another markedly, a significant part of the fuel retail network in a few markets might be unprofitable by 2035-even within the scenarios where new mobility models are less disruptive and fossil fuel sales usually do not decline precipitously. In a market environment where electric vehicles (EVs), autonomous vehicles, and new mobility models remove rapidly, as much as 80% in the fuel-retail network as currently constituted may be unprofitable within fifteen years.
To avoid this type of decline, fuel retailers must take action in three areas. First, they should move from a vehicle-centric business structure to your customer-centric one in order to capture cool product and service opportunities. This effort entails reinventing the entire customer journey and using digital tools to prolong the client relationship beyond occasional visits towards the service station. Second, retailers need 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 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, sometimes, capabilities associated with entirely new areas like last-mile logistics or real estate.
To ensure that you adapt, fuel retailers must embrace a brand 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. People who boldly seize an opportunity will find 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 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 aimed at limiting greenhouse gas emissions. As an example, the UK has mandated that, by 2040, brand new cars and vans sold in the country 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 likely 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 starting to gain ground in some markets. For example, automakers such as Toyota are purchasing developing hydrogen fuel cell vehicles. Meanwhile, in other regions around the world, a substantial 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 which use an alternate fuel including LPG or CNG still require refueling via 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 in the global population will live in cities by 2030, and new digital-centric business models will likely be critical 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, decreasing the car ownership aspirations of younger generations. By 2030, the shared mobility market is likely to be worth nearly $300 billion-and also by 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 like Ford and Toyota and new digital players like Google and Uber-are investing heavily in the creation of autonomous driving capabilities. Consequently, we expect that nearly 25% of the latest cars purchased in 2035 will are able to drive themselves without any human involvement whatsoever-with a lot of of the AVs probably be electric. As autonomous vehicle systems replace human drivers, shared mobility services will end up less and 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 as 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 grown to be more demanding over the board. They are looking for high-quality, fresh, healthy food options; less expensive; and more attractive store formats. They also want more personalized services and products as well as a seamless, convenient experience through options such as self-service checkout.
In this particular environment, retailers are leveraging a huge quantity of data using their customers to achieve an unprecedented level of insight with regards to their preferences. And those 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 an important challenge for fuel retailers, which are in position to lose customers both to more complex retailers that offer fast and easy purchases and also to increasingly innovative e-commerce players. Actually, convenience will increasingly arrived at mean “delivered to the home,” as e-commerce businesses that offer instant delivery emerge as a significant substitute for the conventional 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 like Instacart and Uber. In the usa alone, investors have committed $9 billion to some 125 startups operating in this particular 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 through the IoT and through AI, is emerging as a powerful new model both in physical and virtual stores.
Other efforts try to have the in-store experience better and convenient. For example, emart24 has presented unstaffed stores, and Farmer’s Bridge has developed walk-in vending machines. Also new to the scene are mobile stores including Robomart and Mobymart and chains including AmazonGo and JD.com’s 7Fresh (in China) that provide automated checkout. Fuel retailers need to take steps to create options that match the speed and ease that these particular formats offer.
The Planet Is Changing-And Local Implications Vary. The complete impact of the trends that are remaking the fuel retail business will be evident in the next 10 to 15 years. In the meantime, however, some markets will change more rapidly as opposed to others. For example, the demand for electric along with other alternative-fuel-powered vehicles, the penetration of AVs, and also the adoption of new shared mobility solutions will be much higher in Northern Europe, North America, and some fast-developing economies including China than in most countries in Middle East or Africa, as an example.
Four Future Market Environments – To reflect the disparate pace of change in different parts of the planet, we have identified four distinct market environments that will likely play out between now and 2035, each 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 available in the market and assess the effect 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 carry on and rely heavily on personal vehicles, with shared mobility solutions making up only 5% to 10% of all road mobility. Within this environment, the buyer shopping experience will likely be digitally enabled, and seamless purchasing and checkout is going to be commonplace. Businesses will still target segments of customers (not individual customers), and traditional human-powered last-mile delivery will always be the norm. Despite the dominance of ICE vehicles, as well as population growth and also the emergence of an expanding middle-class in developing countries, interest in fossil fuel will stagnate or decline slightly. This can be due to some extent to increasingly fuel-efficient vehicles and in part to help-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 stay in danger of closure.
Market environment 2: There’s a new fuel on the block. In the second market environment, countries are in a transitional state before having achieved a vital level 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 also to public spaces and homes in surrounding suburbs, with little infrastructure offered in rural and remote areas. Consumers within this environment will expect levels of integration between offline and online shopping that go beyond 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 is going to be powerful. If fuel retailers tend not to adjust their model, the decline in 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 for the low single digits.
Market environment 3: All rise, but none dominate. In this environment, adoption of EVs is widespread, however, there is also significant interest in alternative fuels including hydrogen, LPG, CNG, and biofuels, as governments as well as other entities support their development. As a result, the overall share of standard fuels is comparatively low. At the same time, many consumers prefer shared mobility methods to owning cars that largely go unused through the day. The upshot: nearly 20% of all the passenger kilometers in cities are traveled in certain shared mode of transport. In this environment, the shopping experience will reach its maximum level 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 in only 50 % of all last-mile deliveries. The financial circumstances for fuel retailers within this environment will be challenging. Although fuels such as LPG and CNG will replace some 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 outlets to be vulnerable to unprofitability, with average sector ROCE in negative territory.
Market environment 4: Mobility movesbeyond standard fuels. In the most innovative in the market environments, EVs are dominant, and the AV revolution is well underway. About 10% to 20% of new cars sold will be both electric and fully autonomous. Fossil fuels will power only about a quarter of road mobility energy needs. Additionally, the infrastructure needed to serve a zwvzos number of AVs-to transport goods and folks through the day, and also to charge overnight and during idle times in dedicated areas-will be in place. On-demand mobility will take into account 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 just like the one outlined in market environment 3. But market environment 4 will demand fuel retailers to make even more dramatic change.