What is the Future for Service Stations? Numerous far-reaching trends are disrupting the fuel retail market. One of 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 change the contours of competitive advantage in the business and require a fundamental transformation of the standard business model. Fuel retailers must develop a comprehensive response that adjusts the products and services they offer, adapts their network and business structure, alters the layout of their Gas Near Me and convenience stores, and harnesses new digital tools.
To help companies know what the future will appear like and what they can do in order to conform to it, BCG has conducted an in-depth study in the fuel retail industry, detailing four very different market environments that will likely emerge around the globe, each defined by modifications in mobility and consumer lifestyles. Fuel retailers can start using 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 vary from each other markedly, an important part of the fuel retail network in certain markets may be unprofitable by 2035-even within the scenarios in 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 in approximately fifteen years.
To prevent such a decline, fuel retailers have to take action in three areas. First, they need to move from a vehicle-centric business model 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 to the service station. Second, retailers need to transform their network of service stations and assets. This process includes changing formats in a few locations to fulfill 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 instances, capabilities linked to entirely new areas like last-mile logistics or real estate.
To successfully adapt, fuel retailers must embrace a brand new mindset. Making modest changes or tweaks towards the business will never 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 every 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. For instance, the united kingdom has mandated that, by 2040, brand new cars and vans sold in the united states ought to be capable of achieving zero greenhouse gas emissions, a requirement which will increase interest in battery electric, plug-in hybrid electric, or hydrogen-fueled vehicles.
The second force is technology. As battery costs still decline, automotive OEMs are investing heavily in EVs. By 2030, greater than a third of all the new vehicles sold will be fully or partly electric. This development poses a significant threat to fuel retailers, particularly 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 certain markets. For instance, automakers like Toyota are purchasing developing hydrogen fuel cell vehicles. Meanwhile, in other areas 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 share in the gasoline and diesel pools. Vehicles designed to use an alternate fuel like LPG or CNG still require refueling by way of a traditional fuel retail location-unlike EVs, which users may charge in the home, at work, or 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 important to ensuring efficient urban mobility. Already, ride-hailing services including Uber and Lyft have ushered in the first phase of 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 account for 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 such as Ford and Toyota and new digital players including Google and Uber-are investing heavily in the development of autonomous driving capabilities. Consequently, we expect that nearly 25% of brand new cars available in 2035 will have the ability to drive themselves with no human involvement whatsoever-with most of those AVs likely to be electric. As autonomous vehicle systems replace human drivers, shared mobility services will become less and less expensive for 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 whilst 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-are becoming more demanding across 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 as well as a seamless, convenient experience through options like self-service checkout.
Within this environment, retailers are leveraging a huge level of data off their customers to get an unprecedented amount of insight about their preferences. And the ones efforts will grow increasingly sophisticated. Whereas businesses previously grouped consumers into segments, retailers later on should be able to target every person and tailor services and products for that individual’s needs.
These dramatic alterations in the retail environment will pose an important challenge for fuel retailers, which stand to lose customers both to more complex retailers that provide fast as well as simple purchases as well as increasingly innovative e-commerce players. In reality, convenience will increasingly visit mean “delivered to the home,” as e-commerce companies that offer instant delivery emerge as being a significant alternative to the standard convenience store. Companies including 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 including Instacart and Uber. In the United States alone, investors have committed $9 billion to some 125 startups operating in this particular space. In addition, retail players are leveraging technology to create a true omnichannel experience that seamlessly integrates online and offline retail. Voice-activated shopping, made possible from the IoT and through AI, is emerging as being a powerful new model both in physical and virtual stores.
Other efforts aim to have the in-store experience more efficient and convenient. For example, emart24 has presented unstaffed stores, and Farmer’s Bridge has created walk-in vending machines. Also unfamiliar with the scene are mobile stores including Robomart and Mobymart and chains like AmazonGo and JD.com’s 7Fresh (in China) offering automated checkout. Fuel retailers have to take steps to produce options that match the pace and ease these formats offer.
The Entire World Is Changing-And Local Implications Vary. The entire impact from the trends which are remaking the fuel retail business is going to be evident inside the next ten to fifteen years. Meanwhile, however, some markets will change more rapidly than the others. As an example, the interest in electric and other alternative-fuel-powered vehicles, the penetration of AVs, as well as the adoption of brand new shared mobility solutions is going to be greater in Northern Europe, North America, plus some fast-developing economies like China than in most countries in Middle East or Africa, for instance.
Four Future Market Environments – To reflect the disparate pace of change around the planet, we have now identified four distinct market environments that will probably play out between now and 2035, each of that will possess a different influence on fuel retailers’ profitability. (See Exhibit 2.) These four basic environments can serve as signposts for the future, helping companies identify signals of change on the market and assess the influence 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 still 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 buyer shopping experience will likely be digitally enabled, and seamless purchasing and checkout will be commonplace. Businesses will still target segments of consumers (not individual customers), and traditional human-powered last-mile delivery will always be the standard. Despite the dominance of ICE vehicles, as well as population growth as well as the emergence of the expanding middle-class in developing countries, demand for fossil fuel will stagnate or decline slightly. This is due partly to increasingly fuel-efficient vehicles as well as in part to help-albeit limited-penetration of EVs. As a result, by 2035, within a “do nothing” scenario in which 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 at risk of closure.
Market environment 2: There’s a new fuel on the block. Within the second market environment, countries are in a transitional state before having achieved a crucial 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 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 that go past the click-and-collect approach. Advanced digital in-store and out-of-store experiences-as an example, ordering products through personal digital assistants both at home and using automated checkout in shops-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 within their fuel sales will render 45% to 60% of Petrol Station Near Me Now potentially unprofitable by 2035 and definately will push the normal return on capital employed (ROCE) in the sector for the low single digits.
Market environment 3: All rise, but none dominate. In this environment, adoption of EVs is widespread, there is however also significant need for alternative fuels like hydrogen, LPG, CNG, and biofuels, as governments along with other entities support their development. Consequently, the overall share of standard fuels is comparatively low. At the same time, many consumers prefer shared mobility solutions to owning cars that largely go unused during 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 is going to be commonplace, bringing products to customers’ doorsteps from urban micro-hubs. Humans will participate directly in just one half of all last-mile deliveries. The financial situation for fuel retailers in this environment will be challenging. Although fuels such as LPG and CNG will replace a few of the lost volume of gasoline, they won’t completely counterbalance the effect of rising EV use. By 2035, assuming the fuel retail model doesn’t significantly change, we expect 60% to 75% of fuel retail outlets to be at risk of unprofitability, with average sector ROCE in negative territory.
Market environment 4: Mobility movesbeyond fossil fuels. Within the most innovative in 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. Fossil fuels will power just about a quarter of all the road mobility energy needs. Additionally, the infrastructure necessary to serve a zwvzos number of AVs-to move goods and folks throughout the day, and also to charge overnight and through idle times in dedicated areas-are usually in place. On-demand mobility will account for nearly 30% of passenger kilometers in cities, as increasing numbers of people choose shared mobility over vehicle ownership. The retail environment is going to be similar to the one outlined in market environment 3. But market environment 4 will demand fuel retailers to make even more dramatic change.