Is There a 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, as well as the evolution of heightened consumer expectations around convenience and personalization. The impetus for these 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 design. Fuel retailers must create a comprehensive response that adjusts the goods and services they sell, adapts their network and business model, alters the layout of the Gas Stations Open Near Me and convenience stores, and harnesses new digital tools.
To aid companies know very well what the long run will look like and what they can do today to adjust to it, BCG has conducted an in-depth study of the fuel retail industry, detailing four completely different market environments that are likely to emerge around the world, each based on changes in mobility and consumer lifestyles. Fuel retailers can use these market environment scenarios to analyze how their business might fare in the years ahead under different conditions as well as position themselves to evolve over the short, medium, and long terms. Although the environments are different from each other markedly, an important area of the fuel retail network in certain markets might be unprofitable by 2035-even inside the scenarios by which new mobility models are less disruptive and fossil fuel sales tend not to decline precipitously. In a market environment in which 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 in about fifteen years.
To prevent this kind of decline, fuel retailers need to take action in three areas. First, they need to move from a vehicle-centric business model to a customer-centric one in order to capture new product and service opportunities. This effort entails reinventing the overall customer journey and ultizing digital tools to extend the customer relationship beyond occasional visits towards the service station. Second, retailers have to transform their network of service stations and assets. This method includes changing formats in some locations to satisfy customer demand, divesting locations that is definitely not profitable, and purchasing assets that support 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 including last-mile logistics or real estate property.
To actually adapt, fuel retailers must embrace a whole 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. People who boldly seize the chance will find themselves in a winning position. Those that 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 an upswing of electricity along with other alternative fuels. The very first is the rollout of regulations aimed at limiting greenhouse gas emissions. For example, the united kingdom 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 that can increase demand for 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, more than a third of all the new vehicles sold will likely be fully or partly electric. This development poses an important threat to fuel retailers, especially those that operate numerous stations where fuel purchases take into account a significant share of profits.
Other alternative fuels can also be starting to gain ground in some markets. For instance, automakers such as Toyota are investing in developing hydrogen fuel cell vehicles. Meanwhile, in other areas of the world, a considerable proportion of vehicles already run using alternative fuels such as 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 through a traditional fuel retail location-unlike EVs, which users may charge in your own home, at work, or in parking lots, and which therefore pose a substitution threat to Nearest Shell Gas Station To My Location.
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 be critical to ensuring efficient urban mobility. Already, ride-hailing services like Uber and Lyft have ushered within the first phase from the era of shared mobility, lowering the car ownership aspirations of younger generations. By 2030, the shared mobility market is likely to 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 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 new cars purchased in 2035 will are able to drive themselves without any human involvement whatsoever-with a lot of of these AVs apt to be electric. As autonomous vehicle systems replace human drivers, shared mobility services will become 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 while the vehicles are empty of passengers, at dedicated AV parking areas located outside urban areas. The effect is 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 across the board. They are trying to find high-quality, fresh, healthy food options; less expensive; and a lot more attractive store formats. Additionally they want more personalized products and services and a seamless, convenient experience through options including self-service checkout.
Within this environment, retailers are leveraging a vast quantity of data off their customers to get an unprecedented level of insight about their preferences. And people efforts will grow increasingly sophisticated. Whereas businesses before grouped consumers into segments, retailers in the future 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 a major challenge for fuel retailers, which will lose customers both to more complex retailers that provide fast and simple purchases and also to increasingly innovative e-commerce players. In fact, convenience will increasingly visit mean “delivered for the home,” as e-commerce companies that offer instant delivery emerge as being a significant substitute for 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 such as Instacart and Uber. In the usa alone, investors have committed $9 billion to a few 125 startups operating in this particular space. Furthermore, retail players are leveraging technology to create a true omnichannel experience that seamlessly integrates offline and online retail. Voice-activated shopping, made possible through the IoT and also by AI, is emerging as a powerful new model both in 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 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) that offer automated checkout. Fuel retailers have to take steps to create options that match the speed and ease these formats offer.
The Entire World Is Evolving-And Local Implications Vary. The entire impact of the trends which are remaking the fuel retail business will likely be evident in the next ten to fifteen years. Meanwhile, however, some markets will change more rapidly as opposed to others. As an example, the demand for electric along with other alternative-fuel-powered vehicles, the penetration of AVs, and the adoption of new shared mobility solutions will be much higher in Northern Europe, North America, and some fast-developing economies like 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 world, we have now identified four distinct market environments that are likely to play out between now and 2035, each of that can possess a different effect on fuel retailers’ profitability. (See Exhibit 2.) These four basic environments can serve as signposts in the future, helping companies identify signals of change on the market and evaluate the effect 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 road mobility. In this particular environment, the customer shopping experience is going to be digitally enabled, and seamless purchasing and checkout is going to be commonplace. Businesses will still target segments of consumers (not individual customers), and traditional human-powered last-mile delivery will remain 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 then in part to help-albeit limited-penetration of EVs. Consequently, by 2035, within a “do nothing” scenario by which fuel retailers have not adapted towards the changing environment, 25% to 30% of fuel retail stores will earn returns below their weighted average price of capital and stay at risk of closure.
Market environment 2: There’s a whole new fuel on the block. Inside 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 one 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 degrees 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 instance, 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 be on the rise. Although EVs won’t completely dominate this environment, their impact will likely be powerful. If fuel retailers usually do not adjust their model, the decline in their fuel sales will render 45% to 60% of Petrol Station Open Near Me potentially unprofitable by 2035 and can push the average return on capital employed (ROCE) in the sector to the low single digits.
Market environment 3: All rise, but none dominate. Within this environment, adoption of EVs is widespread, but there is also significant need for alternative fuels like hydrogen, LPG, CNG, and biofuels, as governments as well as other entities support their development. Consequently, the overall share of fossil fuels is fairly low. At the same time, many consumers prefer shared mobility methods to owning cars that largely go unused throughout the day. The upshot: nearly 20% of all passenger kilometers in cities are traveled in some shared mode of transport. In this particular environment, the shopping experience will reach its maximum amount 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 one half of all last-mile deliveries. The financial circumstances for fuel retailers within this environment will be challenging. Although fuels including LPG and CNG will replace a few of the lost volume of gasoline, they won’t completely cancel out 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 stores to get in danger of unprofitability, with average sector ROCE in negative territory.
Market environment 4: Mobility movesbeyond standard fuels. Within the most advanced from the market environments, EVs are dominant, and also the AV revolution is well underway. About 10% to 20% of new cars sold will likely be both electric and fully autonomous. Fossil fuels will power no more than a quarter of road mobility energy needs. In addition, the infrastructure necessary to serve a zwvzos number of AVs-to transport goods and folks through the entire day, and to charge overnight and during idle times in dedicated areas-are usually in place. On-demand mobility will account for nearly 30% of all passenger kilometers in cities, as more people go for 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 require fuel retailers to create even more dramatic change.