Is There a Future for Service Stations? A number of 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 particular 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 change the contours of competitive advantage in the business and require a fundamental transformation in the standard business structure. Fuel retailers must establish a comprehensive response that adjusts the goods and services they offer, adapts their network and business structure, alters the design with their https://Locationsnearmenow.Net/Gas-Station-Near-Me-Open-Now/ and convenience stores, and harnesses new digital tools.
To help companies know very well what the long run can look like and what they can do to adapt to it, BCG has conducted an in-depth study of the fuel retail industry, detailing four totally different market environments that will likely emerge all over the world, each based on alterations in mobility and consumer lifestyles. Fuel retailers can start using these market environment scenarios to analyze how their business might fare inside the years ahead under different conditions and to position themselves to evolve on the short, medium, and long terms. Although the environments differ from one another markedly, a significant area of the fuel retail network in a few markets may be unprofitable by 2035-even within the scenarios where 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 take off rapidly, as much as 80% from the fuel-retail network as currently constituted may be unprofitable within 15 years.
To avoid this kind of decline, fuel retailers have to take action in three areas. First, they should move coming from a vehicle-centric business model to a customer-centric one out of order to capture new product and repair opportunities. This effort entails reinventing the general customer journey and making use of digital tools to increase the client relationship beyond occasional visits towards the service station. Second, retailers need to transform their network of service stations and assets. This procedure includes changing formats in a few locations to meet customer demand, divesting locations that will never be profitable, and purchasing assets that keep the push into new products and services. Third, they should develop new capabilities-including digital expertise and, sometimes, capabilities related to entirely new areas like last-mile logistics or real estate.
To actually adapt, fuel retailers must embrace a whole new mindset. Making modest changes or tweaks for the business is not going to suffice. Instead, companies must fundamentally rethink their business and aggressively embrace innovation and new technology. The ones that boldly seize an opportunity will find themselves in a winning position. Those that 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 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 and other alternative fuels. The first is the rollout of regulations aimed at limiting greenhouse gas emissions. As an example, the united kingdom has mandated that, by 2040, brand-new cars and vans sold in the country should be able to achieving zero greenhouse gas emissions, a requirement that 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, more than a third of new vehicles sold will be fully or partly electric. This development poses a major 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 beginning to gain ground in some markets. For instance, automakers such as Toyota are investing in developing hydrogen fuel cell vehicles. Meanwhile, in other areas around the globe, a considerable proportion of vehicles already run on alternative fuels including liquefied petroleum gas (LPG) and compressed gas (CNG), and biofuels are increasing their share in the gasoline and diesel pools. Vehicles designed to use a different fuel such as 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 Petrol Station Near Me.
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 is going to be critical to ensuring efficient urban mobility. Already, ride-hailing services including Uber and Lyft have ushered within the first phase of 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 by 2035, we project, shared mobility solutions will account for 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 including Ford and Toyota and new digital players such as Google and Uber-are investing heavily in the growth of autonomous driving capabilities. Because of this, we expect that nearly 25% of brand new cars purchased in 2035 will are able to drive themselves with no human involvement whatsoever-with many of those AVs likely to be electric. As autonomous vehicle systems replace human drivers, shared mobility services can become less expensive for customers, encouraging further growth of such services.
The implications for fuel retailers are significant as 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 end result 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 over the board. They are looking for high-quality, fresh, healthy food options; less expensive; and a lot more attractive store formats. Additionally they want more personalized goods and services as well as a seamless, convenient experience through options including self-service checkout.
In this environment, retailers are leveraging a huge quantity of data off their customers to gain an unprecedented degree of insight with regards to their preferences. And the ones efforts will grow increasingly sophisticated. Whereas businesses in the past grouped consumers into segments, retailers later on can target every person and tailor goods and services for that individual’s needs.
These dramatic changes in the retail environment will pose an important challenge for fuel retailers, which stand to lose customers both to more complex retailers offering fast as well as simple purchases as well as increasingly innovative e-commerce players. Actually, convenience will increasingly come to mean “delivered for the home,” as e-commerce businesses that offer instant delivery emerge as being a significant substitute for the conventional convenience store. Companies including Amazon happen to be testing delivery by drone in order to substantially reduce last-mile delivery time. Others are addressing the last-mile challenge through partnerships with companies like Instacart and Uber. In america alone, investors have committed $9 billion to a few 125 startups operating within this space. Furthermore, retail players are leveraging technology to produce a true omnichannel experience that seamlessly integrates online and offline retail. Voice-activated shopping, made possible by the IoT and by AI, is emerging as being a powerful new model within both physical and virtual stores.
Other efforts aim to have the in-store experience more efficient and convenient. As an example, emart24 has rolled out unstaffed stores, and Farmer’s Bridge has evolved walk-in vending machines. Also a new comer 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 must take steps to create options that match the rate and ease that these formats offer.
The Entire World Is Beginning To Change-And Native Implications Vary. The entire impact from the trends that are remaking the fuel retail business will be evident in the next ten or fifteen years. Meanwhile, however, some markets will change more rapidly as opposed to others. For instance, the interest in electric along with other alternative-fuel-powered vehicles, the penetration of AVs, as well as the adoption of the latest shared mobility solutions will likely be higher in Northern Europe, North America, plus some fast-developing economies including China compared to 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 entire world, we have now identified four distinct market environments that are likely to play out between now and 2035, all of that can use a different impact on fuel retailers’ profitability. (See Exhibit 2.) These four basic environments can serve as signposts in the future, helping companies identify signals of change in the market and assess 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 still rely heavily on personal vehicles, with shared mobility solutions making up only 5% to 10% of all road mobility. In this environment, the buyer shopping experience will be digitally enabled, and seamless purchasing and checkout is going to be commonplace. Businesses will still target segments of clients (not individual customers), and traditional human-powered last-mile delivery will always be the norm. Regardless of the dominance of ICE vehicles, as well as population growth and also the emergence of your expanding middle class in developing countries, need for fossil fuel will stagnate or decline slightly. This can be due partly 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 vulnerable to 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 particular environment, government regulations and incentives foster EV adoption, and electricity powers nearly half of the cars on the road. But electric charging infrastructure remains limited 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 that go past 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 is going to 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 within their fuel sales will render 45% to 60% of Petrol Station 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. Within this environment, adoption of EVs is widespread, there is however also significant demand for alternative fuels such as hydrogen, LPG, CNG, and biofuels, as governments as well as other entities support their development. Consequently, the general share of fossil fuels is comparatively low. Concurrently, many consumers prefer shared mobility answers 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 will 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 particular environment will be challenging. Although fuels including 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 stores to be in danger of unprofitability, with average sector ROCE in negative territory.
Market environment 4: Mobility movesbeyond non-renewable fuels. Inside the most sophisticated 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 only about a quarter of all the road mobility energy needs. Additionally, the infrastructure required to serve a zwvzos number of AVs-to transport goods and people through the day, and also to charge overnight and throughout idle times in dedicated areas-will be in place. On-demand mobility will make up 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 like the one outlined in market environment 3. But market environment 4 will need fuel retailers to help make even more dramatic change.