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 particular disruptions comes from an array of powerful new digital technologies-everything from artificial intelligence (AI) to robotics to the web of Things (IoT).
The ongoing shifts will alter the contours of competitive advantage in the market and require a fundamental transformation of the standard business structure. Fuel retailers must create a comprehensive response that adjusts the goods and services they offer, adapts their network and business model, alters the design of the Petrol Station Near Me and convenience stores, and harnesses new digital tools.
To assist companies understand what the near future can look like and the things they can do to conform to it, BCG has conducted an in-depth study from the fuel retail industry, detailing four very different market environments that will likely emerge around the world, each based on modifications 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 and also to position themselves to evolve over the short, medium, and long terms. Even though the environments vary from one another markedly, a significant area 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 tend not to decline precipitously. In a market environment by which electric vehicles (EVs), autonomous vehicles, and new mobility models explode rapidly, up to 80% of the fuel-retail network as currently constituted may be unprofitable within 20 years.
To avoid this kind of decline, fuel retailers must take action in three areas. First, they should move coming from a vehicle-centric business design to a customer-centric one out of order to capture new product and service opportunities. This effort entails reinventing the overall customer journey and ultizing digital tools to prolong the consumer relationship beyond occasional visits towards the service station. Second, retailers need to transform their network of service stations and assets. This process includes changing formats in certain locations to satisfy customer demand, divesting locations that is definitely not profitable, and investing in assets that support the push into new products and services. Third, they need to develop new capabilities-including digital expertise and, sometimes, capabilities linked to entirely new areas such as last-mile logistics or property.
To successfully adapt, fuel retailers must embrace a brand new mindset. Making modest changes or tweaks towards the business will not suffice. Instead, companies must fundamentally rethink their business and aggressively embrace innovation and new technology. People who boldly seize the opportunity will see themselves in a winning position. Those which do not may be left behind.
The Forces of Disruption.
The pace of disruption in the fuel organization is breakneck, as alternative fuels grab share, advanced mobility models explode, 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 and other alternative fuels. The first is the rollout of regulations targeted at limiting greenhouse gas emissions. For instance, great britain has mandated that, by 2040, brand-new cars and vans sold in the united states should be able to achieving zero greenhouse gas emissions, a requirement which will increase demand for battery electric, plug-in hybrid electric, or hydrogen-fueled vehicles.
The second force is technology. As battery costs carry on and decline, automotive OEMs are investing heavily in EVs. By 2030, greater than a third of new vehicles sold is going to 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 are also starting to gain ground in certain markets. As an example, automakers like Toyota are investing in developing hydrogen fuel cell vehicles. Meanwhile, in other regions around the world, a sizable proportion of vehicles already operate 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 designed to use a different 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 in parking lots, and which therefore pose a substitution threat to Shell Gas Station Open 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 be essential to ensuring efficient urban mobility. Already, ride-hailing services such as Uber and Lyft have ushered in the first phase of the era of shared mobility, lowering the car ownership aspirations of younger generations. By 2030, the shared mobility market will probably 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 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. As a result, we expect that nearly 25% of new cars available in 2035 will have the capacity to drive themselves without human involvement whatsoever-with most of these AVs apt to be electric. As autonomous vehicle systems replace human drivers, shared mobility services will end up less expensive for customers, encouraging further expansion 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 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 trying to find high-quality, fresh, healthy food options; better value; and more attractive store formats. In addition they 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 level of data using their customers to gain an unprecedented amount 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 in the future should be able to target every individual and tailor goods and services to that individual’s needs.
These dramatic modifications in the retail environment will pose an important challenge for fuel retailers, which stand to lose customers both to more advanced retailers that provide fast as well as simple purchases as well as increasingly innovative e-commerce players. In fact, convenience will increasingly arrived at mean “delivered to the home,” as e-commerce firms that offer instant delivery emerge as being a significant substitute for the conventional convenience store. Companies like Amazon are already 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 within this space. Additionally, retail players are leveraging technology to make a true omnichannel experience that seamlessly integrates offline and online retail. Voice-activated shopping, made possible through the IoT and by AI, is emerging being a powerful new model both in physical and virtual stores.
Other efforts make an effort to create the in-store experience more efficient and convenient. As an example, emart24 has presented unstaffed stores, and Farmer’s Bridge has evolved walk-in vending machines. Also new to the scene are mobile stores like Robomart and Mobymart and chains such as AmazonGo and JD.com’s 7Fresh (in China) that offer automated checkout. Fuel retailers must take steps to create options that match the speed and ease that these formats offer.
The Entire World Is Evolving-And Native Implications Vary. The complete impact in the trends which can be remaking the fuel retail business will be evident in the next ten or fifteen years. Meanwhile, however, some markets will change more rapidly than the others. For instance, the need for electric as well as other alternative-fuel-powered vehicles, the penetration of AVs, and also the adoption of new shared mobility solutions will be higher in Northern Europe, North America, plus some fast-developing economies such as China than in most countries in Middle East or Africa, for instance.
Four Future Market Environments – To mirror the disparate pace of change in different parts of the world, we have now identified four distinct market environments that will likely play out between now and 2035, each of which will 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 available in the market and evaluate 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 carry on and 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 the road mobility. Within this environment, the customer shopping experience will 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 always be the standard. Despite the dominance of ICE vehicles, as well as population growth and also the emergence of the expanding middle-class in developing countries, interest in fossil fuel will stagnate or decline slightly. This is due in part to increasingly fuel-efficient vehicles as well as in part to further-albeit limited-penetration of EVs. As a result, by 2035, under a “do nothing” scenario in which fuel retailers have not adapted towards the changing environment, 25% to 30% of fuel retail stores will earn returns below their weighted average expense of capital and stay at risk of closure.
Market environment 2: There’s a whole new fuel on the block. Within the second market environment, countries are in a transitional state before having achieved a crucial degree of penetration of EVs. In this environment, government regulations and incentives foster EV adoption, and electricity powers nearly 50 % 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 within 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 be on the rise. Although EVs won’t completely dominate this environment, their impact is going to be powerful. If fuel retailers do not adjust their model, the decline inside their fuel sales will render 45% to 60% of Petrol Pump Near Me potentially unprofitable by 2035 and can push the average 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, however, there is also significant need 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 non-renewable fuels is fairly 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 all passenger kilometers in cities are traveled in some shared mode of transport. In this particular environment, the shopping experience will reach its maximum degree 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 50 % of all last-mile deliveries. The financial circumstances for fuel retailers in 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 offset 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 become vulnerable to unprofitability, with average sector ROCE in negative territory.
Market environment 4: Mobility movesbeyond standard fuels. In the most advanced from the market environments, EVs are dominant, as well as 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 only about a quarter of all the road mobility energy needs. Additionally, the infrastructure needed to serve a zwvzos fleet of AVs-to move goods and people through the day, and to charge overnight and throughout 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 be similar to the one outlined in market environment 3. But market environment 4 will require fuel retailers to create even more dramatic change.