Within 15 years, 80% of current fuel retailers could be unprofitable as electric vehicle use increases, new models of mobility take hold and customer expectations and needs change, warns a new report by Boston Consulting Group.
The report examines four different market scenarios, ranging from a continued domination by traditionally fueled vehicles to a time when transportation is dominated by electrically powered autonomous vehicles. No matter what the scenario, the study warns that retailers who don’t move away from a fuel-centric approach to business will face an inevitable decline in profits and possible closure.
“Making modest changes or tweaks to the business will not suffice,” the authors of “Is There a Future for Service Stations?” wrote. “To successfully adapt, fuel retailers must embrace a new mindset.”
These changes include embracing new offerings, developing new capabilities and even branching out into new areas to find other ways to make a profit.
“Companies must fundamentally rethink their business and aggressively embrace innovation and new technology,” the authors wrote. “Those that boldly seize the opportunity will find themselves in a winning position. Those that do not may be left behind.”
The Boston group is a global management consulting firm. When examining likely market scenarios, the report’s authors also looked at the impact each would have on existing retailers. Under the first scenario, where electric vehicles and “shared-mobility solutions” make up 5% to 10% of all transportation use, increased fuel efficiency and different usage trends would still reduce fuel usage. As a result, by 2035 between 25% and 30% of retail outlets worldwide could be unprofitable and face possible closure.
The second scenario projects EVs making up about 50% of cars on the road but with limited public charging infrastructure available. The scenario says consumers will likely have embraced more home-delivery of goods as well as personalization of the shopping experience. Under this model, 45% to 60% of service stations could be unprofitable by 2035.
In scenario three, the adoption of EVs is accompanied by an equal growth in demand for alternative fuels such as hydrogen, biofuels and LPG. Meanwhile, the scenario sees more consumers turning to shared mobility and no longer owning their own vehicles while most shopping is done online. As a result, demand for fossil fuels is relatively low, leading to 60% to 75% of fuel retail outlets potentially being unprofitable by 2035.
In the final scenario, only about a quarter of all vehicle energy needs is met by fossil fuels due to the growth of EVs and autonomous vehicles. Most shopping is done online with home delivery. This leads to a worst-case scenario where 60% to 80% of retail outlets might be unprofitable by 2035, the report said.
The report notes that in all the scenarios, retailers with highway locations will likely fare better than others since heavy-duty vehicles such as tractor trailers will continue using fossil fuels longer than passenger vehicles and that even consumers with electric vehicles will stop at highway service stations to recharge their vehicles, get something to eat and make nonfuel purchases.
Unmanned service stations, which are growing in popularity in Europe, might be most vulnerable to a rise in EVs, since many sell only fuel and don’t have convenience store sales to help bolster profits.
The authors offer recommendations to help retailers adapt to the changing environment and continue to attract customers.
“The goal should be to create a world in which consumers visit service stations because they want to, not because they need to,” the study said.
The recommendations include:
- Enhance the customer fueling experience: Retailers can improve their loyalty programs and payment solutions to create “a seamless, engaging customer experience by digitizing the entire journey” to include sophisticated promotional activity and easy payment options.
- Invest in EV infrastructure and advanced mobility: As EV use grows, retailers need to install charging centers to attract traffic to their stores.
- Improve the convenience store experience: It’s particularly important in urban areas to shift from a traditional convenience store model to one that is more like a neighborhood store. Fuel retailers should also explore offering unmanned stores as well as offering different delivery models, such as click-and-collect Internet sales and home delivery.
The report also recommends retailers leverage their real estate to take advantage of their often-centralized locations in a town or city. This could include getting involved in last-mile delivery services, a service segment that will become increasingly important as online purchases continue to increase.
Ben Brockwell, OPIS by IHS Markit