Is There a Future for Service Stations? Numerous far-reaching trends are disrupting the fuel retail market. Some 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 an array of powerful new digital technologies-everything from artificial intelligence (AI) to robotics to the web of Things (IoT).
The ongoing shifts will modify the contours of competitive advantage in the market and require a fundamental transformation from the standard business model. Fuel retailers must develop a comprehensive response that adjusts the goods and services they sell, adapts their network and business structure, alters the layout with their Nearest Gas Station and convenience stores, and harnesses new digital tools.
To help companies understand what the long run will look like and whatever they can do to conform to it, BCG has conducted an in-depth study of the fuel retail industry, detailing four completely different market environments that will likely emerge around the world, each defined by modifications in mobility and consumer lifestyles. Fuel retailers can utilize these market environment scenarios to assess how their business might fare in the years ahead under different conditions and also to position themselves to adapt on the short, medium, and long terms. Even though environments are different from each other markedly, a significant portion of the fuel retail network in certain markets might be unprofitable by 2035-even in the scenarios by 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% from the fuel-retail network as currently constituted may be unprofitable in about fifteen years.
To prevent such a decline, fuel retailers have to take action in three areas. First, they have to move coming from a vehicle-centric business structure to some customer-centric one in order to capture cool product and service opportunities. This effort entails reinventing the general customer journey and using digital tools to increase the consumer relationship beyond occasional visits towards the service station. Second, retailers have to transform their network of service stations and assets. This procedure includes changing formats in a few locations to fulfill 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 cases, capabilities related to entirely new areas like 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. Those that boldly seize the opportunity will discover 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 take off, 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 increase of electricity as well as other alternative fuels. First is the rollout of regulations geared towards limiting greenhouse gas emissions. For example, 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, over a third of all new vehicles sold will be fully or partly electric. This development poses an important threat to fuel retailers, especially those that operate numerous stations where fuel purchases make up a substantial share of profits.
Other alternative fuels can also be starting out gain ground in certain markets. As an example, automakers such as Toyota are making an investment in developing hydrogen fuel cell vehicles. Meanwhile, in other areas of the world, a considerable proportion of vehicles already operate on 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 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 at home, at work, or even in parking lots, and which therefore pose a substitution threat to https://Locationsnearmenow.Net/Shell-Gas-Station-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 is going to be essential to ensuring efficient urban mobility. Already, ride-hailing services such as Uber and Lyft have ushered within the first phase from 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 make up 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 like Google and Uber-are investing heavily in the development of autonomous driving capabilities. As a result, we expect that nearly 25% of new cars available in 2035 will are able to drive themselves without any human involvement whatsoever-with many of these AVs likely to be electric. As autonomous vehicle systems replace human drivers, shared mobility services can become less and less expensive for customers, encouraging further development of such services.
The implications for fuel retailers are significant because 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 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-have become more demanding across the board. They are looking for high-quality, fresh, healthy food options; less expensive; and much more attractive store formats. Additionally they want more personalized products and services as well as a seamless, convenient experience through options such as self-service checkout.
Within this environment, retailers are leveraging an enormous quantity of data from their customers to get an unprecedented amount of insight regarding their preferences. And those 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 services and products to that particular individual’s needs.
These dramatic changes in the retail environment will pose an important challenge for fuel retailers, which are in position to lose customers both to more technical retailers that offer fast as well as simple purchases and to increasingly innovative e-commerce players. Actually, convenience will increasingly come to mean “delivered towards the home,” as e-commerce businesses that offer instant delivery emerge as being a significant option to the traditional convenience store. Companies such as Amazon happen to be 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 space. Additionally, retail players are leveraging technology to create a true omnichannel experience that seamlessly integrates online and offline retail. Voice-activated shopping, made possible through the IoT and by AI, is emerging as being a powerful new model both in physical and virtual stores.
Other efforts make an effort to make the in-store experience better and convenient. As an example, emart24 has presented unstaffed stores, and Farmer’s Bridge has evolved walk-in vending machines. Also unfamiliar with the scene are mobile stores including Robomart and Mobymart and chains including AmazonGo and JD.com’s 7Fresh (in China) that provide automated checkout. Fuel retailers have to take steps to create options that match the speed and ease that these particular 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 is going to be evident inside the next ten or fifteen years. Meanwhile, however, some markets will change more rapidly as opposed to others. As an example, the need for electric along with other alternative-fuel-powered vehicles, the penetration of AVs, and the adoption of new shared mobility solutions is going to be much higher in Northern Europe, North America, plus some fast-developing economies such as China when compared to most countries in Middle East or Africa, for instance.
Four Future Market Environments – To mirror the disparate pace of change around the planet, we now have identified four distinct market environments that will probably play out between now and 2035, every one of that will possess a different impact on fuel retailers’ profitability. (See Exhibit 2.) These four basic environments can serve as signposts for the future, helping companies identify signals of change available 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 still 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 all the road mobility. Within this environment, the customer shopping experience will likely be digitally enabled, and seamless purchasing and checkout is going to be commonplace. Businesses will still target segments of customers (not individual customers), and traditional human-powered last-mile delivery will always be the standard. Regardless of the dominance of ICE vehicles, as well as population growth and the emergence of the expanding middle class in developing countries, demand for fossil fuel will stagnate or decline slightly. This can be due to some extent to increasingly fuel-efficient vehicles and then in part to further-albeit limited-penetration of EVs. As a result, by 2035, within a “do nothing” scenario where fuel retailers have not adapted towards the changing environment, 25% to 30% of fuel stores will earn returns below their weighted average cost of capital and stay at risk of closure.
Market environment 2: There’s a 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 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 obtainable in rural and remote areas. Consumers in this particular environment will expect levels of integration between offline and online shopping which 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 stores-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 likely 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 inside their fuel sales will render 45% to 60% of Nearest Petrol Station potentially unprofitable by 2035 and will push the typical return on capital employed (ROCE) of 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 demand for alternative fuels including hydrogen, LPG, CNG, and biofuels, as governments and other entities support their development. Consequently, the general share of standard fuels is relatively low. At the same time, many consumers prefer shared mobility methods to owning cars that largely go unused through the day. The upshot: nearly 20% of all the passenger kilometers in cities are traveled in some shared mode of transport. Within this environment, the shopping experience will reach its maximum amount of offline and online 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 is going to be challenging. Although fuels like LPG and CNG will replace a number of the lost volume of gasoline, they won’t completely offset 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 retail outlets to get at risk of unprofitability, with average sector ROCE in negative territory.
Market environment 4: Mobility movesbeyond standard fuels. Inside the most advanced in the market environments, EVs are dominant, and also the AV revolution is well underway. About 10% to 20% of all new cars sold will be both electric and fully autonomous. Non-renewable fuels will power only about a quarter of road mobility energy needs. Furthermore, the infrastructure necessary to serve a zwvzos fleet of AVs-to move goods and folks through the day, and also to charge overnight and throughout idle times in dedicated areas-will be in place. On-demand mobility will account for nearly 30% of all passenger kilometers in cities, as increasing numbers of people opt 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 help make even more dramatic change.