Fuel retailers are likely to face major disruptions in the current way of doing business. Disruptions are coming from alternative fuels (electric mobility), shift in urban mobility and customer’s expectations around convenience and personalization. It is estimated that that majority of the fuel retailing sites will turn unprofitable in the next ten to fifteen years with today’s operating model. Companies that will adapt to the fast changing trends and be the front runner of change will see significant competitive advantage, especially in markets where fuel prices are fixed or regulated.

Governments around the world are rolling out regulations aimed at limiting greenhouse gas emissions. As a result, we are seeing an increased demand for electric or more environmental-friendly vehicles. By the end of this decade, more than a third of all new vehicles sold will be fully or partly electric. This is a major threat to fuel retailers as fuel purchases account for the majority share of profits today. Electric vehicles, may be charged at home, at work, or in parking lots, thus posing a substitution threat to service stations. If a third of all new vehicles are electric at the end of this decade, fuel retailers will lose out on attracting this customer base to their service station, making it difficult for them to remain profitable.

In urban cities, we are already seeing the ride-hailing companies like Uber reducing the car owning aspirations, especially in the millennials. With massive investments in driverless autonomous vehicles,  shared mobility services will become even cheaper for customers, encouraging further growth of such services. Research estimates suggest that upwards of 20% of new cars sold by end of this decade will have the ability to drive themselves. 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 be a decline in traditional fuel and convenience store sales.

The fuel business is primarily centered around vehicles. However, customer are becoming more demanding, and want a more personalized experience at the pump eg: self-service checkout, real-time discount offers based on preferences, loyalty cards etc. Not many fuel retailers are able to go beyond the vehicle-centric nature of their business today.

In summary, the fuel retailers are sitting on a ticking time bomb. If their country is seeing fast adoption of electric autonomous vehicles, gasoline demand will decline significantly faster than ever and fewer people will come into the gas station to purchase other services and products. They need to take action now, to avoid a future of declining purchases and unprofitable operations.

So, how can fuel retailers prepare themselves for such a future?

They won’t be able to change future gasoline demand. What they can do is to move from a vehicle-centric business to a customer-centric one in order to draw their customers towards adjacent value pools. The future winner will be the fuel retailer who can target each individual and tailor products and services to that individual’s needs i.e. embrace personalization. This will require fundamental redesign of the customer experience at the pump with expanded usage of digital tools, with new capability to draw the customer beyond the usual vehicle fuel-ups. The fuel retailers have to understand that customer journey no longer starts only when he arrives at the pump; but in the car guiding him to the nearest pump with the smallest queue time or on the mobile app enticing him with discounted offer for his preferred purchases or on from his home couch from where he could place a request for fuel delivery.

Fuel retailers need to focus on offering the next generation of convenience store experience. Unmanned stores, self-service or RFID-enabled walkout checkouts, convenience of home delivery or store pick-up, healthy food options, wifi hotspots are few of the facilities that can be offered to keep the customers with them.

Fuel retailers need to create a set-up in which customers visit gas stations because they want to, not just because they need to fill-up gas or service their vehicle. This implies using gas station’s real estate to much broader aspects of a customer’s life eg: meeting spaces, medical clinics, insurance services, courier services etc.

With the amount of personal data captured from each customer including preferences and buying patterns, fuel retailers could additionally look to monetise that data by collaborating in the wider ecosystem.

Last but not the least, they need to focus on investing in EV infrastructure to tap into new value pools of the future. Developing partnerships with companies providing ride-hailing services and urban mobility could ensure captive customer base for long-term.

In conclusion, to successfully meet the challenges from a paradigm shift in fuel retailing business, fuel retailers need to make investments in new technology capabilities, which fosters business integration, agility and innovation. Most of the fuel retailers that have grown over a period of time have disparate applications with silos around fuel and non-fuel operations. The complexity is increasing in fuel retailing, and it needs constant experimentation and innovation to gain competitive advantage. An integrated, robust and scalable IT platform is desperately needed to break down the organizational silos, foster experimentation and innovation, and most importantly make the customer feel that they are at the center of their universe.

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Harish Bansal,

Industry & Value Advisory Lead for Energy Sector at SAP

Randa Khaled

Randa Khaled

Author Since: November 19, 2020

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