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Gas station numbers have been declining over time and this trend is expected to continue at a faster pace into the future.
The business model the fuel retail industry has followed up to now has been relatively simple: the monopolistic position of gas stations on the fuel market ensures significant recurring revenue. However, the projected end of ICE engines, along with the continuous decrease in average distance traveled per vehicle, will disrupt this solid cash-flow model and will force gas stations to completely renew their organization and business model.
Regulatory pushes, technological progress and social changes in the retail fuel industry will be determining factors in the progressive phasing-out of ICE engines from the market and the concomitant electrification of the fleet. This low-carbon transport sector is a global dynamic, but some regions, such as Europe, stand-out. European countries have asserted their leading position in the transition towards a cleaner transport sector. According to a recent Sia Partners study, Are gas stations' business models outdated?, ICE vehicles’ proportion in the fleet will fall, representing only 37% of the passenger car fleet by 2050 (vs. 98% as of today). This will be offset by the surge of electric and hybrid vehicles. This structure shift will reduce fuel sales and will result in massive closures for European gas stations, dipping 43% by 2050.
Although Europe has been outpacing other regions in the field of electric mobility, this phenomenon will be global and the rest of the retail fuel industry will have to undertake structural transformations, extending a customer centric approach.
The remaining gas stations will have to generate new revenue to offset the drop of fuel sales. Four levers have been defined by Sia Partners that will allow these structures to stand-out and implement a durable and profitable business model.
All gas station actors will have to seek efficiency in cash management in order to survive, cost cutting will be one of the main tools to secure balanced revenue. The short-term phase will target efficiency in the day to day activities of gas stations with the digitalization of the main processes: effective inventory management and automating of services at the pump. Despite the benefits digitalization offers, it will also have a social impact such as a reduction in the workforce at the gas station. The long-term phase will concern partnerships and budget reallocation towards sustainable solutions. One example would be the reallocation of the diesel budget (structure and maintenance) to solar panels in order to ensure energy self-sufficiency for the gas station. TotalEnergies launched a project called “solarisation” in 2016 with the intention to equip 5000 gas stations with solar panels (200 MW) and reduce the group’s annual electricity bill by 40 million.
As the retail fuel industry increasingly faces a less-fuel dependent market, gas stations will have to diversify their offerings in order to stay competitive. This diversification will take on many aspects and different paths. First, gas stations will not only need to stay in their fuel dependent business models but also make strategic adjustments to prepare for the transition. Indeed, actors will have to embrace a new type of fuel, such as ethanol fuel, biofuel or electric vehicle charging points. On another hand, they will have to remove diesel from their offerings as many regulations in the European Union ask for the end of its distribution. Secondly, the new business model will need to switch to non-petrol fuel in preparation for upcoming regulations towards clean fuel.
Fueling a car is not considered an entirely enjoyable experience, but rather an inconvenient necessity. Improving customer experience within the scope of gas stations will require service providers and customers to not only connect digitally, but also require gas stations to offer a unique service – besides just petrol. Gas stations should be more than just a fuel stop. They must offer a fulfilling convenient shopping experience by enhancing consumer engagement and becoming a terminus of choice to serve several needs and wants of the consumer. Companies, such as Shell and ExxonMobil, have installed video screens at their gas pumps to engage with the customer and leverage the fueling idle time. This type of direct marketing approach makes the customer aware of discounts, promotions, convenience items and develops branding hence increasing revenue.
Customers are not only switching to Electric Vehicles to save on rising gasoline prices, but they are also becoming more environmentally conscious. They are becoming more aware of their carbon footprint and they are eating healthier, organically sourced & environmentally sustainable foods. With that shifting mindset, gas stations need to also cater to this growing market segment of health-conscious, environmentally focused drivers. Establishing Electric Vehicle charging stations along with offering organic products and food items not only provides an additional revenue stream, but also builds the perception of high quality. This will lead to attracting customers and making their experience with the gas station more positive. Add on the digital aspect of paying with your phone, you will significantly reduce the wait times customers dread, and allow them to conveniently pay for their gas, food/products, and feel good about it at the same time. These factors also contribute to overall developing and retaining customer loyalty in the retail fuel industry. Whole Foods for example, while niche, has established its public image as healthy and high quality while developing a loyal customer following.
As the pioneer of Consulting 4.0, Sia Partners is supporting the oil industry in its energy transition, such as developing green alternatives and supporting digital transformations, a vital shift to secure their margins in a complex market with high price volatility.