A number of far-reaching trends are disrupting the fuel retail market. Among the most powerful of these are the rise of alternative fuels (particularly electricity) for mobility, the emergence of new models in mobility, and 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 Internet of Things (IoT).
The ongoing shifts will alter the contours of competitive advantage in the industry and require a fundamental transformation of the standard business model. Fuel retailers must develop a comprehensive response that adjusts the products and services they sell, adapts their network and business model, alters the layout of their service stations and convenience stores, and harnesses new digital tools.
To help companies understand what the future will look like and what they can do to adapt to it, BCG has conducted an in-depth study of the fuel retail industry, detailing four very different market environments that are likely to emerge around the world, each defined by changes 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 to position themselves to adapt over the short, medium, and long terms. Although the environments differ from one another markedly, a significant portion of the fuel retail network in some markets could be unprofitable by 2035—even in the scenarios in which new mobility models are less disruptive and fossil fuel sales do not decline precipitously. In a market environment in which electric vehicles (EVs), autonomous vehicles, and new mobility models take off rapidly, up to 80% of the fuel-retail network as currently constituted may be unprofitable in about 15 years.
To prevent such a decline, fuel retailers need to take action in three areas. First, they need to move from a vehicle-centric business model to a customer-centric one in order to capture new product and service opportunities. This effort entails reinventing the overall customer journey and using digital tools to extend the customer relationship beyond occasional visits to the service station. Second, retailers need to transform their network of service stations and assets. This process includes changing formats in some locations to meet customer demand, divesting locations that will not be 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, in some cases, capabilities related to entirely new areas such as last-mile logistics or real estate.
To successfully adapt, fuel retailers must embrace a new mindset. Making modest changes or tweaks to the business will not suffice. Instead, companies must fundamentally rethink their business and aggressively embrace innovation and new technology. Those that boldly seize the opportunity will find themselves in a winning position. Those that do not may be left behind.
The Forces of Disruption
The pace of disruption in the fuel business is breakneck, as alternative fuels grab share, The Reimagined Car, 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 rise of electricity and other alternative fuels. The first is the rollout of regulations aimed at limiting greenhouse gas emissions. For example, the UK has mandated that, by 2040, all new cars and vans sold in the country should be capable of achieving zero greenhouse gas emissions, a requirement that will increase demand for battery electric, plug-in hybrid electric, or hydrogen-fueled vehicles.
The second force is technology. As battery costs continue to decline, automotive OEMs are investing heavily in EVs. By 2030, more than a third of all new vehicles sold will be fully or partly electric. This development poses a major threat to fuel retailers, particularly those that operate numerous stations where fuel purchases account for a significant share of profits.
Other alternative fuels are also beginning to gain ground in some markets. For example, automakers such as Toyota are investing in developing hydrogen fuel cell vehicles. Meanwhile, in other parts of the world, a sizable proportion of vehicles already run on alternative fuels such as liquefied petroleum gas (LPG) and compressed natural gas (CNG), and biofuels are increasing their share in the gasoline and diesel pools. Vehicles that use an alternative fuel such as LPG or CNG still require refueling through a traditional fuel retail location—unlike EVs, which users may charge at home, at work, or in parking lots, and which therefore pose a substitution threat to service stations.
The Emergence of Advanced Mobility Models
Nearly two-thirds of the global population will live in cities by 2030, and new digital-centric business models will be critical 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, reducing the car ownership aspirations of younger generations. By 2030, the shared mobility market is likely to be worth nearly $300 billion—and by 2035, we project, shared mobility solutions will account for nearly 20% of on-road passenger miles.
As shared mobility continues to gain ground, another significant shift will support it: the emergence of autonomous vehicles (AVs). Numerous companies—including both traditional OEMs such as Ford and Toyota and new digital players such as Google and Uber—are investing heavily in the development of autonomous driving capabilities. As a result, we expect that nearly 25% of new cars sold in 2035 will have the ability to drive themselves with no human involvement whatsoever—with most of those AVs likely to be electric. As autonomous vehicle systems replace human drivers, shared mobility services will become less and less expensive for customers, encouraging further growth 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 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; better value; and more attractive store formats. They also want more personalized products and services and a seamless, convenient experience through options such as self-service checkout.
In this environment, retailers are leveraging a vast amount of data from their customers to gain an unprecedented level of insight about their preferences. And those efforts will grow increasingly sophisticated. Whereas businesses in the past grouped consumers into segments, retailers in the future will be able to target each individual and tailor products and services to that individual’s needs.
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