Is There a Future for Service Stations? The End of an Era in Fuel Retail

July 15, 2019

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by Mirko Rubeis , Stuart Groves , Tony Portera , and Giuseppe Bonaccorsi (Boston Consulting Group) 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.

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Second, retailers need to transform their network of service stations and assets.

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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.

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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.

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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.

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Market environment 3: All rise, but none dominate. In this environment, adoption of EVs is widespread, but there is also significant demand for alternative fuels such as hydrogen, LPG, CNG, and biofuels, as governments and other entities support their development. READ MORE

EVs could make 80% of gas stations unprofitable — report (E&E News)