Insight

Transforming Fuel Retail

How consumers, markets and competitors are driving the need to modernize big oil

Mudit Kapur

The days of a gas station’s role as a convenient fuel stop are numbered. Changing consumer expectations, market economics and shifting competitive dynamics mean that oil companies and pure fuel retailers are under pressure to reinvent the gas station as part of their overall digital business transformation.

Attitudes have changed. Today’s consumers are all about choice. They are looking to find the best value not only for their vehicle but also for themselves. Purchases must be experiential. Convenience, location or price and consumers’ perception of a brand, influenced by their interaction with it, all compete to affect their purchasing power. And in an automated, digital future where even the driver may not be behind the wheel, there is an imperative to modernize.

What is involved? Fuel retailers must modernize the consumer experience—by offering fuel, as well as convenience shopping, providing additional services, and even addressing future needs, such as what consumers do while their electric cars are charging. And they must modernize consumer engagement—by offering a destination of choice and influencing consumers through the general ambience, loyalty schemes, and apps that lock in consumer preferences.

The drive to transform

Fuel retailers must take account of the economic value and competitive advantage of their infrastructure and physical facility, as well as embracing changing consumer needs. When The Globe and Mail reported on Twitter feedback around what women would do if “for 24 hours there were no men," self-service gas stations were featured in several of the 10,000 replies that were received. One woman said: “Gas up my car without needing a passenger/witness” with similar comments implying that safety is a factor in their choice of fuel stop.¹

Let’s take a look at the pressures to transform fuel retail in more detail:

Consumers expect more and define what good looks like

If prompted about their retail fuel experience, vehicle drivers would probably suggest that gas stations were more a place to endure than enjoy. The quality and offerings at gas stations vary, and there is often a poor perception of brand and quality. Stopover stations often fail to meet the needs of consumers, whether they are on a short journey or a longer road trip. Fuel brand is almost immaterial to these buyers; visiting a fuel retailer is based on price, location or simply convenience.

electric plug symbol on a fuel tank door

Market economics dictate profitability drivers

There are sound economic reasons for modernization. Several studies show that those companies earning more in revenues and profits have better exploited the inside sales mix—that is, income from convenience outlets. For example, in the United States alone, the fuel retail total market size is around $660 billion, with an 8 percent Compound Annual Growth Rate (CAGR) in the last three years.² Yet it is inside sales that account for 60 percent of total gross profits.

Competitive dynamics emphasize the need to innovate

New entrants are challenging traditional suppliers with different approaches to fuel retail, such as installing supercharging stations or hypermarket retail outlets. But fuel retailers must keep at the top of mind the importance of first mover advantage. The new dynamic means it is not enough to keep pace with the competition, they need to modernize to stay one step ahead. With a future focused on mobility and connectivity, disruption is inevitable. Electric cars are heading to a town near you, with one charging point as attractive as another—and gas stations without them may struggle to find business at all.

An electric car charging — Royal Dutch Shell

has recently acquired two different electric vehicle charging companies, the European EV charging company NewMotion and GreenLots, a United States company that provides software for running EV charging networks. Among other things, these acquisitions provide another service Shell gas stations can offer customers even as they switch away from gasoline-powered cars.³

Unlocking value

Fuel retailers need to switch from being offer led and product based, and free themselves from traditional practices. How? To unlock value, fuel retailers need to be:

Consumer led

Fuel retailers need to engage consumers in the moments that matter. They must become part of the consumer’s whole journey, offering hyper-convenience alongside savings in time and money. This may mean helping long distance truck drivers by providing somewhere they can easily park off the highway or take a shower, eat and relax. Or it may be offering safe and secure apps so that consumers can stay in their vehicles and avoid having to swipe their credit cards (and risk any incidence of fraud). Such offerings are dedicated to meeting consumer needs with intelligent retail solutions that are underpinned by technology, automation and data.

If we assume that few consumers are transactionally loyal, making use of external data (such as third-party mobile data) can have tremendous value. By “joining the dots” on their data to better understand consumers and adopt new ways of working, fuel retailers can create new opportunities for growth.

Ask yourself:

How do we better compete for each and every transaction?
How do we build an actionable data asset with real insight into the consumer journey?
How do we transform the business to realize value fast?

Experience based

Preparing to be a fuel retailer in the future means being able to compete for a larger “share of life”—where a greater percentage of consumers’ needs are addressed (see Figure 1). While they should continue being a fuel stop with some convenience shopping, fuel retailers need to boost consumer engagement and experience—becoming a destination of choice to serve many aspects of everyday life.

Exploring territories around how fuel retailing could be experience based might include a number of different avenues. Fuel retailers could take a closer look at fast refueling, become a convenient place to work and meet, or provide facilities so that consumers can enhance their wellbeing alongside serving their fuel needs. Or the gas station could play a role as the ultimate convenience store—a source of fresh and healthy food options or where consumers can pick up preordered groceries and collect or return items.

Ask yourself:

How could we better automate our filling stations for fast and easy refueling?
How do we drive brand preference, increase in-store traffic and sales and build loyalty?
How can we use digital technologies to design our fuel stations for the age of hyper-convenience?

Figure 1

Shifting fuel retail from serving fuel and convenience shopping to broader life needs

Culturally agile

Most companies have established patterns of behavior over many decades. As a result, modernization of their traditional practices is a massive change. Becoming nimbler requires a shift at the heart of an organization’s structure and a culture that embraces agility. By adopting a cultural mindset that is more fluid, companies can be more open to ideate and innovate to present new products and services on demand, rather than waiting for the perfect timing.

Today, buying fuel in one part of the world can be an entirely different experience from buying it in another. But the nature of business is global. Fuel retailers need to create a unified consumer experience from Boston to Brighton to Bogota. They need to be sensitive to local markets to keep the global consumer satisfied—adapting their gas stations to offer the most relevant products and services.

A good example of cultural agility in practice is QuikTrip, which describes itself as an American chain of convenience stores based in Tulsa, Oklahoma, with an ambition to be “the dominant convenience/gasoline retailer.”⁴ Having experimented with several food retail avenues over time, QuikTrip discovered that fresh to order food was highly successful—a cultural leap for a company that started by selling only gasoline in 1958.

Ask yourself:

How do we structure our teams to develop a culture of ownership and fast decision making?
How do we foster an environment where our people deliver high quality the first time?
How do we continuously innovate to unlock new value at speed?

example of a mobile app — Future fuel retail at work

Pilot Flying J, the largest travel center network in North America, announced the launch of a new mobile app in April 2019. Developed with drivers in mind, the new Pilot Flying J app saves users time and money with a more personalized experience tailored to drivers’ type of travel, location, preferences and needs. The app features a streamlined onboarding that allows users to self-select their driver profile, such as professional driver, auto traveler or RVer. Depending on that selection, the home screen and features are then customized to meet the drivers’ needs based upon geographic location, preferred stops and amenities.

“We know drivers are always looking for convenient and reliable platforms that make their lives easier while on the road... our new app allows us to personalize, simplify and improve the guest experience while navigating the highways...”

Mike Rodgers, senior vice president and chief strategy and information officer at Pilot Flying J.

The move to modernize

To continue to run a successful and profitable fuel retail business, oil companies need to consider three actions:

Improve performance to uplift profits:

There are compelling financial reasons why big oil companies should address fuel retail transformation. With a well-articulated digital strategy and capability that accents capturing consumer needs and consumer data for better insights, innovation and overall performance, big oil companies could see a considerable uplift in their profits—which could lead to faster growth.

Capitalize on brand equity:

Fuel retailers need to catch up with the mindset of mainstream retailers who have faced the consequences of failing to meet consumer preferences. Gas stations that are poorly lit or have pumps that do not work could have a negative impact on the brand and highlight the direct connection between brand equity and profitability.

Be relevant to the consumer of the future:

Although many traditional players are finding it difficult to adapt, it is important to keep pace with changing consumer expectations, such as the generational shifts in preferences we are seeing being expressed by millennials. With fuel retailers more consumer led, experience based and culturally agile, modernized big oil companies can realize new revenue and growth.

Sources:

“Why some women fear the self-serve gas station,” Globe and Mail, January 8, 2019. https://www.theglobeandmail.com/drive/culture/article-why-some-women-fear-the-self-serve-gas-station/
Source: “2019 Convenience Store News Industry Report”
Source: “A gamechanger is coming for electric car owners, CNN Business, August 2, 2019. https://edition.cnn.com/2019/08/01/cars/future-of-electric-car-charging/index.html
https://www.quiktrip.com/About/About_QT
“Pilot Flying J’s new mobile app hits the road” Knox Commerce, April 2019. https://knoxcommerce.com/2019/04/16/pilot-flying-js-new-mobile-app-hits-the-road/

Mudit Kapur

North America Energy & Commodities Lead

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Insight

Transforming Fuel Retail

The drive to transform

Consumers expect more and define what good looks like

Market economics dictate profitability drivers

Competitive dynamics emphasize the need to innovate