Insight

Transforming Fuel Retail

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.

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?

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?

Sources:

1. “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/
2. Source: “2019 Convenience Store News Industry Report”
3. 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
4. https://www.quiktrip.com/About/About_QT
5. “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/