Planning for the Unknown: The Mobility Retail Iceberg & Five Outdated Strategies

The fact that the Fuels & Convenience Retail industry is facing massive disruption is not an earth-shattering revelation; it has been predicted for years. What is different now, however, is the accelerated pace at which disruption is unfolding.

Advances in fuel efficiency, electrification, alternative fuels and government regulations, along with declining categories, new competitive threats, and a shift in customer expectations are converging to upend the industry. Against this wave of new disruptions, many players are simply treading water, making decisions based on an industry paradigm that no longer exists.

This response is understandable – but also potentially debilitating. Why? Because clinging to an outdated mindset prevents retailers from seizing the new opportunities that disruption reveals.

Fear of the unknown

Embracing change is rarely easy—especially when there are so many unknowns about what the future holds. At this point, the industry is experiencing the Iceberg Effect. An iceberg typically has about 90% of its mass below the waterline. Only 10% is visible. For the last 100 years, the industry was far less complex. Its fundamental business model remained consistent: increase coverage, sell more fuel, differentiate through the brand, and improve margins through convenience retail. In other words, there was not much lurking beneath the surface. It was fairly easy to see competitive threats.

Today, most of the disruption in the industry is below the surface. It’s not readily visible or even understood. Industry leaders must accept that the unseen challenges will only grow. And become more dangerous for those caught unawares.

New problems require new solutions

Players in the industry that build the right capabilities to see below the surface will be the ones to win in the future. The good news is that some Fuels & Convenience Retailers have started to shift their focus to new offerings, new business models, and new revenue streams. However, to survive (and thrive), there will need to be radical changes that extend beyond the bounds of what many leaders think are possible today.

The challenge is that most industry players are highly sensitive to disrupting their current cash cows. As a result, most future strategies are not deviating much from the traditional ones. They are rather simply innovating around the edges. Their lack of bold action invites other disrupters to decide the industry’s future.

Out with the old

The status quo will not drive significant growth or capture new value pools. We believe industry players must now challenge five core strategies—and commonly held beliefs—that have led to the industry’s success for the past hundred years:

1. "We must add more stores to grow.” Rather than focusing on growing their retail networks, players should ask whether they have the right network composition today. Many major retailers have grown through acquisitions and, as a result, have a number of stores that can be trimmed from the portfolio. In fact, it is likely that nearly 50% of today’s Fuels & Convenience Retail stores will be irrelevant or unviable in the next 15-20 years.

Bottom Line: ?Industry players must determine how they can achieve the same or greater level of profitability with half the stores they have today. Strategic locations, optimized retail offerings and new mindsets will be needed to achieve new levels of growth.

2. “We need to attract more customers.” ?Today, most customers across the industry are not loyal to a single brand across fuel and convenience; they typically shop at two to four retailers. [1] Given these dynamics, a more effective strategy would be to focus on building wallet share with the current customer base.

Bottom Line: Fuels & Convenience Retail is a highly saturated industry. Players can’t be everything to everyone. Rather than adopting a one-size-fits-all approach, they should consider how they might target specific customer segments more directly and cater to their current and future needs with unique products, services and experiences. With an effective, targeted strategy—and a shift in mindset—it’s possible for players to move beyond increasing basket size by 10% or 20% goal to achieve a 10X improvement.

3. “We will be adding charging stations to our existing footprint.” It is predicted that only about 20% of future electric vehicle (EV) charging in the United States will happen outside of home or work. [2] Of that 20%, imagine a scenario where only 3-10% of EV charging occurs at traditional Fuels & Convenience Retail locations. While we’re still early in the process of transitioning fuels, it may make sense to simply add chargers to some existing fueling locations. However, with the average payback on charging equipment being 7+ years [3], it is imperative that the right locations are selected, and investments are placed in the right way.

Bottom Line: ?Location matters. Determining where to deploy EV charging infrastructures requires retailers to take a data-driven approach—one that combines their own data with third-party data to inform better placement decisions. Location alone, however, may not be enough. To improve ROI, players must also give customers a reason to charge at their sites versus charging in their garage or local big box retailer. ?

4.? “The Convenience Retail model is optimized to stand the test of time.” The offerings customers demand will be dictated by location more so than ever before. The best use of real estate in the future may not be for fueling; it could very well be a restaurant, a bicycle shop, a parking garage, or even a nail salon. As the fueling experience and customer needs are changing dramatically and quickly, the products and services offered will need to shift as well.

Bottom Line: Fuels & Convenience Retailers should let customers dictate the retail offerings available at a given location. This means reimagining “convenience retail” to meet the needs of the future and curating customer experiences in a more localized way. Taking a data-driven approach to determine future customer offerings will be critical for success.

5.??“We must leverage and expand the brand.” The world is littered with brands that have failed to cross into new territory. There’s a reason you’ve probably never heard of the McDonald’s Hotel, Colgate Kitchen Entrees or Zippo Perfumes. Such brand extensions didn’t feel natural or authentic to the products and experience being provided.?

Bottom Line: Fuels & Convenience Retailers may have strong brands, but they may not work for all expansion ideas. Retailers should not be afraid to create a new brand—or partner with an already-established brand to create new experiences and capture new revenue streams. Perhaps today’s industry players could become tomorrow’s shared mobility providers, battery swappers, or even pitstops for EV maintenance. They need to ask, “What do we stand for? What do we want to be known for? And how can that be reflected in our brand identity?”

It’s tempting to rely on tried-and-true strategies that have stood the test of time. It’s equally tempting to ignore the dangers that lurk below the surface. To survive—and win—in an environment of significant disruption, industry players must think and act more boldly. They must change their mindsets and cultures. And they must challenge themselves as never before.?

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Sources:

[1] Accenture research 2022

[2] https://www.forbes.com/wheels/news/jd-power-study-electric-vehicle-owners-prefer-dedicated-home-charging-stations/

[3] Ibid

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