The future of fuel retail – join the conversation at PetroForumFocus APAC

The fuel retail sector is currently experiencing a period of historic disruption. This disruption will ultimately be overcome through the adoption of new business models, sales strategies and product offerings. As such, PetroForumfocus APAC is well timed.

It provides an opportunity for industry leaders to come together with suppliers and jointly consider how to surmount the obstacles that lie ahead. This collaborative spirit is doubly important since the disruption is driven externally to the industry itself. Fuel retailers are no longer simply competing with one another.

Three of the most prominent disruptive forces at play are the rise of alternative fuels, new means of mobility and changing consumer expectations with respect to convenience and retail. I’ll touch on each in turn.

Electric Vehicles

The widespread adoption of electric and hydrogen powered vehicles continues apace. A report by the International Renewable Energy Association predicts that by 2025, 20% of all vehicles on the road in Southeast Asia will be fully powered by electricity (p.106). In 2018 972,000 fully electric vehicles were sold across the APAC region, resulting in an 650% increase in total sales between 2015 and 2018 (source). This exponential trend is facilitated by two primary factors. First, technological progress reduces cost of production and ultimately makes EVs more accessible to a greater proportion of consumers. Second, increasingly prevalent emissions regulations reduce the relative cost of EVs when compared to petroleum fuelled vehicles through government-imposed subsidies and sanctions.

The Future of Mobility

The growing popularity of new digital mobility methods such as Uber and Grab is driven primarily by the growing number of people living in cities. The graph below shows the global increase in the total percentage of people living in urban environments. This global trend is reflective of the growth in Asia’s urban population.

Consequently, car ownership in Asia is projected to fall dramatically. Urban dwellers will continue to shift their preferences from personal vehicles to ride-hailing services. This will have obvious implications to fuel retailers, particularly around convenience retail, since fewer car owners will result in less in-store footfall.

Also on the horizon is a second disruption from the field of digital mobility: autonomous vehicles. Investment into this domain is vast with many traditional car manufacturers as well as digital giants such as Google and Baido getting in on the action. The widespread roll-out of AVs is yet to take place. However, when it does, the effects on the fuel retail industry will be dramatic.

The relationship between AVs and shared-mobility services will be symbiotic. Driverless cars will reduce the cost per journey for consumers, thereby incentivising even greater use of services like Uber. Furthermore, AVs will doubtless be fully electric and will likely charge at dedicated lots outside of urban centres. Even if they do charge at existing stations, they will provide no revenue to the convenience retail side of the current forecourt business model.

Convenience

Finally, changing consumer expectations when it comes to service and convenience will require fuel retailers to adapt. Consumers, more than ever before, demand fresh and healthy food options and attractive store layouts. More significantly, they demand a seamless transaction experience. In many cases, this will mean that consumers are not prepared to leave their homes to make many of their common purchases. Prudent fuel retailers will be considering how this trend may affect their future business.

My aim here has been to highlight some of the challenges that the fuel retail sector will be facing over the coming years. Since these challenges arise from competitors outside of the industry, it is incumbent on fuel retailers to come together and collectively strategise. If the protection of market share is a priority, then cooperative enterprise is necessary.

Boston Consulting Group’s report entitled, ‘Is There A Future For Service Stations’ frames the issues in more depth than I have here. It offers several potential strategies for fuel retailers to consider implementing in light of the issues discussed above. BCG Partner, Arun Rajamani, is set to deliver the keynote address at the upcoming PetroForumfocus APAC, online on February 25th. Please feel free to reach out if you are interested in learning more about the event.