Refueling in the Future of Energy & Mobility
Change drives every industry, every company and every product. Though not always, these changes are often for the good: inclusivity in design is now an expectation rather than an exception, transparency and nutrition have become key factors in food production and sustainability forms a core part of strategy, rather than a “nice to have.”
The energy industry, propelled by trends and technologies towards new horizons, is currently shifting at an accelerated rate—and debates around the direction this industry will take (or should take) are gaining velocity. What will the future of energy look like? How will the grid be supplied to handle rising electricity demands? How can we take advantage of renewables? These are all core questions. Going deeper, an important aspect—that is often overlooked from a business perspective—lies at the intersection of energy and vehicles. It’s time to focus on refueling.
Gas stations of today
Gas stations in the U.S. alone represent a $130B+ market, and that count doesn’t include convenience store revenue. They are ubiquitous, and in many ways, homogenous. Though there is no such thing as a perfectly competitive market, the industry has historically leaned in that direction, being extremely fragmented to the point where even the two most dominant players (Speedway and QuikTrip) combined represent only an 8% market share. The fragmentation runs deep: around 60% of gas stations are owned by someone who doesn’t own any other gas stations. As price takers that sell a nearly homogenous product and have little bargaining power with their suppliers, gas stations make on average only a 1.4% profit margin on gas. This leaves little room for divergence in pricing strategies or innovations on the only currently viable business model—capturing high-margin, in-store purchases in the few minutes that it takes for a customer to fill their vehicle.
A report from the National Association of Convenience Stores showed that less than half of gas station customers go inside, and only a third of those who do go inside make a non-gas purchase, yet convenience stores account for 30% of the revenue and a whopping 70% of the profit of the average gas station. Therefore, the retail aspect of gas stations is an absolute necessity. In many ways, these are also homogenous in design (save for larger truck stops), offering similar products and almost always designed with an aisle/grid layout for efficiency.
Refueling stations of tomorrow
Advances in technology have already led to some shifts in the gas station industry that have both solved problems and created new ones. An example: trustworthy, contactless payments at the pump can increase turnover, a huge bonus for any busy gas station. On the flip side, this disincentives a customer to ever enter the store. Above all other changes, the shift from internal combustion engine (ICE) vehicles to electric vehicles (EVs) is poised to shake up this industry like never before.
A significant problem to be overcome by the energy and automotive industries is the time it takes to refill the battery of an EV. Even a Level 3 (L3) charger, the fastest currently available, will take around 30 minutes for a customer to reach an 80% charge and hit the road; at least six times longer than fueling an ICE vehicle. Even with future advancements, the refueling times still won’t be close to that of ICE vehicles, especially for EVs with bigger batteries.
On the surface, longer refill times could appear to cause multiple issues for fueling stations: creating slower customer turnover; a winner-less race where each station constantly has to upgrade their chargers to have the newest and fastest available; and an incentive for customers to charge at a place where they can use that time productively (home, gym, grocery store, mall, etc.).
But what if, instead of it being a problem, these changes could be a potential boost? What if the long refueling time of EVs, a current pain point for customers, opens up the opportunity to increase mutually-rewarding interactions? What if innovative business owners could diverge from the traditional gas station strategy and carve out a unique value proposition and identity? Let’s take a look at opportunities on the horizon for refueling and five key shifts to be aware of.
The physical and competitive landscapes of gas stations are bound to change drastically. As for physical changes, it is likely that more space will be required. Charging, and therefore turnover, is much slower than refueling ICE vehicles, meaning that fueling stations will need more chargers than they had gas pumps. Given the time that customers will spend at the station, it will be more important to capture their attention and turn spending time at a fueling station from a chore to a positive experience. Although automakers like Tesla are already installing entertainment systems in their vehicles that would enable drivers to watch a TV show while charging, people usually like to get out of their cars to stretch their legs when refueling while on a journey. Relaxation spaces could be offered to drivers by building outdoor dining spaces, pleasant landscaping and quiet surroundings. It could also allow owners to focus on entertainment, offering a low-maintenance fitness or recreational area next to a bustling cafe or food stalls. Regardless of the direction taken, the refueling station of the future will take up more space.
As for the competitive landscape, the number of dedicated fueling stations—meaning the typical, modern station that sells fuel and convenience—will drop significantly. This isn’t due to a failing business model, but due to other businesses like gyms, shopping centers and restaurants adding chargers to attract customers, as well as a decrease in demand from EV drivers that can charge overnight at home. For example, in Norway, where 90% of new cars sold are hybrids or EVs, most drivers are now only visiting dedicated fueling stations once per month. Because charging at home and at other businesses will be so prevalent, it should be expected that the majority of the competitive stress placed on dedicated fueling stations will fall primarily on local stations, and not the ones placed along freeways that capture people on longer journeys that need to refuel and get back on the road. These stations, although still in need of transformation, will likely see much less change in their competitive landscape than the stations placed throughout towns.
More viable than ever, consolidation will be a major opportunity for big brands that have struggled to capture a share of a fragmented market. The high fixed costs associated with installing several, or even dozens of chargers, combined with the revamping of convenience or other on-site attractions, will be too high for many of the gas station owners that don’t benefit from the liquidity and economies of scale that the big players possess. This will open the door to acquisitions by larger companies. Not only will this be increasingly possible, but perhaps increasingly necessary. As more people charge at home, the serviceable, addressable market for dedicated fueling stations will shrink. As the pie shrinks, it will be important to capture a larger slice of it to keep pace with historic revenues and establish a robust brand experience that goes beyond convenience.
Digitization and modernized systems will also be a key to success in dedicated fueling stations’ transition to charging EVs. Pricing of electricity is even more fluid than that of gasoline. Fluctuations in grid demand lead to fluctuations in the price of electricity, with these shifts coming more often and in higher volume (due to peak vs. off-peak rates) than with gas price changes. Considering that margins on fast charging are similar to the notoriously tight margins on gas, being precise with these constant fluctuations and building pricing strategies on the dynamic pricing of the grid could make or break a station’s finances. On another front, increased interaction with customers will allow for greater understanding of customer behavior through data. In pursuit of refined offerings and increased efficiency, capturing deeper data than ever before is another way that the true contenders will separate themselves from the pack.
Other than by just using scale to their advantage, successful fueling stations of the future will carve out a unique identity with a clear value proposition. Today, the way gas stations set themselves apart from the competition (aside from pricing which has limited wiggle room) is the quality of their convenience store and having a safe and clean station. It is very difficult to stand out from the crowd. In the near future, the potential to hold a customer’s attention for 30 minutes will allow businesses to make choices. What if instead of a place where people rushed in and rushed out, your brand was known as an autonomous, calm refuge for people to relax for 30 minutes? And what if your brand was a bustling locale that maximized interaction with customers, making the need to go refuel fun, rather than a chore? In addition, successful fueling stations may also explore adding new verticals or ancillary revenues to their business. Just as other businesses like gyms, restaurants and shopping centers can penetrate the energy market by adding chargers, fueling stations can, in return, penetrate those markets. What if your fueling station included a reputable food market focused on organic, whole foods that appealed to environment-and health-conscious EV drivers? What if instead of paying a monthly gym fee and charging their car at the gym, a customer ditched the gym altogether, and went to your fueling station where they would pay a comparatively smaller fee to access the on-site fitness area?
Your next pit stop
Whether or not the future of refueling is at dedicated fueling stations or in the parking lots of other businesses remains to be seen. It is impossible to say when businesses will need EV chargers in their parking lots to remain competitive, but no matter when that moment comes, if the big players act now, they can cement their space in the new world of energy and mobility. Successful companies across every generation and every sector have viewed the drive of change as an opportunity to display their agility and adapt for the future rather than hold onto the past. The new horizons on the landscape of refueling will be no different, and it is already happening.
Want to learn more? Download The Road Ahead, a new frog report exploring the future of mobility, featuring insights from automotive, transportation and customer experience experts.
Phillip Johnson is a BD Director in the frog NY studio. Prior to frog, Phillip worked in the UK and Dubai in nonprofits and strategy consulting, respectfully. Internally, he supports frog’s mobility sector team, and his other industries of expertise are sports/events, financial services and nonprofits.
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