Fuel Retail: The Future

ELECTRIFICATION, AUTOMATION AND DIGITAL:

CONTENTS

The fuel opportunity

New driving trends offer alternative opportunities

Driverless vehicles

Leading fuel retailers are shaping up for a different future

The race for digital supremacy is on

Digital technology provides the foundation for growth

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THE FUEL OPPORTUNITYExecutive SummaryThe UK government’s ban on the sale of new petrol and diesel cars by 2035 represents a fundamental structural change to the fuel sector. And the disruption doesn’t stop there: autonomous cars are being tested ready for a go-live that will mean significant additional adjustments.

These advances present a mixture of opportunity and threat. Although it’s not clear what new driving technology means for fuel retailers, what’s certain is that digital tech is at the heart of this driving evolution.

Fuel retailers must adapt by pivoting their business model away from conventional fossil-fueled cars and towards electric motors governed by digital technology. Only by laying solid digital technological foundations and attracting and retaining customers will fuel retailers survive the transition.

Disruption is Speeding Up The move to electric vehicles is an accelerating societal trend, driven by a slew of agreements like the Paris Climate Change Treaty and the government’s Road to Zero cleaner transport strategy, plus Theresa May’s pledge to deliver a net zero emission economy.

THE WAY FORWARD IS CLEAR AND IT’S LOW EMISSION. Despite these commitments, take-up of ultra-low emission vehicles (ULEVs) has been slow. However, change has begun with ULEVs gaining in popularity while diesel cars are losing market share:

▶ ULEV registrations increased by 20% in 2018 compared to 2017 representing 2.2% of all new registrations

▶ Diesel registrations dropped by 30% in 2018 in comparison to 2017

Although ULEV take-up represents a small proportion of new car sales, changes to the tax treatment of company cars due in 2020-2021 will likely deliver a significant boost to ULEV purchases. Why does this matter? Because in 2018, 57.3% of new UK car registrations were made by companies, not private drivers.

To compound the challenge, hybrid vehicles promise drivers more mileage from a single tank of petrol or diesel, posing an additional threat to the long-term trend of decreasing fuel sales. And electricity is available to consumers at home, work and other locations, enabling them to charge away from the forecourt.

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In fact, the government’s vision for electric vehicle (EV) charging was set way back in 2011 with a view that EV drivers should charge their vehicle mainly: “at home, at night, after the peak in electricity demand.”

Light at the End of the TunnelHowever, it’s not all bad news for fuel retailers: the number of cars on the road in 2018 increased by 1.2% year on year driving demand for all types of fuels.

And although EVs are a looming threat, range anxiety (concern about the distance electric cars can travel on a single charge) has encouraged new car buyers to take up hybrids which need diesel or petrol to operate. Research shows that this trend is likely to continue: in the next five years, only one in four UK drivers would consider buying an electric-only vehicle. Alongside electricity, hydrogen-powered vehicles also have the potential to create a new fuel revenue stream. Should hydrogen take off, fuel retailers are well positioned to provide this fuel at the pump.

DESPITE LOTS OF NOISE ABOUT AN ELECTRIC DRIVING REVOLUTION, THE SHIFT TOWARDS DIFFERENT FUEL TYPES IS A SLOW EVOLUTION AND NOT A BIG BANG CHANGE. GIVING FUEL RETAILERS TIME TO ADAPT TO A NEW FUTURE.

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NEW DRIVING TRENDS OFFER ALTERNATIVE OPPORTUNITIESElectric VehiclesAs ULEVs begin to take off, fewer trips to the fuel forecourt will add up to increased competition for the consumer market in a different, electrified landscape.

With the move away from free to paid electric charging points, the obvious option for fuel retailers is to add charging infrastructure to their energy offering. Even with options to charge at work, home and in public, fuel retailers’ charging points could still be used by people who:

▶ Forgot to charge before commuting and need an emergency boost

▶ Couldn’t access a charging point as they were in use or broken

▶ Are undertaking longer journeys away from motorway services and need to top up

▶ Have a car with a low single-charge range

▶ Use an older electric vehicle or hybrid with ageing batteries that don’t retain their charge

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With charging comes unseen benefits. Charging takes much longer than filling up a tank with fossil fuel. At the moment, it typically takes around 30 minutes for an 80% charge, giving fuel retailers an opportunity to secure additional sales during this period. However, government research reveals that people: “consistently report a desire for more extensive – and fast – public charging to enable them to undertake longer journeys.”

Having bought Chargemaster, one of the UK’s challenger energy brands, BP is now investing £25m into ultra-fast charging. Talking in FleetNews, David Martell, chief executive of BP Chargemaster, said:

Electric cars are one of the major driving trends on the horizon. What impact will the other - autonomous vehicles have on energy retail?

“CURRENTLY, PEOPLE MAY TYPICALLY TAKE ABOUT FIVE MINUTES IN A PETROL STATION; EVEN WITH ULTRA-FAST CHARGING THAT IS LIKELY TO INCREASE TO 15-20 MINUTES. THAT’S AN OPPORTUNITY FOR RETAIL DEVELOPMENT.”

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Electric cars are the tip of the iceberg when it comes to changing driving habits. Combined with in-vehicle digital brains, electric motoring has brought automated vehicles several steps closer to reality.

As with electric cars, automation also poses threats and opportunities for fuel retailers. Depending on how autonomous vehicles are manufactured, they could be either pure electric or hybrid. Which could change the degree of risk and opportunity and the speed of change for fuel retailers.

With automated vehicles not yet on the road, research is indicative. That said, predictions are the best we have to work with and they reveal more challenge for fuel retailers.

SELF-DRIVING CARS NEED LESS ENERGY

DRIVERLESS VEHICLES

Complete autonomy would allow on-board computers to: ▶ Drive more economically

▶ Decrease the gaps between cars improving aerodynamic drag and reducing congestion

▶ Avoid crashes creating an opportunity for lighter panels which would reduce vehicle weight and energy consumption

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MULTIPLE SCENARIOS, ONE REQUIREMENT: DIGITAL CONNECTION

If some or all of this happens, fuel sales would likely reduce. However, according to research from the US Energy Administration, many drivers aren’t ready for complete autonomy preferring a degree of control over their vehicle. With humans still in the driving seat, the energy reduction implications of self-driving cars could be reduced.

Autonomous Vehicles Mean More Users and More MileageOffsetting the potential reduction in energy is the fact that more people will be able to use cars including the elderly, disabled and possibly even children. This could result in more cars on the roads and a greater need for electricity.

Autonomous Cars Could Need a Network of Local Support ServicesOne of the benefits of autonomous vehicles is the time they would free up for passengers. This means shared autonomous vehicles will be more likely to drive from point A to point B with no stops in between, much like a taxi.

With so many factors to consider, it’s proven difficult to establish the impact of autonomous vehicles on energy consumption. Research from the US indicates: “as a result of adopting autonomous vehicles... U.S. LDV [light duty passenger cars and trucks] energy use could decrease by around 60% or could increase by 200%.”

To capitalise on any opportunities that present themselves, fuel retailers must establish solid digital foundations. And major brands are already positioning themselves for change.

Self-Driving Car Ownership Models Could Reduce Energy Consumption With autonomous cars comes the potential for alternative ownership models which might also reduce energy needs. Some experts believe self-driving cars will result in leasingwhich could:

▶ enable vehicle right-sizing - there would be an increase in small car sales with lower energy usage. These vehicles would be more appropriate for the shorter trips that make up the majority of road journeys.

▶ reduce the number of vehicles on the road - multi-car households might become a historic requirement.

▶ intensify each vehicle’s mileage - automated vehicles could be driven virtually non-stop without a human operator. This could result in greater numbers of vehicles being scrapped faster, potentially introducing more efficient batteries to roads sooner.

Regardless of which scenarios play out, two traits will be required for business success:

▶ Fuel retailers will need to be able to communicate with electric and autonomous vehicles via digital interconnectivity

▶ To continued provision of outstanding customer service

In this scenario, self-driving vehicles are more likely to need access to an infrastructure of charging points to plug in, top up screen wash, pump up tyres or even update software. Assuming the technology to do these jobs doesn’t materialise, fuel retailers might see an opportunity in providing human support services.

While this is an additional potential revenue stream, autonomous cars could pose a potential threat by reducing the number of customers making in-store purchases while the vehicle charges.

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LEADING FUEL RETAILERS ARE SHAPING UP FOR A DIFFERENT FUTUREWith BP Chargemaster rolling out super-fast charging points across its 1,300 UK forecourts, the electric evolution is advancing at speed.

However, change isn’t restricted to fuel.

Flipping Business Models in Fuel RetailShell is one fuel retailer that’s been doing just this by transitioning towards a new level of customer service at its forecourts. Talking in Essential Retail, David Bunch - global VP of Shell Retail - says: “We’re improving the sophistication of [our ‘for tonight’] offer, we’re partnering with a number of brands and doing a lot of development to fulfil this mission of ‘food for later.”

Shell also offers coffee shops with fast internet where customers can check emails or do some work, pick up groceries and even enjoy a shoulder massage.

proving the power of its enhanced convenience offer. And to reward their customers, Shell have launched a new digital loyalty scheme that will benefit consumers for purchases at the pump, the carwash and in store via mobile phone technology.

THESE IMPROVEMENTS HAVE RESULTED IN 50% OF SHELL’S CUSTOMERS VISITING ITS STATIONS WITHOUT FUELLING UP

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Mike Callender, chairman at REPL, says:

“DRIVERS WILL BE ABLE TO CHARGE THEIR CARS ALMOST ANYWHERE, SO FUEL RETAILERS NEED TO BECOME A DESTINATION. BY PROVIDING RETAIL RATHER THAN CONVENIENCE OPTIONS, THEY’LL HELP DRIVERS MAKE THE MOST OF THEIR TIME AS THEIR CARS CHARGE, CHANGING FUEL RETAILERS’ BUSINESS MODELS FROM FUEL TO RETAIL FIRST.”

As with any retail operation, having the right technology behind the scenes is critical to an effective supply chain, high levels of customer service and healthy profit margins. With coffee delivering more money per litre than fuel, the move to a retail-first model could be a blessing in disguise.

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THE RACE FOR DIGITAL SUPREMACY IS ON

Fuel retailers are already embracing digital technology to enable fuel payment using specially developed apps. When customers arrive at a filling station, they open the app, add the pump number, re-fuel as usual, get back in their car and leave.

Payment is taken automatically and the app also provides a range of other benefits at the tips of customers’ fingers:

Petrol and Diesel Delivered to Your Car In conjunction with its retail enhancements, Shell is also looking at ways to expand its re-fuelling services with its ‘fuel-to-you’ offer, called Tap Up. The service allows mobile app customers to request Shell to come to them to fuel their car. First tested in the Netherlands, it’s being rolled out globally, while also offering the option to combine fulfilment of a bag of groceries at the same time.

With decreasing petrol and diesel sales on the horizon, it’s these kinds of service offerings that could easily form the foundations of similar electric charging models already being trialled in China.

Strong Digital Foundations Deliver Diverse Customer ServicesIn the US, fuel retailer Racetrac operates on a franchise basis. They’ve placed huge importance on running their business through digital systems that:

▶ Receipts are emailed out

▶ Reward points are added for every purchase

▶ The closest same-brand service station can be located

▶ Driving-related carbon emissions can be offset

▶ Control everything from the pump and POS to the food service and car wash

▶ Make it easier to upsell at the pump with personalised offers so customers buy more inside

▶ Provide consumers with additional, easier ways to pay including self-service

▶ Create loyalty through schemes that reward customers for coming back

▶ Ensure items are in stock and that their stores are well managed

BP has adopted this technology and, according to UK retail director, Nicola Grady-Smith, makes: “refuelling easier, faster and more convenient than ever before… [and gives] our customers a little bit of time back in their busy days.”

As fuelling is replaced with charging, brands like BP have developed their app to enable company car and van drivers to pay for petrol, diesel and electricity on a single, digital fuel card at BP service stations.

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Essentially, Racetrac are bringing the levels of service we see in large retailers to the forecourt.

ALL THIS DIGITAL CHANGE POINTS TO THE POTENTIAL FOR FUEL RETAILERS TO CONTINUE TO THRIVE, EVEN IN THE FACE OF SIGNIFICANT DISRUPTION. HOWEVER, MODERNISATION REQUIRES INVESTMENT. SO WHERE SHOULD FUEL RETAILERS BE SPENDING THEIR MONEY?

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Although some of the new driving trends are uncertain, investing in digital technology is a must. Just look at the impact of digital on the big six gas and electricity providers. Their market share has decreased due to digital challenger brands disrupting the sector. In 2012, only 1% of energy was sold outside of the big six brands: in 2017 it was 18%.

Retailers in other sectors have made significant investments in digital technology to adapt to the well-documented societal trends of changing customer engagement and consumer demands.

Fuel retail needs to follow suit to ensure consumers pick their local forecourt cafe over Starbucks. Which means matching or surpassing what other retail brands are doing digitally. To do this, fuel retailers can capitalise on their dual service offering.

As Mike Callender notes: “Tesla drivers plug their destination into their satnav which tells them if they have enough charge to complete the journey. If not, the system plans in stops at the right intervals with real-time information on spaces for the car to be charged. All fuel retailers need to do is get hold of this data and add it to their existing apps to be able to compete and direct customers to their charging points and retail offering.” Coupled with loyalty offerings, fuel retailers will win out over alternative providers.

DIGITAL TECHNOLOGY PROVIDES THE FOUNDATIONS FOR GROWTH

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It’s been a long road, but it’s safe to say that we’re on the cusp of a driving revolution. Despite a move away from fossil fuels towards electric - and potentially automated - cars, there’s still a place for the forecourt.

As the driving evolution gathers pace, fuel retailers must prepare and adapt using technology to connect them more closely to customers and their vehicles.

Predicting the future is challenging. But one thing is certain: retailers need solid digital infrastructure in place, ready to broaden their offering and future-proof their business.

Find out how we helped one global fuel retailer prepare for the future with a worldwide digital project.

OUR FINALDESTINATION

In summary, by investing in digital, fuel retailers will:

▶ Create joined-up technology that attracts, creates and retains loyal customers

▶ Open up additional channels to communicate with and engage customers

▶ Be in a position to capitalise on big data, automation and mobility trends that will:

▶ Fuel better retail margins

▶ Identify more clearly which customer segments should be included or excluded from campaigns

▶ Deliver hyper-personalised experiences and better match products to customers

▶ Pre-empt customers’ needs and behaviours to take tactical decisions to drive desired actions

▶ Enable gamification trends to be applied via loyalty apps

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