Today’s drivers visit our locations an average of 4.3 times per month to purchase fuel, but will that number remain stable in the face of massive changes affecting the industry?
This is the question that many c-store owners and executives are asking themselves, and rightly so. With the advent of alternative fuel options, the explosion of ride-sharing, and a vigorous push toward eco-friendliness, the traditional convenience store model is being tested like never before. The full scope of these changes and their effects is hotly debated, but what is clear is that c-stores are going up against new challenges that will compel them to find creative solutions for maintaining their edge as they work to redefine the term ‘convenience’.
The good news is that fuel-powered vehicles still dominate a lion’s share of the market. According to findings from the Fuels Institute, gasoline vehicle sales made up 83.4% of all LDV sales in 2012 and are expected to account for more than half of LDV sales well into 2023. However, researchers also forecast a hefty drop in fuel-powered engine market share - as much as 15% over the next 20 years. This is no surprise, with names like Google, Apple, Amazon, and Tesla investing to disrupt our industry. Now is the time to take heed, plan, act, and evolve by implementing programs that generate value today and tomorrow.
Which new technologies and changes in consumer behavior are on the minds of leading fuel retailers? In a survey I recently conducted among a number of my colleagues, nearly half of c-store executives polled pointed to higher automobile MPG requirements as a significant threat to their business in the next 3-4 years. More than a quarter of respondents also cited ride-share services and the trend of younger consumers driving less as near-term challenges to the industry.
Industry leaders are paying very close attention to the market’s changing landscape and are actively preparing for the changes to come. Among other threats, over 72% of respondents felt that electric vehicles represented a significant threat to their business in the next 3-8 years. When asked what strategic recommendations they’d make to others in the industry, the consistent themes were: (1) stay up to date on trends, be flexible, and prepare to offer multiple alternative fueling options; (2) attract and build loyalty among your communities and the consumer of today as well as tomorrow; (3) redefine convenience and invest in future revenue opportunities, all while (4) making smart financial decisions.
The following is an overview of the most popular strategies currently being employed to strategically prepare for tomorrow while considering the financial constraints of today.
Fresh food, expanded food service, and unique offerings help generate interest, driving business to higher-profit margin areas and giving consumers a convenient reason to visit even if they’re not buying fuel. Crafty, customized, and fresh and natural snacking options are particularly relevant for cornering the millennial market and drive higher price points and margins, as a number of industry studies have pointed out. Market researcher Packaged Facts recently analyzed trends in millennial consumer behavior and identified customized, on-demand treats as a major motivator. Stocking the shelves with kombucha, noodle bars, and cronuts may go a long way in attracting the 35-and-under crowd, driving in-store trips and basket size. Interestingly, while over 50% of my survey respondents said they had either evaluated or invested in standalone non-fuel convenient stores, none highlighted the initiative as a primary revenue driver. With variable capital and opportunity costs, I’d venture it is safe to say that only time will tell if fresh and non-fuel convenience stores are simply a knee-jerk reaction and outside of our core competency as an industry.
A major limitation, however, is that in a low-density city like Austin, “the suburbs” could mean a 15-mile drive to get from my city center apartment to someone’s suburban location. With all expenses included, Uber and Lyft charge somewhere between $1.75 and $2.25 per mile! It has often been $25 to $35 each way, which when you remember that you need to make a return trip, means that such trips end up costing $50 to $70. To be fair, Uber or Lyft are cheaper than taxis for this kind of city-suburb round trip, since taxis cost closer to $2.50 or $3.00 per mile.
Extra incentives can offer a structured approach to rewarding repeat customers and stimulating continued business. They can also encourage first-time shoppers to opt for a particular c-store over nearby competitors. While loyalty programs are important and here to stay, in many respects they have become table-stakes, and in most cases they are no longer a significant competitive differentiator. For example, 100% of survey respondents reported having a loyalty program. Still, if designed properly, refreshed often, and packaged with meaningful and relevant rewards, a loyalty program can drive behavior, enable you to communicate more effectively, and enhance your relationship with your customers. Just keep in mind that the average consumer today is a member of more than 11 loyalty programs and mind-share is small.
While it's true that developments in technology present certain challenges to our industry, the silver lining is that they also provide opportunities. Millions of consumers are willing to pay more for eco-friendly products, organic foods, and “green” alternatives. In addition, they’re thinking about electric and low emission vehicles but haven’t made the switch yet.
Carbon emissions reduction programs, for example, are one of the more innovative methods for increasing revenue through fuel visits while attracting tomorrow’s consumers today. Like clean bathrooms, a CO2 reduction program is simple to employ, refreshes your image, requires no capital expense, and is relevant to today’s consumers. Similar to fresh and natural food offerings, these programs, offer a logical way to drive higher margins on a large percentage of your sales. By directly addressing the issue of sustainability, emissions reduction programs can help c-stores stay relevant for both current consumers and the growing millennial population.
Programs that reduce emissions work via a cloud technology that measures the carbon footprint produced by every gallon of gasoline your customers use. They then invest proportionally in certified carbon offset projects, such as planting trees or solar power generation, to neutralize the CO2 emissions produced by that store’s customers. Emissions reduction programs are fairly new, but already they are proving valuable for building goodwill through social responsibility, reducing consumer price sensitivity, and creating a solid competitive differentiator. A survey respondent, SVP at ALON Jonathan Ketchum, had this to say,
“We partnered with GreenPrint and the Arbor Day foundation to launch Strive, Reduced Emissions Fuel. To us it provides a profitable bridge to the future at a low or negligible cost. 95% of our consumers are still driving gasoline-powered vehicles, though we are seeing more of our consumers beginning to develop eco-friendly and purpose-oriented brand loyalties. As such, deepening our bond with consumers and showing them we care is not only a priority for ALON, it’s our way of showing we care about our consumers and that we’ll be the ones they come to in the future… whatever type of vehicle they’re driving.”
Raising the bar on the shopping experience itself can make your store a place customers enjoy visiting, whether or not it’s time to fill up the tank. In addition to sparkling-clean bathrooms for convenient pit-stops, upbeat music, and LED lighting, a well-designed and intuitive c-store layout helps customers easily browse products, encouraging in-store visits, sales, and consumer goodwill. The shopping experience is driven by a variety of factors. One of the most important being the quality of the store staff and their ability to create a unique and convenient experience for your loyal or new customers. If this can be executed properly, it can build a competitive advantage for years.
EV charging stations are making an appearance at c-stores all across the country. They send a positive message to eco-conscious consumers, but the sizable price tag ahead of the demand curve make a simple ROI-based decision challenging. Depending on the brand, you can expect to pay between $2,300 and $6,000 for hardware and installation and an undetermined real estate and opportunity cost. Given the small percentage of electric vehicles on the road and the fact that most daytime commuters charge at work or home, means that you’re not too likely to drive much revenue or traffic in the near-term. Early adopters tend to view it as an investment in their brand and the future. As Quinn Ricker explained to me,
“While visits and volume are low today we expect it to grow over time and our installation of EV charging stations has already been a win for us since it’s provided a significant amount of goodwill and brand loyalty in our community.”
No industry is immune to the growing pains of adapting to new technologies and the shifts in consumer behavior that inevitably follow. But challenges also create opportunities. Necessity, as the saying goes, is the mother of invention. Leaders in our industry are diversifying their fuel offerings, expanding their non-fuel business segments, and partnering with affinity marketing and sustainability groups in order to continue generating value around existing and new products. Keeping up-to-date on the trends and technologies that shape consumer behavior is key to finding interim solutions that address the challenges we face. Addressing these challenges today, through the lens of the retailers annual strategic planning process and review of initiatives, ensures staying relevant tomorrow.
Read more from the May Issue of our Fuel for Thought newsletter.
Van S. Tarver is the President/CEO of Van Tarver Group.