Future-proof: Fuel retail businesses and changing landscapes

The changing paradigm of fuel retailing

The fuel retail industry across the GCC has been experiencing significant changes over the past decade. There were amendments to laws and regulations, women driving in Saudi Arabia and a reduction in fuel subsidies across several GCC countries. In addition, we observed a shift in the competitive landscape as some fuel retailers expanded to new territories, such as the entrance of Abu Dhabi National Oil Company (ADNOC) fuel stations into the Saudi market and Dubai. Furthermore, there has been a change in consumer sentiment as customers in the region experience the convenience of a digitized and personalized service across different areas of retail, including fuel retail outlets. 

GCC fuel retailers are also not immune to the global themes affecting the industry that include the commitment of countries and companies to meet targets set by Paris Agreement, society’s need for sustainable energy, and pressure from investors on companies to embed sustainability in the way they operate. Given these changes, fuel retailers are asking difficult questions regarding how they can best serve their customers, and how their businesses should respond to remain competitive. In the retail industry at large, stories of incumbents failing to evolve and allowing newcomers with innovative and customer-centric business models to acquire their consumers, such as Nokia, are still fresh in our minds. This represents a challenge for the local fuel retail market players, but also an opportunity to grow and explore new ways of doing business (Figure 1).

The landscape in which GCC fuel retailers operate is being reshaped by certain macro-forces, namely, a shift towards a carbon-free economy, a rise in digital connectivity, and a structural change in mobility and adjacent offerings. These forces are also coupled with a change in fuel retailer customer behavior. We observe how the customer experience strategy, customer value proposition (CVP), as well as the business model of fuel retailers may need to evolve to cater to the changing market landscape, and consequently allowing these companies to thrive in the new environment, and future-proof their business. 
 

Forces of change

Through our survey, we identified key internal and external macro-forces that are affecting the landscape for fuel retailers in the GCC. These forces have presented key market players with a new set of challenges and opportunities that will require them to adapt and evolve.

Carbon-free economy

A global movement towards a carbon-free economy is underway. In fact, in its 2020 Energy Outlook report, BP is predicting a base-case scenario where contribution of solar to global energy will have a compound annual growth rate (CAGR) of 7.8 percent through to 2050. This, contrasted with a CAGR of 1 percent for natural gas and -0.3 percent for oil, highlights the shift away from fossil fuels, albeit gradual1. This creates a challenge for fuel retailers as less carbon-based fuel is likely to be sold, but also gives them an opportunity to explore new markets. Moreover we note that within the GCC, consumers are perturbed by climate change since, as evidenced by our survey, 70 percent of respondents were concerned about the effect of fossil fuel carbon emissions on the environment. As seen in Figure 2, 54 percent of GCC respondents who do not yet own a car would be inclined to buy a car if it were an electric vehicle (EV). This makes fast EV charging stations a critical upgrade consideration for fuel retail players who want to cater to the customer of the future, as the overwhelming majority of respondents were millennials and generation Z, signaling that the trend is here to stay. EV charging stations present an opportunity for GCC fuel retailers to tap into a growing market, generate income from non-fuel sales, and take part in shaping the net-zero emissions future.

An example of this is illustrated in Exhibit 1, where BP has acquired Chargemaster2 in the UK, in order to establish a firm foothold in the UK EV charging services market, expecting to have one million EV users by 2022.

Digital technologies and connectivity

On-demand services and online retail consumption continue to evolve and raise consumer expectations. This is due to advancement in universal connectivity and its underlying technology infrastructure, not to mention the Covid-19 lockdown, which introduced many people to the convenience of online shopping. Customers, now more than ever, expect to have seamless communication and increased personalization in services. In fact, the survey reveals that 86 percent of expat and local vehicle owners, in the GCC, prefer to use contactless digital payments at fuel stations. However, almost 60 percent of
transactions today are still cash transactions driven mainly by blue collar workers. 

Certain global fuel retailers have already started embracing digitization to enhance operational efficiency and improve on their customer experience. For example, ExxonMobil developed Speedpass+ to facilitate payment processes for their customers. In addition, Shell is heavily innovating in retail by a mix of partnerships and internal capability building, to address market developments and customer needs (Exhibit 2). 

Although similar digital payments already exist in the GCC, only 7 percent of vehicle owners have used them (Figure 3). The primary reason for this contradicting result was that 61 percent of respondents were not aware of these apps. As such, GCC fuel retailers might want to reassess their marketing and customer attraction initiatives.

In addition to digital payments, fuel retailers may want to focus on data analytics to capture consumer data in real time. This will help retailers obtain constructive insight on customers’ needs, behavior and trends, enabling them to make data-driven decisions.

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Mobility and adjacent offerings

Mobility is transforming into a complex, horizontally structured ecosystem. As per Deloitte’s global Future of Mobility Analysis; by 2022, the use of personally-owned driver-driven vehicles is expected to decline; in 2025, shared driver-driven vehicles are expected to account for more than 10 percent of miles driven, increasing through to 2040, when shared mobility will account for up to 80 percent of miles driven3. Therefore, how will the future fuel station change once the mobility is largely autonomous/driverless and platform driven? Fewer cars on the road and increased popularity of electric vehicles will ultimately have major implications on the fuel retail business, and will cause them to reexamine the products and services they offer to create cross selling opportunities, and introduce services to accommodate for EVs.

In addition, GCC fuel retailers may want to focus on offering an experience, as opposed to selling a commodity, in order to explore new revenue streams. The survey indicates that, in the GCC, participants visit fuel stations for reasons other than fueling their cars. Such services include using the carwash, buying items from the grocery store, visiting the restaurants in the gas stations, or simply stopping to take a break (Figure 4). In fact, new customer segments are emerging, forcing fuel retailers to rethink the type of services offered at fuel stations. An example of new customer segments are women drivers in Saudi Arabia. In addition, more than a third of respondents have reported that over 50 percent of their non-fuel spending is composed of impulse shopping, giving fuel retailers an opportunity to capitalize on an additional revenue source.

Fuel retails might also focus on entering new markets to diversify their market portfolio—a trend that has started already with ENOC Group announcing, in 2018, major expansion plans to build 45 new service stations in Saudi Arabia over the next four years.

What companies can do: Redesigning the value proposition

The drivers of change discussed above have redefined the context in which retailers operate. Fuel retailers need to be aware that a digitized, personalized, and seamless customer experience is increasingly becoming the norm rather than the exception. Thus, they can leverage technological disruption to better serve their customers’ needs and design a new customer value proposition that captures this end-to-end retail experience.

Our survey indicates that enhancing the customer experience entails addressing pain points and providing new services. Among the vehicle owners surveyed, nearly 70 percent identified long queues as the main pain point they experience when visiting fuel stations. This provides the retail players with the opportunity to deploy technology in order to improve operations and cut throughput time, thus increasing customer satisfaction. In fact, the survey demonstrates that consumers in the UAE are willing to change their habits by using the Cafu services (an online fuel delivery service), in order to receive a seamless experience and avoid long queues. Other services can also be developed, such as tailored loyalty programs, which ranked second in our survey as services that customers would like to be offered by fuel retailers (digital payments ranked first). 

As the customer experience is being defined, fuel retailers need to look inwards towards their existing business model and the systems supporting it, to assess whether or not they are capable of creating and delivering value to customers in the new business context. This would require fuel retailers to re-examine the products and services that they are offering customers as well as the channels used to deliver said products and services.

Simultaneously, the company must ask what capabilities would be needed to create the new customer experience, and how must it organize these capabilities around its new objectives in order to operate profitably, effectively, and efficiently. The business model redesign process is thus both technology-enabled and technology-induced (Exhibit 3). An awareness of the interplay between emerging technology, a changing customer experience, and a new business model that encompasses them is key to future-proof the fuel retail industry.

The evolution

Players in the GCC fuel retail market need to fundamentally reimagine and update ways of working to appeal to the customer base which, as our survey indicates, is experiencing a shift in their preferences and behaviors. The new customer value proposition must take into account the needs of today’s consumers, as well as the potential needs of the consumers of the future. It also needs to be mindful of the energy transition that is being shaped by the forces of change discussed hitherto. Fuel retail businesses might also need to redefine their business models to add new services and benefit from potential new sources of revenue while addressing current customer pain points. Such an exercise should be complemented by an update to existing processes, systems, and people capabilities; eventually yielding new and updated gas station archetypes (Exhibit 4). Thus, ensuring fuel retail businesses are equipped with the relevant organizational tools and have a solid foundation to transform the new business model into reality.

by Bart Cornelissen, Energy, Resources & Industrials Leader, Deloitte Middle East, Managing Partner, Monitor Deloitte, Carmen Hamze, Director, Monitor Deloitte, Middle East, Yousef Iskandarani, Senior Manager, Abdellatif Smairi, Senior Consultant and Tatiana Ibrahim, Consultant, Consulting, Deloitte Middle East

Endnotes

1. BP 2020 Energy Outlook report
2. “BP to Acquire the UK’s Largest Electric Vehicle Charging Company: News and Insights: Home.” BP Global
3. Deloitte Future of Mobility Analysis