Start planning now to adapt your business amid the eventual rise of EVs.

 

By Roy Strasburger

My great-grandfather was not a frog. A German immigrant, he arrived in the United States in the late 1800s. After working for many years on the railroad system, he decided to settle down in Central Texas. Gathering all his hard-earned savings and borrowing as much as he could from the bank, he opened a dry goods store to meet the needs of the local housewives. (This is where I get my retailing background).

After several successful years of operating his business, my great-grandfather decided to expand and sunk all of his profits into a cigar emporium and saloon to meet the needs of the gentleman of Central Texas (hey, this was the early 1900s).

Texas is a thirsty place, and the saloon grew to become a bigger business than the dry goods store. Conveniently, the two businesses were located next to each other—husbands waited at one, while wives visited the other.

A few years later, the 18th Amendment was passed, and alcohol prohibition became the law of the land. Overnight, a once thriving business became illegal, and the great majority of my great-grandfather’s revenue disappeared.

When he heard the news about the upcoming change, my great-grandfather started working on a plan to stay in business. He decided to add a meat market and butcher shop to the dry goods store, in effect, becoming a forerunner of today’s supermarket. He built this business from scratch and so successfully combined the two offers that, several years later, my family had six supermarkets in the Central Texas area.

This is the type of adaptation that fuel retailers will need to undertake to meet the electric vehicle (EV) challenge. The rise of EVs will happen slowly—and then all at once.

The internal combustion engine will be around for at least another 30 years, and someone will still need to sell fuel for them. However, when the fuel supply situation (fuel transport and delivery issues) that we have been experiencing over the past few months is combined with the oil production instability caused by the Russian invasion of Ukraine, the EV adoption timeline could speed up tremendously.

As fuel prices go up, more people will order EVs (when they will receive them is a different question due to supply chain issues). The EV market share that was going to develop over the next 15 years is going to happen in five. More EVs on the road means less miles driven by internal combustion engines, which means fewer gasoline gallons will be sold. A smaller gasoline retail market will, inevitably, lead to there being fewer retailers who can survive by selling gasoline. As gallons drop, reduced fuel profit dollars will not justify the costs associated with maintaining a gasoline site (repairs, maintenance, equipment upgrades and environmental insurance). Gasoline fuel retailers need to start thinking now about how their businesses will be impacted and what they are going to do to adapt.

Frankly, the idea that the only thing that a fuel retailer needs to do is replace gasoline pumps with electric charging stations is a red herring. The growth in the use of EVs means there will be a completely different “refueling” business in the future.

Refueling will no longer be confined to the corner gas station or convenience store. Refueling retailers will have to compete with non-traditional refueling locations for a driver’s business (assuming that there are still drivers—but that is another column for another day). Charging stations are already found at homes, apartment buildings, coffee shops, shopping malls, parks and public parking garages, to name but a few locations. Today’s gasoline retailer is no longer competing directly with other fuel retailers. The new competition is any place you can put a charging station—and the cost and space requirements for charging stations will continue to shrink to the point that anyone can install one.

So, what is a fuel marketer to do? The urban convenience and fuel station will not be viable if it depends only on fuel to make a profit. The traditional convenience and fuel retailing model is only going to be successful at interstate highway locations or in remote areas where people will need to recharge their EVs during long trips. The majority of EVs will not need a traditional convenience store location to refuel because they will be able to recharge at home, at work or during leisure activities.

To stay viable, today’s fuel retailers will need to adapt and modify their store offer to attract customers without the draw of fuel. The site needs to either become a destination offering products, services or outstanding customer service that will attract customers, or it will provide the infrastructure for remote services such as delivery of groceries, meals or other goods.

This is a classic example of the frog in the saucepan (drop a frog in a pan of hot water and it will jump out. Put a frog in a pan of cold water, gradually raise the heat, and you will have frog soup). The gasoline engine is not going to disappear suddenly, but the total demand for hydrocarbon fuel is declining, leaving retailers with a dwindling revenue base and, eventually, a fuel business that is not viable. Do not be the frog—start planning now.

 

Roy Strasburger is the CEO of StrasGlobal. For 35 years StrasGlobal has been the choice of global oil brands, distressed assets managers, real estate lenders and private investors seeking a complete, turn-key retail management solution.