It’s better to be the woodsman than what’s for dinner.
By Roy Strasburger
In the original version of Little Red Riding Hood, the big bad wolf devours good old Red as he did her grandmother. It is only when the fearless woodsman comes around and kills the wolf, opening his stomach with his axe, that Red Riding Hood and her grandmother—who are miraculously still wholly intact—are freed.
To stretch a metaphor to its breaking point, the big bad wolf is alternative fuels and EV charging, grandma is the petroleum fossil fuel business and Little Red Riding Hood represents your store sales.
Since you are reading this fine publication, you probably have something to do with the fuel industry. Presumably, the fossil fuel industry. You know that alternative fuels, and especially electric vehicles (EVs), are growing in popularity, and they’re going to eat (pardon the pun) into the petroleum market.
As Doug Haugh, former CEO of Parkland, said in a recent Convenience Leaders Vision Group meeting about EV charging, no one is saying that EVs are not going to be significant, they are just arguing over the timeline.
In 2022, the percentage of new vehicles sold in the United States that were EVs was 5.7%. Once EVs made up more than 5% of new car sales in Norway, the most saturated EV market worldwide, the percentage started increasing dramatically. Norway hit the 5% mark in 2013, when 5.5% of new cars sold were EVs. In 2022, 79.3% of new cars sold in Norway were EVs.
In late 2021, the U.S. Congress passed the Infrastructure Investment and Jobs Act which directed billions of dollars toward establishing an EV-charging network across the country as well as toward improvements to the national power grid to accommodate renewable energy. In late 2022, the Build Back Better Act provided new subsidies for EVs. In April 2023, the EPA proposed new light vehicle emission standards, that, in essence, require that over 60% of new cars sold will need to be EVs by 2032. However you want to look at it, the EV market is gaining momentum.
Granted, there are still major challenges that need to be sorted out: The Infrastructure bill did not give much direction as to how the current electricity grid is going to meet growing demand; there is the question of how we are going to produce enough electricity to charge all of those cars; demand charging and access are still huge issues; and, frankly, it remains to be seen whether you can actually legislate such a rapid acceptance of a product in a free market system.
I know as well as you do that internal combustion engines are going to be around for the next 20 or 30 years. The cars that we have now, and more than 90% of new cars being sold, are going to need gasoline to operate. The opportunity to make money selling petroleum products is going to remain for the foreseeable future. However, as the number of EVs goes up and ICE (internal combustion engine) vehicles are replaced by electric ones, the total gas gallons that are sold every year are going to go down, especially if you factor in higher fuel efficiency in the new ICE cars replacing the old ones. Fewer total gallons sold means that the average gallons sold per store is also going to go down.
Unless margins increase significantly, a retailer selling fewer gallons is going to be making less money. At some point, a gasoline site will hit a point of diminishing returns and become economically unfeasible. The fuel operation at the site will close, pushing the remaining gallons to another site. The situation will repeat itself at other locations, meaning that there will be fewer and fewer retail sites selling gasoline until there are only two or three sites left per community to meet the needs of the remaining ICE vehicle operators.
What are you going to do to hold onto your gallons for the foreseeable future and to maintain your business for the long term?
At the end of the day, it comes down to the customer experience and your operational excellence. You will need to provide an attractive retailing environment for your customers so that they will choose you over another gasoline retailer. That means that you need to have a visually pleasing store, a well-lit parking lot, the cleanest operation inside the store and outside on the forecourt, excellent customer service and a store stocked with products that your customers, and their friends, want to buy.
By providing the best retail experience, you will be able to keep your existing customers, attract the gasoline customers who are looking for an alternative to their closed location and encourage the customers who have switched to EVs to come to your store—even though they don’t need gasoline.
Stretching the metaphor all the way to the end here—you are the woodsman and operational excellence is your axe. You need to start grinding your blade 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.
