Numerous articles in recent years have discussed alternative fuels, which retailers eagerly read to figure out which alternative may dominate the market. They hope to prepare for the future, when they will dedicate precious capital resources toward the appropriate substitute for gasoline, as gallons decline before their very eyes—and take the in-store traffic with it.
Before retiring in 2012 as the head of fuel business development at Wawa Inc., my responsibilities included preparing for a universe with one or more alternative fuels. At that time, I believed certain fuels were more likely to succeed and made more sense for the market than others. However, I now realize that some of my beliefs may have been no more than biased wishes. I was hoping for a solution that could be sold like gasoline in order to replace it. Now I’m not sure it exists.
Thus, I must point out an inconvenient truth: There is no magic bullet. The future of our industry may very likely be one that is not driven by fuel purchases, as the transportation fuel universe becomes more complex, fragmented and less important.
The Vortex
The first 100 years of gasoline retailing in America was a time period with relatively few changes and an expectation that increases in population would yield never-ending increases in gasoline sales. Indeed, Corporate Average Fuel Economy (CAFE) standards enacted in 1975 did not dampen demand appreciably as vehicle miles traveled (VMT) continued to increase, the population grew, and the standards themselves called for only a modest increase in efficiency.
But today, a number of factors make it nearly impossible to predict the future of fuel retailing. Some say it started in 2007 with the passage of the Energy Independence and Security Act, which directed CAFE standards to increase to 54 MPG by 2025. Meanwhile, the Energy Information Administration (EIA) has projected that by the year 2040:
- VMT by light duty vehicles (LDVs) would increase nearly 29%.
- The amount of energy required for an LDV to travel a mile would decline approximately 42%.
- Diesel gallons would increase by 26%, but gasoline would decline 24%, with an overall effect of liquid fuels declining by 8%.
- Non-liquid fuel alternatives (natural gas, propane, electricity and hydrogen) would increase their total contribution to LDV energy consumption by 125%, but still only contribute 0.72% toward the total.
- Electricity would see the strongest growth in the non-liquid market, increasing its share of non-liquid LDV energy from 2.5% to 38.5%.
These forecasts are ominous, but they are only very good hypotheses drawn at one point in time. The landscape continues to change frequently. Federal and state regulations have been promoting biofuels programs as a way to lower carbon emissions—even though using more biofuels makes it more difficult to achieve aggressive CAFE standards.
In addition, the United States is experiencing a historic stagnation in VMT as the factors driving its earlier unrelenting growth have reached their saturation point. For example, according to the Fuels Institute—a nonprofit think tank created by NACS, drivers older than 50 are driving slightly more than in the past. Meanwhile, 20- to 34-year-olds are driving much less. Studies also show that people over 50 are much less enamored of the c-store industry, while millennials love the products and experience we offer. So the paradox is that the cohort who is driving more is less likely to come inside a c-store, while the cohort who drives much less is more likely to do so.
Finally, improvements in technology are speeding up the adoption of electric and fuel-cell vehicles, which do not support our industry’s business model today.
The Path Forward
So how can a retailer remain relevant in this changing fuel universe, when studies indicate 28% of inside sales are driven by fuel purchasers?
At the 2014 meeting of the Fuels Institute, the presentations of greatest interest were on consumer behavior. Scott Griffith, former chairman and CEO of ZipCar, presented data that brought this home: In the end, it is the market that will drive the future of driving behavior and fueling.
When I started with Wawa in 1980, it was basically a small supermarket. Today, groceries are largely nonexistent, replaced by fresh foods, beverages and fuel. While I do not have faith that fuel purchases can sustain our industry, they are the basis of our current business model. Retailers must be open to adjusting their offer as the ground shifts beneath them.
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