Opinion: 6 Lessons for Fuel Retailers in 2018

CAPE CORAL, Fla. -- With 2017 behind us, the inevitable retrospectives and predictions for the future have arrived. The most outrageous predictions often get the most attention and result in speaking engagements for resident mystics. I certainly could make predictions here to grab your attention: “Amazon to drill pneumatic tubes to every home, making instant delivery a reality!”

But while reality is more mundane, it’s no less exciting. Let’s start with a review of fuel developments in 2017 and what we have learned as we begin 2018 ...

All companies go to great lengths to develop contingency plans for emergencies and crisis situations. In 2017, we learned that even when such plans achieve a state of excellence, human error can bring them to a crashing halt, harming an organization’s brand image. Hurricane Irma was the instigator in question, uncovering the fact that some contingency plans did not have appropriate follow-up.

The media was filled with stories about how the convenience-store industry gouged customers. No great articles were written about the fact that many stores immediately reopened, providing fuel and needed supplies to their communities. Lesson learned: Revisit those contingency plans!

Fuel prices remained low and margins remained healthy, which in itself could lead to a sense of complacency and comfort. In the past, I have written that too many companies were not taking the future seriously enough, other than to worry about how Amazon would “destroy us.” 2017 became the year I noticed CEOs and their organizations beginning to take notice and openly speak out that the future of our industry may not evolve at the pace of old. At both the October NACS Show and the November Outlook Leadership Conference, the theme clearly was disruption and how it comes like a thief in the night.

In the short term for 2018, I’m not going out on a limb when I say that the economy seems to be humming along nicely, and fuel prices promise to remain low. That said, I have the sense that margins will be squeezed this year as retailers become more aggressive to drive more traffic to their sites.

The culprit driving this is decreasing customer counts, being seen at many public companies and whispered about at some private ones. There is speculation about the cause, but no certain answers have been found yet. If this trend continues and is coupled with relatively stable fuel prices (volatility is the friend of margins), 2018 could be a very challenging year in which to meet your bottom line.

There appears to be consensus that innovation in the area of electric vehicles (EVs) and automated vehicles will continue unabated, eventually leading to a universe made up of electric automated vehicles (EAVs) dominating parts of the country where population density can support it.

The only question really at this point: When will EAVs begin to affect the current business model of convenience? This will certainly keep the automotive industry, consultants such as me and wild-eyed professors thriving into the long-term future. However, the petroleum and convenience industries will require reimaging.

The number of convenience stores increased 0.2% in 2016, compared to a nearly 1% increase the two prior years. While the final numbers for 2017 are not yet in, I sense that the number will begin decreasing unless we stop looking at it in the traditional sense. Between 1994 and 2013, the number of retail fueling sites in the U.S. fell from 202,800 to 152,995—a 25% decline—and the trend continues to show no sign of abating.

Of course, this is because the traditional “service station” has largely exited the market and been replaced by the convenience-store-with-fuel model. Today's stores pump much more fuel per site historically. And that is my concern: the reliance on liquid fuel. If it declines, so does your revenue.

Everyone is worried about Amazon, but it is only one of many brands that are changing the nature of our industry with innovations such as touchscreen ordering, new products and a tailored customer experience.

When a family known for textiles, ironworks and a dairy entered the convenience-store market in 1964, I doubt anyone feared them at the time. In retrospect, retailers in the mid-Atlantic states had no idea how Wawa would eventually dominate the region. Its success has been driven by innovation, embracing change and providing an exceptional customer experience. To take an example from another industry, Kodak would have avoided bankruptcy had it embraced its digital imaging business instead of selling it and staying the course with film.

One prediction I can make with the utmost conviction: Amazon and the major innovators will continue to embrace change and even drive it by giving customers what they need, which is certainly evolving. As Amazon racks up innovation wins, those of us who focus on the same old concepts will eventually exit, quickly, through the sale of valuable real estate, or slowly as customers find us as quaint as a 35mm camera.