BCG Calls For A Transformational Shift In GCC Retail Fuel Sector

The fuel retail industry in the Gulf Cooperation Council (GCC) needs to make a shift from vehicle-centric to customer-centric value propositions. Boston Consulting Group’s (BCG) new report titled, ‘Is There a Future for Service Stations?’ evaluates the impending wave of technology transformation and demand for diversified, digitized customer touchpoints in the digital age.

“Several trends are impacting and disrupting the fuel retail market globally. Among the most powerful of these are the rise of alternative fuels for mobility, the emergence of new models in mobility and the evolution of heightened consumer expectations around convenience and personalization. These trends originate from the advancement of digital technologies,” said Mirko Rubeis, Managing Director and Partner at BCG.

Addressing four potential future market scenarios of the fuel retail sector globally, the report highlights that with the evolving mix of mobility models and fuels in the next 10-15 years, fuel demand will reduce, drastically affecting the traditional business models and putting a large portion of the service stations network at risk.

Exhibit 1: Shifting from a Vehicle-Centric Approach to a Customer-Centric Approach

“Customer demands today are increasing, and they expect the same level of customer experience that online and physical retailers offer. The typical fuel retail ‘convenience’ store is no longer really convenient when compared to today’s instant delivery services,” added Rubeis. “While the GCC retail fuel market’s immediate future is likely to reside in the use of fossil fuels, BCG’s findings indicate the need offer a broader set of fuel sources, together with offering services targeting the broader needs of the customer, beyond car services, to access new value pools and compensate for the potential decline in traditional fuel sales.”

Fueling Up for Industry Innovation in the GCC

Although the GCC fuel market has matured, GCC fuel retailers need to accelerate their capabilities to straddle the lines between digital and physical as customer expectations evolve to demand digitally enhanced service touchpoints from fuel retailers in the future (inside and outside the service stations).

Moving beyond merely offering fuel services and convenience stores, the customer-centric model depicts a new reality where fuel retailers capture value through diversified product and service ecosystems, still leveraging the existing assets of the Fuel Retailers (Networks, Customer data, etc.).

As such, the service station product mix will need to evolve through three key areas for fuel retailers to adequately prepare for the future market:

• Enhance existing offerings and push into new value pools:

Fuel retailers will need to expand beyond conventional customer offerings as well as compete in new value pools that are relevant to core business. This will require enhancing the customer fueling experience by using emerging technologies to create seamless and engaging customer experiences by digitizing the service station journey. Fuel retailers will also need to invest in Electric Vehicle (EV) infrastructure, and advanced mobility, as they will need to adapt to increased industry disruption, such as EV penetration in leading GCC countries like the United Arab Emirates.

Leveraging the service station’s real estate more effectively will also become essential to position business models to become one-stop shops that meet the universal needs of customer segments. Given the high rates of digital adoption in the region, there is an onus on fuel retailers to appease customer demand for new mobility options. Additionally, service stations will need to embrace and support government initiatives in the space of advanced mobility, sustainability, and ‘smart,’ digital solutions.

• Transform the network and asset portfolio:

Some of the urban fuel retail sites in today’s industry might not be as profitable in the future, due to the competition of home or office recharging infrastructure. In contrast, larger sites with better accessibility but in less attractive suburban locations may grow its appeal for their ability to scale into large dynamic hubs for innovations such as AV parking and enhanced retail space. Expanding beyond fuel throughput and demographic attractiveness, fuel retailers will need to reimagine service station networks. This will require them to redefine how consolidation and optimization of networks can create maximum value from enriched asset bases, possibly through leveraging venture capital, M&A, joint ventures, and partner alliances. By creating broader asset portfolios consisting of new physical assets like warehouses for last-mile delivery, drones as well as digital assets such as mobility platforms and apps, personalization platforms, and analytics solutions, GCC fuel retailers will be better positioned to transform their physical and digital products and services.

• Develop new expertise and capabilities:

To survive in the evolved service station frontier, fuel retailers need to refine their customer-centric capabilities, ensure they can cope with heightened levels of complexity, and embrace agile ways of working to drive innovation. Evolving customer expectations are beginning to place a premium on personalized fuel service station offerings. This presents a prospective area of growth for service stations in the GCC to adopt digital experiences as the ‘new normal.’

Developing new capabilities and digital expertise related to new areas such as last-mile logistics and real estate are key considerations to avoid industry stagnation in the digitized customer-centric era. Unlike other mature markets, major fuel retailers in the GCC are enjoying stable road fuel demand growth, with a projected CAGR of 2-4% over the next five years. However, given the projected scenario, advanced service layers need to evolve to capture opportunities from alternative fuels, such as EV, as well as the added convenience of 24/7 mobile fueling services – an area that is experiencing vast growth in cities like Dubai.

Giuseppe Bonaccorsi, Partner at BCG, said: “As the digital future unfolds, a growing list of implications will mount for fuel retailers that are unwilling to adapt to the times and win in the 20s. In the GCC, this rhetoric is a recurrent theme, which is why it is pertinent the retail fuel industry leverages digital technology and expands into fast-growing, adjacent value pools to spur a shift away from fossil fuels and digitally vacant retail fuel precincts.”