By Erin Rigik, Senior Editor
Transformation will help define the convenience store industry in 2015, affecting everything from the way customers fuel up to how they pay for food and fuel, and even how chains attract new customers.
Technology is advancing at a rapid pace. The launch of Apple Pay and its use of near field communication (NFC) will set the stage for faster adoption of mobile technology, while its use of biometrics will revolutionize the way we identify people and collect information. Meanwhile, the Internet of Things (IoT)—and with it machine-to-machine communication—will offer advancements across all industries that allow us to detect and prevent problems.
New ways of fueling vehicles—from diesel to hydrogen fuel cell are on the horizon and will start impacting business as soon as this coming year.
Meanwhile, as the landscape changes, c-store retailers will have to grapple to find new revenue streams and new ways to differentiate themselves from the competition if they are to thrive.
Mobile Is Here
We’ve been hearing that mobile payment is on the horizon for years now, but Apple’s launch of Apple Pay is agreed to be the game changer. All eyes have been on Apple to see when it would release a mobile payment option and if that option would use NFC.
Futurist Daniel Burrus noted that Apple is well known as an innovator that others follow. Likewise, it will lead in mobile technology. “NFC is now going to be the standard. Now that Apple has put its blessing on it, it’s going to happen,” Burrus said.
Apple Pay has several advantages over other mobile payment options that have tried and failed, Burrus pointed out. All new phones come equipped with NFC, all major credit cards are aligned with Apple Pay, and it’s already accepted at 220,000 locations. Conversely, e-wallet, for example, only had a few credit cards on board, no debit cards and limited places where it was accepted.
But there’s a bigger reason why Burrus expects Apple Pay—and with it NFC-based mobile payments—to take off in 2015 and beyond: security. “If everyone that had shopped at Target had used Apple Pay, when Target was hacked there would have been nothing to steal. And that is huge.”
That’s because Apple Pay does not pass credit card information to the stores. It also uses biometrics, in the form of fingerprint identification, instead of an easily hacked password, making it doubly secure.
“Biometric identification is going to start appearing quickly on other smartphones now,” Burrus said. “Google and Microsoft still exchange credit card information when doing mobile payment—they don’t have this higher level of security, but now that Apple has introduced it, its competitors will be forced to come up with a similar system.”
Apple Pay has started the ball rolling on biometric identification with one touch fingerprint identification. Facial recognition and voice recognition are around the corner both of which a phone—with a camera and speaker—is equipped to handle, Burrus predicted.
Retailers, of course, want to mine data for information, but they don’t need a card number to do that. In the future we’ll be able to identify people via their biometrics and use that to analyze what our demographic is purchasing.
Many Mobile Solutions
Even if Apple Pay and NFC become sensations, other forms of mobile payment will continue to thrive in the market place.
Howard Curtis, director of marketing and customer relationship management for MAPCO, which operates 373 stores in eight states, said that Apple Pay’s recent announcement is helping to get the word out about mobile payment in general.
“With the announcement of other mobile payments—specifically Apple Pay with NFC—the idea has made it to the consumer that there are different ways to pay,” Curtis said. “I think there are now opportunities to look at our payment experience as starting to be in vogue or something that is expected rather than something that is an anomaly.”
MAPCO partnered with PayPal to introduce mobile payment through its app, which was officially launched to 276 MAPCO stores in the southeast last August.
“MAPCO chose to partner with PayPal because PayPal is probably the most credible and legitimate payment service out there, as well as the most well known, so it only made sense to partner with the best,” Curtis said. “We felt that kind of name recognition around payment would help consumers adopt this payment form more quickly.”
One of the major benefits is customers can do 90% of their fuel transaction from their mobile phone inside their car. Once a customer drives up to the pump, thanks to geolocation, the app recognizes the pump where the customer has stopped, and the customer then confirms his location. “When you get out of the car to pump the fuel you don’t have to touch the keypad, because the transaction has already taken place through the app,” Curtis said. “All you have to do is pump your gas and hang up the nozzle. Then you get the receipt, which is in the MAPCO app. It’s streamlining the experience and consolidating it to the mobile app.”
By comparison, currently, Apple Pay is only available in-store, although Chevron and Texaco Extra Mile stores and Cumberland Farms, each of which offer Apple Pay, have stated that they are working with Apple Pay to make the technology available at the pump in the future.
In the Cloud
Mobile isn’t the only form of technology revolutionizing how we do business.
“Retailers should definitely be looking at the cloud. It’s transforming how they do business,” Burrus said.
Cloud computing involves using large groups of remote servers networked to allow for centralized data storage and online access to the information stored there.
The cloud comprises IoT (the interconnection of sensors embedded in physical objects with unique identifiers and the ability to transfer data); mobility—using mobile phones and payment systems; and the virtualization of both hardware and software.
“In other words, I don’t have to own my own server or rent it by the second. I can watch 100 servers at one time and not own any of them. That was impossible a few years ago, but not today,” Burrus said. “The power of all of this is going up exponentially as the price is dropping exponentially, meaning small business is able to do it now when they couldn’t do it two years ago.”
Burrus noted that even major defense contractors and the Department of Defense itself are moving to the cloud for increased security. But it’s important to note that not all clouds are created equal. “The key is to decide what is the security level of the cloud you’re using—that’s the better question. There are different clouds with different levels of security,” Burrus said.
The Internet of Things
“It’s so inexpensive today to insert chips that can sense things like moisture, gas, sound, color, pressure, temperature, including things like blood pressure or oxygen. These sensors can sense whatever we want to sense. You have them on your smartphone now. We can embed the sensors on anything and have them communicate in a wireless way,” Burrus said.
Thanks to this technology, in the next five years, Burrus estimated, we’ll have 50 billion machines talking to each other that currently aren’t talking to each other, globally. “This machine-to-machine (M2M) communication is expected to save us $100 billion dollars by 2020,” he said.
Car accidents will decrease as cars automatically stop when a car in front of them stops short, or automatically slow when a sensor detects ice on a bridge.
“Some 85% of accidents happen due to blind spots as drivers change lanes—all the new cars are getting V2V chips that will sense that there’s a car there thus eliminating these accidents,” Burrus said. “This will benefit insurance companies who will underwrite getting those chips on older vehicles. With less people heading to hospitals due to vehicle accidents healthcare costs will decrease.”
Using IoT, c-store owners could better monitor and control systems remotely. For example, if a pump didn’t shut off, machines will know and fix the problem. If a refrigeration unit is going to break down, you’ll know in advance because a sensor will detect it and tell you ahead of time. “The Internet of Things allows us to predict and prevent problems, failures, breakdowns, and lets you know when there is going to be a problem instead of after the problem happens so you can avoid the issue in the first place,” Burrus said.
These sensors will start appearing on store shelves so inventory will be taken instantaneously. “This used to be expensive to think about doing, but now it’s getting so cheap and so easy that we’ll see it spreading to convenience stores,” Burrus predicted.
That said, gas prices have been declining over the past four months, due to a fall in oil prices as well as an oversupply of gasoline in the market, not to mention that fall and winter tend to see a historical dip in prices as well.
Wells Fargo Securities reported that from June 30, 2014 through Oct. 31, 2014, the price of crude oil fell nearly 25%, while retail gas prices in the U.S. fell 22%.
That drop in retail gasoline prices does appear to have awakened consumer demand for gas—at least in the short-term. Data from the Energy Information Administration (EIA) showed for two consecutive weeks through Nov. 7, 2014 the implied demand figure was above nine million barrels per dollar, which is a high rate of demand compared to what we have seen over the past couple of years.
“Preliminary government data shows gasoline demand has picked up during the fourth quarter coinciding with sharply lower gasoline prices. A lower gasoline price leaves consumers with more discretionary income that, historically, has translated into increased driving and higher demand for gasoline,” said Brian Milne, energy editor for Schneider Electric. He predicted that gasoline prices will remain lower in 2015 compared to 2014, under pressure from sharply lower crude prices.
EIA has projected the U.S. price for all formulations of regular grade gasoline would average $2.94 per gallon in 2015 compared with $3.39 per gallon this year and $3.51 per gallon in 2013.
“A lower gasoline price will prompt more demand, but that growth will be limited by improving vehicle efficiencies,” Milne said.
As we move into 2015 and beyond, customers will begin to see new options for how to fuel their cars thanks to innovations in the auto industry. Ahead in 2015, expect to see more diesel light-duty vehicles on the market.
“The auto industry is trying to meet their CAFE (corporate average fuel economy) standards,” said John Eichberger, executive director of the Fuels Institute, a non-profit, independent think tank. “If a Volkswagen Passat gets 36-40 miles per gallon, the diesel version would get above 50 miles per gallon. Therefore, a lot of vehicle manufactures are introducing diesel options. It’s more expensive on the engine side, the posted price for diesel is higher, but you save so much money on higher fuel efficiency. So we’ll see an increase in diesel demand and an increase in diesel vehicles. Retailers need to be paying attention to their overall fuel offering. If they have room to offer diesel, I’m suggesting that they really think about it.”
Overall diesel demand is expected to peak in 2015, as heavy-duty trucks—currently the main diesel users—become more efficient, converting to compressed natural gas (CNG) in the coming years, even as diesel demand increases in light-duty vehicles.
Hydrogen fuel cell vehicles may also be the wave of the future. “The auto industry is investing billions in fuel cell and development. Hyundai brought the first mass-produced fuel cell vehicle to California in May. They’re leasing it for $499 a month and paying for all hydrogen the car consumers use during the life of the lease,” Eichberger said. And other car companies are following. “I’m advising retailers to pay attention to this.”
For the auto manufacturers, hydrogen fuel cell provides a 300-500 mile range per fill-up and there are zero emissions, so it helps them meet every requirement. From the retail perspective, while customers won’t need to fill up as frequently, they’ll still need to come to a station to do so, and it will take 3-5 minutes to refill on site. Customer interaction is very similar to that of gas, Eichberger said.
Niche markets are developing now. “The next 10 years will be the proving ground. Watch California and New England. If things go well in the next 10 years, I can see a much more rapid expansion. Maybe by the 2030s we could see some market penetration. I’m not saying 20%, but the seeds of a conversion. If politicians get really excited about this and throw money at market development it could go faster. There’s a lot to hydrogen from the environmental standpoint,” Eichberger said.
Most vehicles will continue to get better mileage, using less fuel. “Also, assuming CAFE standards continue to grow at the rate they are supposed to grow by federal law, gas demand is going to go down,” said Eichberger.
Meanwhile, other channels from drug stores to dollar stores and quick-serve restaurants will continue to compete for the same customers and on the same products as convenience stores. And, as customers quit smoking or switch to e-cigs or vapor-tank-mods, they’ll no longer be coming to the c-store for their daily pack of smokes.
Many stores are ramping up foodservice to recapture sales, but stores might have to get creative to recapture lost revenue.
Burrus observed one c-store is differentiating with a huge selection of wine. “The place is packed all the time,” he said.
Another c-store added an extensive alcohol section, providing brands even the local liquor stores don’t have, and is driving traffic as a result.
“You have to know your market and find something that will make customers come in that isn’t gas,” Burrus said. He suggested that c-stores shift their mindset from “we’re convenient for gas plus something else,” to “we’re convenient for ‘something else’ and we also have gas.”
Mad Max Convenience Stores, with 10 locations in Wisconsin, taps its employees for new revenue ideas. They allowed one employee to test his idea for a pay-as-you-go cell phone business in a Mad Max store. The idea resonated with customers and drove traffic, and the chain is expanding it now to other stores.
“There are people who are going to redefine the convenience store and the experience of it, and they will thrive, said Burrus. “Others will keep doing what they have always done and see sales decline. Going into the New Year I’d like us to rethink our c-store’s competitive advantage. What’s the new experience?”
“The cool thing about this industry is that convenience store retailers are going to figure out what to do to drive trips,” Eichberger said. “This is the most nimble industry I’ve ever seen. If fuel sales are going down, they will find a way to keep customers coming into their stores.”