By John Eichberger, Executive Director, Fuels Institute
Fuel demand is under pressure from a variety of sources and retailers need to develop strategies to remain relevant in tomorrow’s market.
According to a new study by the Fuels Institute, the vehicle miles traveled (VMT) in the U.S. has remained relatively stable since the mid-2000s, something that has never happened before. Looking ahead, except for population growth, the factors that have contributed to a historic sustained increase in miles traveled seem to have reached their saturation point, limiting the potential for significant growth. If this trend continues, it could have serious implications for fuel demand.
Further exacerbating the effect of this situation on fuel demand is improved vehicle efficiency. Federal standards require that passenger vehicles attain a fleet average of 54.5 miles per gallon by model year 2025, which will affect overall fuel demand. In addition, in their efforts to satisfy these efficiency requirements, automakers are introducing new technologies, including new powertrains that may operate on energy sources that aren’t liquid fuel.
Effect on Retailers
What is the effect on fuel retailers? If aggregate national travel does not grow at a rate that will offset the effects of improved vehicle efficiency, fuel demand and the resulting customer visits to convenience stores will decline. It is critical that convenience retailers think about what tomorrow’s consumers will demand and develop strategies today that will position themselves to be relevant to those changing dynamics.
Two critical elements should play in a retailer’s plans—the identity of the consumer and the fuels they may demand.
First, the face of the consumer is changing. The Fuels Institute report, “Driver Demographics—The American Population’s Effect on Vehicle Travel and Fuel Demand,” found that younger consumers are not driving as much as they have in the past, while older consumers are increasing their mobility. This is important because the National Association of Convenience Stores’ (NACS) surveys about consumer perceptions of the industry found that the younger consumers (who are driving less) have the most positive opinions about convenience retailers, while the older consumers (who are driving more) have the least positive opinions.
If this is true, retailers need to think about segmented and targeted marketing strategies that will appeal to both sets of customers.
Second, as automakers strive for improved efficiencies, they are investing in alternative technologies that compete with the market domination of gasoline, forcing retailers to think about their fuel product offer. While hybrid vehicles are a major strategy for the auto industry, they do not present any real threats or opportunities for retailers—after all, these vehicles primarily operate on gasoline or on electricity that is delivered at home.
However, retailers should be aware of diesel vehicles that can deliver 20–40% more miles per gallon than their gasoline equivalents and this can really help compliance strategies. To capitalize on this market development, retailers should evaluate whether and how they want to offer diesel fuel to their light-duty customers.
Retailers might also consider differentiating themselves by expanding their offer of biofuels to attract that segment of consumers. Such products like E85, E15 and higher blends of biodiesel can create unique marketing opportunities and potentially strong margins, but require retailers to invest to ensure all of their equipment is compatible with the fuel they decide to sell.
And for those interested in generating stable demand from fleet customers, investing in natural gas infrastructure can present an opportunity to service a specific segment of the market. The investment is not trivial, but when done right the returns can be significant.
Overall, retailers need to be aware that fuel demand is likely to diminish, customers’ behavior is changing and multiple fuel products will compete with gasoline. What strategies a retailer employs to address the changing dynamics might determine whether that retailer thrives or dies.