C-Stores Meeting New Fuel Demands

Whether it’s teaming with Tesla to install charging stations or integrating alternative fuel solutions, retailers are part of a changing transportation marketplace.

By David Bennett, Senior Editor

Figuring out what the future of the U.S. transportation industry holds is clear, depending on which expert you ask.

- Advertisement -

Some analysts insist the internal combustion engine has been around more than a century and should be around for decades to come, powering the country’s future fleets of sedans, pick-ups and sport utility vehicles.

Then there are other authorities who forewarn that gas-powered cars and trucks will eventually appear on the endangered list—easy pickings for new electrification and alternate fuel technologies currently being tested to take over the country’s highways.

Tony Seba, an instructor at Stanford University, is one such prognosticator. A teacher of industry disruptors and clean energy, Seba predicts there will be no more gasoline- and diesel-powered cars, buses or trucks sold anywhere by 2025. This drastic transformation will be brought on by a mass switch to fully-electric vehicles (EV), plug-in hybrids and self-drive alternatives, leading to a collapse of oil prices and the demise of the petroleum industry.

Chew on that for a moment.

Does this mean convenience stores should now be contracting with vendors to develop digital advertising signage that ties into EV charging stations? For now, retailers still have an adequate amount of time before such a move is necessary.

C-stores do depend on fuel offerings and strategic forecourt marketing to help drive in-store sales. However, an incremental shift in the public’s perception of the fossil fuel industry and its effect on the environment, as well as stronger support for alternative fuel solutions, raises questions about the future of fuel sales and how the c-store industry will react to what lies ahead.

In terms of anticipating what fuel category concerns may be coming down the road, including how EV and other transportation innovations will shape the marketplace, some convenience retailers are already ahead of the curve.

‘EV’OKING CHANGE
According to a report published in 2016 by the consulting firm Wood Mackenzie, electric cars are likely to reduce gasoline demand in the U.S. by 5%—and possibly by as much as 20%—by 2035.

When Tesla announced new expansion plans for its Supercharger network earlier last year, the automaker managed to ease some of the concerns Tesla owners had over the network becoming overcrowded, especially with the launch of its new, more basic Model 3—priced at about $35,000. As part of its strategy to provide car owners more charging locations, Tesla has solicited a growing number of c-stores including Love’s Travel Stops, Quick Chek, Royal Farms, Sheetz and Wawa to provide locations for charging stations to operate.
Unlike a hybrid car, which uses a gas-powered internal combustion engine to generate electrical power to turn a generator and power the electric drive motor, Tesla cars — the Model S included—are 100% electric.

These charging stations have been placed at convenient community locations such as grocery stores, downtown districts and shopping centers. It appears as the Supercharger network expands, more c-store chains will likely be enlisted to join.

At a Supercharger charging station, Tesla owners can power their vehicle in a fraction of the time of older charging technology. Now, Tesla drivers typically spend 20 or 30 minutes at roadside Superchargers, about how long it takes to add about 170 miles worth of battery power.

For c-store operators that depend on in-store sales, it raises the question: What will motorists do during that time their car is charging? A five-minute fuel stop is an adequate window to grab a cup of coffee and get back on the road. A 30-minute stopover conflicts with the traditional convenience store mission of quick service.

As the EV charging infrastructure grows—not only via Tesla, but other automakers as well—there will be a place for c-stores, said Sanya Carley, an associate professor at the School of Public and Environmental Affairs at Indiana University, where she also serves as a chair of the policy analysis and public finance faculty group.

“One area where the convenience store industry may see some growth is in highway stops for EVs. The vehicles’ limited range makes stopping for an hour or two on longer road trips a necessity,” said Carley. “Tesla has worked to build charging infrastructure around existing attractions such as restaurants. Larger highway stops with seating areas and a selection of food options could become more desirable with the addition of EV charging infrastructure.”

Though c-stores currently make a small sampling of Tesla’s network, those convenience operators that offer a full foodservice program, especially related amenities such as free Wi-Fi and indoor seating will have a competitive advantage over c-stores with modest foodservice offerings and little else to keep EV motorists occupied.

BUILT FOR INNOVATION
Cory Schneider, director of fuels at Ricker’s, said as the growth of the traditional car industry has been fed by the road-side operations of gas stations and c-stores, those same chains, including Ricker’s, are well-positioned to serve a changing transportation marketplace. Ricker’s, based in Anderson, Ind., launched its “No Charge to Charge” program with Nissan and the Greater Indiana Clean Cities Coalition in 2014, providing nearly a dozen DC fast-charging stations in and around central Indiana. The stations are part of the Greenlots charging network.

The c-store industry, Schneider explained, has a track record of meeting the changes in the transportation marketplace and will continue to do so—whatever the future brings.

“The convenience store industry has been exposed to significant changes over the last several decades,” said Schneider. “With those changes, the industry has been able to adapt rather quickly. The evolution of electric vehicles introduces a new type of change, a change that impacts the largest revenue segment of the industry. The future of EVs is still unclear, but the convenience store industry will make changes when necessary and will remain competitive for years to come.”

A lot of times those changes are industry driven. Some are community driven. In Utah, officials are planning now to meet the future demand of EV motorists. Again, a c-store chain is helping to clear the way.

A lot of the newer electric vehicles have a range of about 200 miles, a collaboration between the Utah’s Office of Energy Development, Utah Clean Air Partnership and Maverik Inc. is looking to expand upon that range. The c-store chain, based in Salt Lake City, last year added two fast-charging EV stations at Maverik locations in central and southern Utah, part of the Mighty Five Electric Vehicle Corridor initiative. It’s important retailers remain on the forefront of these transportation trends, said Aaron Simpson, chief marketing officer for Maverik.

“As driver’s needs (and EV) continue to evolve, Maverik wants to be out in front of those changes vs. trying to catch up later,” said Simpson. “We also want to make sure we’re always our customers’ first stop on the way to adventure and electrifying the corridors to the national parks where we live and work is an important way of doing that.”

Maverik doesn’t project a crush of EV motorists will necessitate reconfiguring the chain’s whole fuel operation. However, if consumer demand dictates further EV and hybrid auto production, Maverik plans to be ready.

“Honestly, right now demand is limited, so that alone doesn’t justify adding the charging stations. But, we’re learning a lot from it and it helps us stay on top of the important changes that are happening and makes us better prepared if and when those changes accelerate. We will likely continue to add additional chargers with our partners at other highway corridors in our footprint.”

Currently, many automakers are pushing their own EV envelope. Over the next 18 months, General Motors will introduce two new all-electric vehicles—the first two of at least 20 EVs to be launched by 2023, the company announced. The new 2020 plug-in electric vehicles sales target at BMW is 500,000 units, the company’s CEO, Harald Krueger, has stated in an interview with the German newspaper WirtschaftsWoche.

Ford in 2017 announced its plans to introduce 13 electrified models by 2020; among them are some hybrids and plug-in hybrids—like Ford Mustang and F-150 hybrid versions and plug-in hybrid SUVs.

Thinking even bigger, Telsa CEO Elon Musk has projected that the Tesla semi-truck would haul an extraordinary 80,000 pounds for 500 miles on a single charge, then recharge 400 miles of range in 30 minutes. UPS Inc. recently announced it’s making a big investment in all-electric big rigs by placing an order for 125 of the pilot semi-trucks from Tesla.

Even Apple is reportedly stepping up its efforts to create an electric car with a ship date of 2019.

So if they build them, will consumers come?

The Fuels Institute, a think tank based in Alexandria, Va. late last year released a report, entitled “Consumers and Alternative Fuels 2017.” Among its findings, the report indicated that factors influencing the gap between consumer interest and actual vehicle purchases included low gas prices, lack of battery charging infrastructure, range anxiety and battery replacement costs.

Other data suggests that a significant cultural shift may be needed to swap combustible engine vehicles for environmentally-friendly alternatives. A financial incentive in the form of a $7,500 tax credit, which was popular under the Obama administration, was in jeopardy of being eliminated in recent federal tax reform legislation, which was written into law in late December. At the last minute, legislators chose keep the tax credit for new EV owners intact.

The credits are available on the first 200,000 electric vehicles a manufacturer sells. Once a company reaches that threshold, the $7,500 income-tax credit continues through the end of that calendar quarter.

In terms of wider EV adoption in the U.S. every small step is still a step forward, said Indiana University’s Carley.

“Yes, a shared perception among EV stakeholders is that EVs’ fundamental differences from internal combustion engine-powered vehicles are simultaneously their greatest weakness and strength in terms of adoption,” said Carley. “EVs’ limited range can require changes in driving behavior, and ‘confidence that an EV will fit my lifestyle’ is regularly cited as a hurdle for consumers considering purchasing an EV. On the other hand, EVs’ differences are also a huge part of what makes them an attractive technological advancement.”

FROM ELECTRIC TO CORN
Casey’s General Stores Inc., a Ankeny, Iowa-based c-store chain with 2,000 store locations, last year announced it would offer higher ethanol blends of E15 and E85 at 17 newly-built store sites in Illinois, Iowa and Kansas. E15 is a fuel that contains 15% ethanol and works well for any car 2001 and newer. E85 contains up to 83% ethanol and is a choice for flex-fuel vehicle owners.

According to IHS Automotive, there are nearly 20 million flexible fuel vehicles (FFVs) on U.S. roads today.

The Illinois Corn Marketing Board, Iowa Corn Promotion Board and Kansas Corn Commission along with Growth Energy are assisting Casey’s with their new program. The company’s adoption of higher biofuel blends marks a major milestone for renewable fuel availability, especially across rural America where demand for higher ethanol blends is high, said Doug Beech, legal counsel and director of government relations for Casey’s.

While some of the sites are already operating, it’s too early to track customer feedback, said Beech. However, expanding fueling choices for its customers is important, as is balancing the return on investment.

“That was part of the test,” said. Beech. “You have additional pump costs, you have additional tank costs, you have additional line costs; those all have to be factored in. That’s why we tried it in the new stores.”

According to Growth Energy, a nonprofit that promotes the ethanol industry, there were more than 3,900 stations selling E85 nationwide at the end of 2017. Comparably, the number of stations in the U.S. selling E15 jumped to 1,214 in 2017 from 431 in 2016, an increase of nearly 182%.

Mike O’Brien, vice president of market development for Growth Energy, said the steady progress of blended-fuel integration in the industry is measurable, and encouraging.

“Consumers have surpassed more than 2.5 billion worry-free miles on E15. It took about four years of E15 sales to generate the first billion miles driven on E15,” O’Brien said.

“However, the second billion miles driven on E15 was reached in just a few months—between May 2017 and October 2017. This highlights that our efforts are rapidly accelerating consumer demand for E15.”

That demand is prompting c-stores big and small to step up their blended fuel offerings. One example is Kum & Go L.C., which has been progressive in introducing both E85 and E15 blends to various service locations. Kum & Go carries E85 at at least 205 stores and E15 at at least 105 stores in such states as Colorado, Iowa, Oklahoma, Nebraska and South Dakota.

The U.S. Environmental Protection Agency (EPA) at the end of November 2017 released final 2018 renewable volume obligations (RVOs) under the Renewable Fuel Standard, setting the RVO for total renewable fuel at 19.29 billion gallons, including 288 million gallons of cellulosic biofuel, 2.1 billion gallons of biomass-based diesel, and 4.29 billion gallons of advanced biofuel. In addition, the agency has set the 2019 RVO for biomass-based diesel at 2.1 billion gallons.

RUNNING ON RINS
Also included in the overall mix of blended fuel offerings is the Renewable Fuel Standard, which creates a strong incentive for fuel marketers to blend renewable fuels into the fuel supply while lowering the price at the pump for consumers. Credits called Renewable Identification Numbers (RINs) are the mechanism for insuring that the prescribed levels of blending are reached.

The EPA is responsible for overseeing and enforcing blending mandates and developing regulations for RINs. The credit program the EPA created was to ensure RFS compliance.

“Current market conditions are creating strong values for RINs, which in turn creates a strong incentive for higher level blends like E15 and E85,” said Bob Dinneen, president and CEO of the Renewable Fuels Association (RFA). “This environment will persist at least through 2018 because the EPA just recently finalized strong RFS requirements for next year. Over the longer term, we expect RIN prices to remain relatively strong until they have succeeded in driving widespread use of E15 and other higher-ethanol blends. Once E15 is the ‘new E10’ and/or more E85 is widely used, RIN values are expected to recede.”

Jetz Convenience Centers last fall added to its ethanol offering at its Muskego, Wis.-based station with the addition of five new Unleaded-88 (E15) pumps and four new E85 blender pumps, supported with funding through the federal Biofuels Infrastructure Program via Biofuels Retail Advancement in Wisconsin Transportation grant funds. Jetz first began offering blended fuel at its Milwaukee location in November 2016.

Bob O’Connor, Jetz president, said RINs are a necessary part of the blended-fuel market, but in the end, fuel retailers have to look after their own self-interest.

“In my opinion, if you’re not getting credit for the RINs, it’s a deal breaker,” said O’Connor. “In order to be competitive in this space, there has to be cooperation on those RINs. Period.”

CLEANER AIR
Japan is the biggest market for hydrogen cars, and is home to just under 100 hydrogen filling stations. That’s considerably more than the number of hydrogen stations in the U.S. Hydrogen proponents say the alternative fuel offering is superior to combustible options, but acknowledge that the wide-spread adoption of hydrogen cars in the U.S. is some time away.

Of course there are other fuel options that have taken hold at many c-stores and travel centers including compressed natural gas (CNG), which is considered a cleaner alternative to gasoline or diesel because of association with cleaner air quality.

While the installation of CNG was robust in the industry a few years back, low gasoline prices have adversely affected many of those CNG operations.

The price of U.S. crude oil remains low as a global supply glut persists, despite the disruption brought on by Hurricane Harvey, providing retailers pricing stability. It isn’t as though Hurricane Harvey actually made a dent in the ample amount of gasoline available in this country. Analysts report that U.S. crude production is still climbing currently, pushing gasoline prices lower.

Just before Christmas, AAA noted that weekly gasoline inventories increased by 5.7 million barrels of oil, according to an Energy Information Administration report.

Jiffy Trip operates 28 convenience stores across central and northwestern Oklahoma. Alex Williams, Jiffy Trip’s chief operating officer, said up until a year ago, the c-store chain enjoyed strong CNG sales to fleets that operated flex vehicles. But over time, the company has curtailed its CNG offering at some locations because of declining CNG sales, coupled with higher maintenance costs associated with CNG service.

Today, the chain is operating one CNG location.

“I think that’s why you see so many people shutting them down, because gas is $2,” Williams said.