Wednesday, March 24, 2021

An Inconvenient Truth: How Will Convenience Stores Survive the Conversion to Zero-Emission Vehicles

Let’s talk about electric vehicles … and convenience stores.

What do the two have to do with each other? Quite a bit, it turns out: the majority of convenience stores in the U.S. are either part of a larger gas station or offer fuel services themselves. If GM achieves its recently announced goal to convert its manufacturing output entirely to electric vehicles (EVs) by 2035, that will shake up and transform the convenience store industry in ways only few have begun to imagine.

Earlier this year, General Motors put out an astounding statement: the largest U.S. automaker plans to become carbon neutral in its global products and operations by 2040 and eliminate tailpipe emissions from new light-duty vehicles by 2035. In other words, 14 years from now, GM will only manufacture electric vehicles (EVs).

Other automakers are sure to follow and commit to similarly ambitious carbon-neutrality targets. It seems conceivable that in less than two decades, most of us will be driving EVs and the resulting changes in consumer needs and behaviors will require many industries to rethink their strategic plans, business models, and capital investments.

Much has already been said about the impending disruptions and transformation of the national power grid, home electrical systems, and the oil and gas industry that the ascent of EVs will bring about. The impact of these changes on retail, especially convenience stores, is only just starting to be envisioned.

To be sure, major convenience chains, such as 7-Eleven, Love’s, Sheetz, or Casey’s General Store are all experimenting with EV charging technology and investing to reequip and realign their store designs. Much of this work primarily revolves around adding charging stations to their current operations, rather than rethinking how their customers’ behaviors and in-store experience will change in the age of EV dominance.

The GM announcement increases the pressure to move quickly from today’s go-slow, incremental changes, focused on improved charging accessibility, to aggressive and complete reinvention of the future purpose, operating model, and customer proposition of convenience stores.

To achieve that, industry leaders must reimagine the world and how consumers will behave once everyone is driving an EV. Will we need neighborhood gas stations when everyone will be able to charge their cars at home or at the office? When we take a long road trip, and we have to stop for at least 20-30 minutes to recharge, rather than the 5-minute refill, what should these road-side gas stations and rest-stop service areas look like, and what services should they offer?

For highway convenience stores and gas stops, the game will be one of reinventing the store format, products and services, and customer experience.

The fastest charging EV today is the Lucid Air – it can add 20 miles per minute of charging, and a “full tank” that can cover up to 300 miles can be reached in just 20 minutes. Most other established EVs today add 12-15 miles per minute.

Right now, taking two to five minutes to fill up your tank already feels like an eternity. In the future, it might take 10-20 minutes to add 200 miles with EVs. Has anyone stood at a pump for 10 minutes? How about when it is 15 degrees with a stiff wind, and you have to stop every two to three hours for a charge?

Convenience store operators must start thinking about how to engage their customers like never before. They will need to deploy new strategies and pursue new opportunities.

People are generally impatient and particularly when they are trying to get from point A to point B as quickly as possible, so the extra 10-15 minutes of charging time can be a major annoyance – or unlock great new opportunities for convenience stores to offer services that engage the customer, make that time as pleasant as possible for them, and motivate them to spend more.

What do people need or want or miss while on the road for many hours at a time? Perhaps convenience stores can offer stretching stations or mini-gyms – walking on a treadmill for 5-10 minutes can be a welcome option for someone who has been sitting in a car for hours. Pet care, kiddy gyms, or power-nap stations are also possibilities, and so are streaming entertainment pods or gaming stations. Roadside stores and food-service businesses can also offer more curbside ordering and delivery of food and beverages to the charging vehicle.

There is also the opportunity to adapt the in-store merchandising and customer experience to make use of the extra 10 minutes. Store displays can be digitally enhanced with videos, local content and merchandise, mementos, and memorabilia. Categories that rely on slightly longer dwell times than today’s convenient stores are designed for – such as personal care, vitamins and supplements, or prepared food stations – can also be incorporated in the layout of the roadside convenience store of the future.

For the neighborhood gas station and convenience store, the challenge will be one of survival, reimagining their core purpose, and redefining the business model.

If by 2035, most of their current customers are charging their EVs at home or at work, they will have no reason to stop at a local gas station or convenience store. Everyone involved – from the operator franchisee to the landowner to the franchise licensor – will have to rethink their business. How will they still attract consumers to their stores? What will the land use look like?

Operators will have to press licensors of how they plan to continue to support them and drive traffic to their locations. Licensors will have to decide how to evolve their franchise concepts and their marketing support to respond to the new reality of EVs and the fact that consumers will no longer need to stop at a neighborhood gas station.

What would compel consumers to continue to patronize a near-by gas station and its adjacent convenience store? Most likely, the establishment would have to offer more than just a charging cord – it would have to provide other services and help consumers accomplish multiple tasks during the visit.

Prepared food has been one of the answers convenience stores have leaned on – foodservice represents 23% of the industry’s revenue. But convenience operators will have to think beyond food – COVID-19 put a dent in these revenues, as people stopped coming in to buy snacks even when they did stop at a gas station. Plus, convenience stores will now be competing even more than before with small-footprint grocery stores, drug stores, and discount stores in the neighborhood.

One direction the concepts might take is to partner with quick-service restaurant (QSR) chains and incorporate more fast-food options for consumer. You could even imagine Starbucks and other coffee shops becoming a standard component of local EV charging stations and convenience chains. Another strategy is to offer a full menu of car service and maintenance options, including oil change, tire rotation, fluid level and tire pressure checks, and car wash and vacuum. Perhaps it will be back to the days of the full-service station, and maybe even adding more high-tech services, such as smartphone maintenance, accessories, and tech support.

Neighborhood gas stations and convenience stores are in a race to redefine the value they offer from their retail footprint by offering services that are as critical in their customers’ daily lives as refilling the gas tank is today. If they fail to do that, they are in danger of ceding this consumer traffic to other retailers, such as drug stores, QSR locations, or discount stores, who will eclipse the old gas station model by adding charging to their lots.

The fast-moving conversion to zero-emission vehicles, will cause tremendous disruption and have far-reaching repercussions for convenience stores. But, if they respond quickly and creatively to the new customer needs and market opportunities, they could be able to successfully reshape value proposition and secure an attractive place in the retail ecosystem, which would also come with attractive new revenue streams and a stronger relationship with their target customers.

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