Industry Stories
Disrupting the Last Mile in Oil and Gas Retail
Few industries have felt the pressure to digitally transform themselves as urgently and broadly as retailers. The e-commerce upheaval has altered how buyers and sellers approach everything — from cars to clothes to groceries.
In 2018, online shopping accounted for 14.3% of U.S. retail sales, up from 5.1% a decade earlier. Almost any product is now just an app away.1 However, one sliver of the retail ecosystem remains largely unchanged in terms of last-mile delivery: oil and gas. Sure, there have been some minor upgrades, such as newer payment methods and app-based loyalty programs, but these changes are hardly transformational, particularly in comparison with other retailers.
Transformation overdue
This limited progress means that immense opportunities are still available for oil and gas retailers. They can emulate other retail sectors and use technology to launch large-scale business transformations.
Some of the changes in traditional retail — which also apply to fuel retail — include:
- Consumers are wanting to have more meaningful interactions and engagement with the store experience — from Trader Joe’s to Costco to H-E-B.
- Consumers are seeking the convenience of ordering from anywhere, choosing pickups or deliveries, and even spending time browsing.
- Technology is disrupting the retail experience itself. The best-known example is Amazon Go, where consumers have no interaction at all with store personnel.
At the end of the day, retail is competing for the finite amount of time that consumers already have divided among work, entertainment, commuting, education and family.
Any retail approach needs to meet consumers where they live — or work. Instead of waiting for a consumer to go to the gas station for fuel, can we deliver it to their doorstep? Can the omnichannel retail model that has upended the grocery stores and the consumer packaged goods companies succeed for oil and gas retail too?
Consumers are increasingly conditioned to assume that purchases will be fast, frictionless and delivered to their doorsteps. Food delivery — a longtime consumer convenience — has evolved to the point that some meals arrive from “cloud kitchens” that don’t even have physical restaurants attached.
On the retail side, the Amazon Key service delivers parcels to the buyer’s parked car with the help of internet of things technology. Similarly, Walmart recently introduced its InHome service in which the retailer delivers fresh groceries directly from the store to the consumer’s refrigerator.
Duplicating that model for fuel retail would add tremendous value for busy consumers and allow oil and gas companies to differentiate themselves from their competition.
A few oil and gas companies, as well as many smaller startups, have begun exploring doorstep delivery systems for gasoline and diesel fuel. Earlier this year, the Indian Oil Corp. started its home delivery of diesel for industrial equipment service.2 Other Indian startups, such as MyPetrolPump, PepFuels and ReadyAssist, have started delivering fuel to consumer vehicles and generators.3
Similarly, Booster has started a same-day fuel delivery service in the United States. ExxonMobil has invested in Yoshi, another U.S.-based company that provides fuel and maintenance services for vehicles at the consumer’s doorstep. WeFuel offers an unlimited delivery subscription model at $19.99 per month. Filld and Purple are other startup competitors.
A study of the above-mentioned startups shows that consumers can benefit from them in multiple ways. The advantages of these new models include:
- Options to make on-demand purchases and the delivery of fuel similar to buying from grocery stores, big-box retailers or online sellers.
- Delinking of financial transactions with fulfillment. In other words, order in advance to get better pricing but charge for convenience.
- Partnering with automobile manufacturers or investing in technology to understand user driving behavior and location for more effective sales.
- Finding new revenue opportunities from other retailers via advertising.
- Creating visibility in the delivery process, similar to Safelite or AAA.
- Cross-selling and upselling other convenience items. The National Association of Convenience Stores has found that 45% of fuel customers also buy merchandise from the attached convenience store.4
However, providing an on-demand service model is more complicated for the oil and gas industry than for other retail categories. A certain amount of innovation is needed to offset price volatility and address greater safety concerns. Some U.S. cities have warned of fire risks from fuel deliveries.
Also, there are still questions about how widespread the demand will be for such services. In many areas, gas stations are plentiful, convenient and not particularly time-consuming. It’s easy to see fuel delivery gaining a foothold in selected areas, while failing in others. The switch to electric cars could also put pressure on these businesses in the future, although there will still be ample fuel demand for decades.
Catching up
There are always risks when experimenting with business models, but the opportunities are broad and apparent for the oil and gas industry. Fuel retail companies should offer on-demand fuel delivery for a variety of reasons.
Customer stickiness
Gasoline is largely seen as a commodity. Consumers rarely have an affinity or preference when it comes to choosing one brand of gasoline or diesel fuel over the other. Most purchases are purely need-based and depend more on factors such as proximity to a gas station.
Disrupting the service model through a convenient “anytime, anywhere” service will go a long way to help fuel retailers gain brand loyalty. It is also possible to provide incentives, such as discounts for pre-ordering.
Demand forecasting
With existing fuel retail models, companies have little visibility in terms of expected sales over the next week or month. The pre-order and delivery models provide greater opportunities to lock in customers for an extended period through incentives. In turn, this can facilitate much better demand forecasting.
Many drivers have a good sense of their expected fuel consumption over a given period. If they get good offers or incentives, many consumers will take that opportunity to lock in fuel prices. This brings much greater predictability for companies and consumers.
Customer insights
Retailers today have greater insight into their customers’ preferences and buying habits than at any time in the past. When used in conjunction with data analytics and machine learning, this information allows them to offer personalization at scale. In the current oil and gas retail model, there are fewer opportunities to collect detailed customer data or identify individual buying patterns. Revamping the delivery model can help generate useful insights to drive better customer experiences and create new services. Some fuel delivery companies have expanded their offerings to include basic maintenance as well as washing and detailing.
Ultimately, these and other innovations are needed to catch up to the current retail market. A platform-led model for oil and gas retail will likely find initial-use cases with fleet vehicles, such as school buses, taxis or rental cars. In the long run, however, on-demand gasoline and diesel could expand beyond its current startup-based niche and broaden the future for fuel retail.
1 www.digitalcommerce360.com/article/e-commerce-sales-retail-sales-ten-year-review
2 www.iocl.com/aboutus/NewsDetail.aspx?NewsID=52198&tID=7
4 www.nacsmagazine.com/issues/october-2018/changing-how-consumers-buy-gas
