Gas Exodus Extra: Consider the Alternatives
As gasoline demand slowly fades, retailers place their bets on the next big fuel
Published in CSP Daily News
OAKBROOK TERRACE, Ill. -- Even after an expected 24% decline in gasoline demand between 2012 and 2040, gasoline-powered vehicles would still make up nearly 78% of the U.S. light-duty vehicle sales, according to projections from the Energy Information Administration (EIA). But that doesn’t mean retailers should not consider diversifying their fuel offer today, experts contend.
“Whether it’s 24%, 22% or 20%, [the decline] is going to occur. What replaces it [as a motor fuel] is the problem,” Norman Turiano told CSP Daily News. Turiano is founder of Turiano Strategic Consulting, Cape Coral, Fla., and former senior manager of fuel business development for convenience-store retailer Wawa Inc., Wawa, Pa.
Turiano expects the government’s current scattershot energy policy to continue, with no one fuel becoming the dominant alternative. He predicts, however, that new-era chains will find the greatest competitive advantage in this area.
“You’ll see a price sign that offers electric charging, CNG, hydrogen. That’s going to be part of their brand image,” he said. These large, privately owned players— Wawa, Sheetz, QuikTrip, Racetrac and Kwik Trip, for example—have the ability to raise capital to put such big infrastructure changes in play, he said. The large players are already building new sites with the appropriate infrastructure to handle alternative fuels, such as extra conduit and piping. After lengthy study, Wawa recently announced plans to sell compressed natural gas (CNG) in its first site in New Jersey. But for the smaller operators, the costs will be prohibitive.
“We have to understand that 62.8% of all c-stores in the U.S. are single-store operators. They’re not going to be able to make that infrastructure change because there may or may not be a payback,” said Turiano. “Someone who drives a 20-year-old car that only runs on gas may be able to purchase at the other 62.8% of stations, and maybe pricing looks different.”
Market-analysis firm IMST Corp., Houston, has urged its clients to consider room for alternative fuels as they buy and develop new sites. “Any project considered today, you have to look that it has a 20- to 25-year life,” said CEO Jim Fisher. “Maybe CNG and LNG are not going to impact you in the next two to three years at that location, but I can guarantee you in the lifetime of the store, it will impact you, and you better have the capacity to offer it and know where to put it when that time comes.”
Kwik Trip Inc., La Crosse, Wis., has been a first mover in CNG, using it as a way to diversify its fuel business as gasoline volumes in its markets decline. The chain has the industry’s first alternative fuels station in La Crosse, selling a mix of biofuels, CNG and liquefied natural gas (LNG). Two dozen additional stations sell CNG in Wisconsin, Minnesota and Iowa, with a company goal of 45 locations located near major transportation corridors. Despite the chain’s success getting the business off the ground, however, it is realistic about the return.
“We have more than 440 operations, but not every site will have CNG because it’s expensive to put in,” said John McHugh, spokesperson for the chain. The cost to install CNG can run from $600,000 to more than $1 million per site, depending on the degree of redundancy. Instead, Kwik Trip has taken a targeted approach, building a network of sites that will be within the radius of CNG drivers in its tri-state area.
“There will probably be advantages to companies who are first movers,” said David Nelson, president of Finance & Resource Management Consultants Inc., a retail study-group facilitator, Bellingham, Wash. “From the standpoint of someone with scarce capital, … you want to be on the leading edge, not the bleeding edge. If you invest too heavily too soon, and there’s not demand there or too little, it ends up being the right long-term decision but financial suicide in the short run.”
Click here to read more about the changes in store for the industry as gasoline demand fades.