More than a Dose of Leadership
Full coverage of Outlook Leadership 2012.
Global demand will keep traditional forms of fuel viable for decades
Will electric cars replace gasoline-powered ones in the next 30 years? Not if energy costs and global demand play a role. Supply and demand and the cost effectiveness of the world’s current fuel-distribution system will keep liquid fossil fuels in the mix, with electricity making gains but not taking over.
Why? The simple answer is people, according to Vincent Yuskiewicz of ExxonMobil. Yuskiewicz, energy adviser with corporate strategic planning for the Houston-based major oil company, said the 7 billion people on the planet will increase to 9 billion by 2040, he said, requiring 30% more energy than today.
On the retail front, Yuskiewicz said U.S. demand for fuel will continue to fall as more people work from home and vehicles become more fuel efficient, further heightening competition. The extensive use of hybrid vehicles to further soften demand will not become a factor, he said, until they achieve price parity with regular cars (in about 2025, he said).
But when price parity occurs, “with 30% more fuel economy, sales of hybrids will increase.” In addition, vehicle size will come down, he predicted. Overall, U.S. transportation demand will fall by 10%.
Demand for energy in general will slow as economies mature, fuel efficiencies increase and population growth moderates. From 2010 to 2025, the global population is expected to grow by 20%, but from 2025 to 2040 population growth will hit only 10%. China’s population, for example, is forecast to grow over the next two decades and then flatten out as its economy and population mature. India and Africa will be the areas of strongest population expansion and gross domestic product (GDP) growth going into 2040.
Worldwide, a disparate energy picture will evolve between developing and developed countries, he said. Using ExxonMobil’s parameters of countries belonging to the Organization for Economic Cooperation and Development (OECD) and those that don’t, Yuskiewicz said energy use in OECD countries will nearly flatline, while demand in non-OECD countries will grow by close to 60%. In those countries, billions will be working to improve their standards of living, requiring more energy.
By ExxonMobil’s forecast, the biggest change will be the rise in the use of electricity, which by 2040 will account for more than 40% of global energy consumption. It’s a growth rate of almost 80%.
Cleaner fuels such as natural gas and alternatives such as wind and solar will grow. Natural gas will overtake coal for the No. 2 position behind oil, leaping by 60%. Wind, solar and biofuels will account for about 4% of global demand; wind power will be the fastest-growing source, at 8% a year.
Energy-related emissions worldwide are expected to grow but level off by 2030. For the United States and Europe, the shift from coal to alternatives such as natural gas will contribute to the trend.
Flat demand and resource discoveries in North America may pave the way for growing energy independence and even the United States becoming a viable exporter of crude, Yuskiewicz said: “Energy use will evolve when it makes commercial sense.”
Mystery Shop Underscores Importance of Interaction
If you go beyond the numbers, the results of the eighth annual CSP-Service Intelligence Mystery Shop show the importance of a critical part of c-store retailing: customer and employee interaction.
The nine chains in the study this year were Kwik Trip, Casey’s, Thorntons, 7-Eleven, Sheetz, Quik-rip, Stripes, Quick Chek and Kum & Go. For the third time in four years, Kwik Trip landed in the top spot (CSP—Aug. ’12, p. 44).
Interaction between customers and employees was most evident in a new feature for the program: the inclusion of comments from the mystery shoppers. They ranged from the terrific (“She was cleaning when I got there, and the store looked fresh and nice,” about a 7-Eleven) to the unpleasant (“The store smelled horrible from the second I walked in”). When it came to praise, about a third of the shoppers identified the store employee by name. In the criticism, naming names rarely occurred.
When delivering feedback to such employees, it’s critical to reward and incent them so they want to do it the right way, said Cameron Watt, executive vice president of In-Touch Insights Systems/ Service Intelligence.
“When you create a culture of positivity, you increase loyalty” with employees, agreed Mitch Morrison, vice president and group editor of CSP Business Media. That loyalty trickles down to customers, he said.
The study also showed that customers don’t mind waiting in line if the employee at the register is efficient and effective, and if he or she is courteous and friendly during the interaction. Shoppers much prefer that to no line and an unpleasant experience with the employee, which was cited in one out of 15 comments about the checkout. “The line isn’t as much of an issue,” Watt said. “It’s more about the quality these days.”
Another change to the study was measurement of loyalty programs and suggestive selling, which some of the chains didn’t want to be graded on because their employees are not encouraged to practice it. However, when that question was taken out of the score for the top overall chain, nothing changed: Kwik Trip was still No. 1, Sheetz No. 2 and QuikTrip No. 3.
“The reality is that the industry is not suggestive selling or pushing loyalty programs much,” Watt said. Forty-six percent of the locations visited had some type of credit card or loyalty advertising but “weren’t talking about it,” he said.
In-Pump Video, Mobile Payment Gain Momentum
With the growing commonality of non-traditional TV networks and versatility of smartphones, retailer discussions of both video advertising and mobile payment at the pump is hitting critical mass.
Matthew Stoudt, CEO of in-pump media network Outcast Media Inc., Santa Monica, Calif., said pumps are beginning to offer three important functions: loyalty, gender-targeted marketing and local marketing based on area events and weather. “You’ll see ads for ‘fully loaded’ soda for men [at the pump] and healthier choices for women,” Stoudt said. “And instead of an old-school payment system [at the pump], there will be mobile payment.”
Stoudt said his company has produced award-winning marketing campaigns tied to weather, with one in particular for a cough-drop company. When the pollen count was high for an area, the in-pump network ran a cough-drop ad. The sales lift in its internal studies was as high as 35%.
The mobile-commerce joint venture, created by three major phone carriers (AT&T Mobility, T-Mobile USA and Verizon Wireless), has partnered with two dispenser companies, Austin, Texas based Wayne and Greensboro, N.C.-based Gilbarco Veeder-Root.
The technology involved is near-field communication (NFC), Theiss said. It works off a chip implanted in the phone and relies on radio frequencies to activate and inform the payment device. “People want choice, privacy and security,” Theiss said.
How Not To Die – And How To Grow
“If you don’t pay attention to what the culture wants, you die. If you do something the public tells you they want, you win.”
That’s a bold, black-and-white statement, courtesy of comedian, author and former TV personality Ross Shafer. In his session “Stay Relevant and Find Growth,” he offered six guidelines for how not to die in today’s ultracompetitive business world:
- Don’t Kill Future Income by Celebrating Yesterday’s Profits: Companies can’t keep making money the same old way. Take, for example, Kodak. The company invented digital technology in 1976 and … ignored it. “The mighty fall because they get arrogant,” and it takes time to slip deeply into debt, Shafer said. Other recognizable names far into the red that may not make it are Avon, American Airlines, Eddie Bauer, Talbots and Six Flags.
- Women Rule the World: “Start thinking about women the way you’ve never thought of them before,” he said. Women “buy everything”; they dominate every purchase category, even automobiles (at 68% of purchases). The average satisfied female customer will recommend a service to 21 other people. Men will talk up the same experience to only 2.6 people. “Women don’t just buy a brand—they join it,” Shafer said.
- Underthink Innovation: Sometimes small, easy changes make a big difference. He cited Starbucks’ greeting, which is not “How can I help you?” It’s “What can I get started for you today?” That slight change in phrasing makes the visit an interactive experience.
- Customer Urgency Has Replaced Service: “Broadband has created the on-demand customer” because the world is on demand now, Shafer said. You have to give them everything they want. Seventy-three percent of 18- to 45-year-olds will bolt after one bad experience—and 85% of them will tell people about it on some kind of social media.
- Target Your Competitors, Then Get Tactical: “The only way to grow in a flat or declining economy is to take business from your competitors,” he said. Join competitors’ social media groups to find out what they’re doing and hear about what their customers think. And don’t forget to see what they’re saying about you, too.
- Discounting Is Over; Quality and Value Win Now: “If you sell quality, people will buy quality,” he said. Burger chains Carl’s Jr. and Hardee’s have never offered value meals—because they don’t need to. And more than 70% of Hilton’s next planned hotels are considered luxury or ultra-luxury.
“Stay relevant by paying attention,” Shafer said. Work hard and worry about your own legacy, he said. It’s all about what you leave behind.
Extreme C-Store Real Estate Consolidation Ahead?
Is it possible a healthy majority of c-store real estate could be owned by only three to five companies come the end of the next decade? Based on history and the growing development of MLPs—or master limited partnerships—in the industry, one financial expert says yes. “Ten or 15 years from now, you will probably see three, four or five MLPs that control the c-store piece,” Mark Huhndorff speculated during a panel discussion on capital markets.
Huhndorff, managing director of Dallas-based Raymond James, which recently acquired Morgan Keegan, compared the c-store industry to the propane industry of a decade ago. “Ten years ago, the propane industry was like c-stores today, very fragmented,” he said. “Today, through MLP consolidation, there are really only three propane MLPs. They own the industry. … Similarly, we see a wave of consolidation coming in the [gasoline] wholesale/ distribution business.”
Huhndorff and his colleagues were quick to add, however, that even if the MLPs—a specific type of publicly traded partnership that allows the pass-through of operating results directly to unit holders—do buy up c-store real estate across the country, they’ll still need multiple operators for the sites.
“Quality operators are still very necessary to make the MLP strategy work,” said Scott Garfinkle, also a managing director at Raymond James, citing that MLPs make their money on rent and gasoline margins. “Someone still has to operate the stores and make them work.”
Green And Baring It
CSP honor Royal Farms, Home Service Oil, Highland Chevron for environmental stewardship
There are many paths that lead to an eco-friendly business, including the desire to pollute less and the drive to cut energy costs, even as a marketing strategy. The following three retailers have each taken the road to make their stores a little more green, earning the honor of CSP’s Environmental Stewardship Awards.
Executives with Royal Farms convenience stores like to say they were eco-friendly before it was cool.
Simple considerations had already put many of the ideas that today are considered green into play. And while the reasons to consider environmentally friendly design begin with “because it’s the right thing to do,” that’s not where they end. Instead, the company considered: Could skylights reduce electricity bills? What can we do to reduce water waste?
As a result, company president John Kemp says when the chain decided to pursue Leadership in Energy and Environmental Design (LEED) certification from the U.S. Green Building Council, it found it really needed only a few small changes to get its newest stores up to snuff.
“We were already doing a lot of energy-saving things, a lot of water-saving things,” Kemp says. “We were doing these things because there was a return on investment there. So when we looked at LEED, we realized that we qualified for most of the points already.”
Having partnered with green-building consultants from Lorax Partnerships on store development, the sites offer a veritable checklist of eco-friendly design elements, from a white roof and LED lighting to trash and grease recycling, dry-flush urinals and variable-flush toilets that reduce the amount of water that goes into a flush.
The chain’s LEED-certified stores provide a list of the green elements within, right inside the doors, where the LEED plaque is proudly displayed to let consumers know Royal Farms cares.
With 10 of its 140 stores in the Baltimore area LEED-certified, and a few others going through the process, Kemp says most new sites will also be built to green standards. “We’ve reduced water and sewer costs by 41%,” Kemp says. “Just based on the ROI and the savings, it pays for itself. Even if we didn’t have the [LEED and marketing] benefits, we would be doing this just for business sense.”
Home Service Oil/ExpressMart
When Home Service Oil built its newest Express Mart stores outside of St. Louis, it thought socially and environmentally, bent on achieving a look, offer and back story—a green back story—that was new to the area.
“There’s a return on investment at the end” of projects like this,” says president David Mangelsdorf, “but it’s the social conscience of the public today that demands that you pay attention to the environment.”
The results at the two stores include skylights, controlled lighting systems, and LED lighting inside and outside the store— elements that show a social conscience and also offer a return on investment.
“[We consider] anything that we can bring in that not only shows that we have an awareness of the environment and the impact it’s going to make on our kids, but long term, we’re considering a return on that investment as well,” Mangelsdorf says.
Home Service Oil has included LED lighting in coolers, graphics and canopies, and wherever the company feels it provides the best look. It’s adopted a variable-lighting ballast system that adjusts based on the amount of light coming in from outdoors, including through six skylights in the ceiling. Outside, industrial-sized recycling bins drew immediate attention, eliciting Facebook comments such as “Way to go Express Mart for helping the environment!” and “Awesome, Jefferson County needs more of this!”
For Mangelsdorf, it’s about doing what works best for the store, the customers and the community. The skylights and variable lighting “not only create less energy usage by the fluorescent lighting, but it also creates a better atmosphere,” he says. “Sunlight is much more pleasant than artificial lighting is.”
He’s also proud of his Big Ass Fan system. The 8-foot-diameter ceiling fans reduce energy costs by keeping the air moving in the store, reducing the pull on the air-conditioning system. He anticipates a 20% savings on electricity consumption.
Highland Chevron ExtraMile
Bob Barman dug deep—and reached up high—to create what he calls the “greenest gas station in the country,” literally.
Barman, owner of the Highland Chevron ExtraMile store in Beaverton, Ore., has incorporated dozens of eco-friendly elements into the site, many of them firsts for the convenience-store industry.
Up high, a living green roof collects rain water, reducing runoff and insulating the store, and 175 solar panels on the roof and canopy allow Barman to produce all the power needed to operate the site.
Down low, Barman burrowed into the water table, adopting a practice (suggested by a general manager) called geothermal heating and cooling. “We drilled down 45 feet to tap into the Earth’s water; we borrow it,” Barman says. “In the winter, it heats our building, and in the summer, it cools our building. So our energy use is 50% to 60% less than normal.”
At the pump, biodiesel offers an indication to consumers of Barman’s commitment to environmental stewardship. Around the store, signs and literature really tell the story to customers.
LED lighting can be found everywhere, further reducing energy use. But it’s the electric-car charging station that Barman feels really makes a statement about the site. “I’ve been asked, ‘Why would a gas station add an EV charging unit?’ My answer is simply: We need to be part of the solution and not part of the problem,” he says. “Yes, I’d like to sell you gasoline, but more importantly, I’d like to help our community, our environment and our country.”