North American mobility retail balances old and new for future success

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Mobility retail (MR) has long been a profitable segment of the oil and gas industry. It encompasses fuel stations and associated convenience stores as well as services such as electric vehicle charging stations and car washes. The North American MR market is the largest in the world, accounting for half of global EBITDA in the sector, and is growing at a rate of 4 to 5 percent per year.1Global Energy Perspective 2022, McKinsey.

However, this arena is becoming increasingly complex. Conventional internal-combustion engine (ICE) fuel is still a critical offer that attracts consumers to sites and is likely to remain so for the near future. But fuel’s dominance is challenged by increased fuel efficiency and the rise of electric vehicles (EVs). New commuting patterns such as e-hailing are also impacting the sector. Retailers need a transition plan to keep up.

Along with new EV infrastructure, fuel-station convenience-stores will be an important part of this strategy. Convenience-store retail has been a major contributor to the success of North American MR over the last two decades, and currently generates 60 percent of gross profit in the sector.2 It is set to become even more important, as traditional “fuel-first” consumer missions (focused primarily on refueling vehicles) dwindle in comparison to “store-first” trips. In addition, excellent consumer retail has become a key differentiator in the sector, especially in fresh food service.

Leaders in this field will combine fuel retail, EV infrastructure, tech-enabled convenience, and food service—all while responding nimbly to consumer shifts, new technology, and the needs of younger consumers.

Fuel is still a force, but challenged by growing trends

The forecourt, where drivers pull up to refuel, remains a drawcard. Most MR sites still rely on fuel sales to attract customers, with six in ten fuel buyers also making a purchase in attached convenience stores.3 The revenue stream afforded by fuel sales is also important to recover outlays as stations expand to accommodate additional functions (see sidebar “Mobility-retail infrastructure is expanding across formats”).

Fuel-retail margins are healthy: they hit over 30 cents per gallon in 2021 and remain high today.4 Other factors are expected to help maintain profits at the pump, including the recouping of credit-card fees, introduction of micro market and dynamic pricing, and the sale of premium biofuels. Industry restructuring could also play a role—with over 70 percent of the North American mobility-retail market currently owned by businesses with 50 stations or fewer, consolidation could firm up margins.5

Nonetheless, volumes are under pressure from vehicle-fuel efficiency in the short term and EVs in the long. A further threat to the role of fuel as a drawcard is the slowdown in growth of the region’s car parc, due to factors such as the rise of e-hailing, which is increasingly replacing car ownership among many younger people.6

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The e-mobility opportunity

E-mobility—the transition from ICE vehicles to EVs—is expected to grow steadily over the coming years as charging infrastructure matures, tech investment is incentivized, and EV vehicles become more affordable. Although it is not certain when EVs will overtake ICE vehicles in the United States, the transition is coming, and it is vital for MR businesses to be ready to adapt.

Mobility retailers are strongly positioned for the coming e-mobility revolution. For one, charging can usually be integrated seamlessly into their existing networks. Second, their in-depth understanding of mobility consumer behavior across various domains—including B2C, B2B, and B2B2C—their proficiency in managing networks of sites in multiple formats, and how to build hybrid-energy businesses is an additional asset. Alternative fuels could also be an avenue for growth in the shorter term: an expected 7 percent growth in such fuels from 2020 to 2035 will be driven in part by biofuels’ role as a bridge to EV use.7Global Energy Perspective 2022, McKinsey.

Meeting the demand for EV charging infrastructure is a major opportunity for mobility retailers. This is a natural extension of the “forecourt or backcourt” station model: EV owners are even more likely than ICE vehicle drivers to patronize convenience stores while refueling and spend more when they do. The turn-in rate for EV drivers can be nearly 45 percent higher than for ICE drivers, while average food spend can be around 25 percent higher.8

The EV charging pool in North America is still relatively small, with a low percentage of “on-the-go” charging (around 40 percent compared to a global average of 55 percent). But in time, in- and out-of-home electric vehicle charging infrastructure (EVCI) will be required. Though slow to mature, this segment represents an approximately $40 billion market, with around $32 billion flowing from “on-the-go” charging.9 Whatever the mix of infrastructure looks like in the future, the goal is the same—to encourage hybrid consumers to visit the convenience store as well as fueling or charging their vehicle.

Nevertheless, as EVs grow more prevalent, charging will also increasingly occur at home, drawing customers away from the fuel station. In this case, simply providing charging infrastructure may not be enough. To adapt, the industry can build more destination offers, with an emphasis on the convenience store.


The future of mobility

Convenience stores on the rise

Convenience stores (and other nonfuel businesses) are central to the continued growth and profitability of the MR sector. They represent the largest and highest-value growth pool for MRs and increasingly act as the primary customer drawcard, for whom convenience-store brand is more important than fuel brand.10 The backcourt is likely to continue to grow in importance as customers move from “fuel-first” missions to “store-first.”

Consumers are visiting convenience stores more than ever, with over half of US consumers doing so at least once a week as of 2019.11 This trend was amplified during the COVID-19 pandemic when many consumers were attracted to local shops that offered fast, streamlined operations and a variety of products, particularly high-value, freshly prepared food and beverages. Businesses that doubled down on these strengths flourished while others fell behind.

Customers are also spending more money per visit. This trend spiked during the COVID-19 pandemic and has maintained its growth ever since. Between 2018 and 2022, there was a 22 percent increase in the average convenience-store basket value, outdoing fuel (Exhibit 1).

Post-pandemic, consumers are spending more at mobility retailers.

These trends are expected to continue. Overall, the food service and convenience sector in North America is expected to undergo a 4.3 percent EBITDA CAGR between 2019 and 2035.12 This growth is particularly strong in the south and west of the United States, where fuel demand is also increasing along with population growth (Exhibit 2).

In the United States, convenience, foodservice, and services value pools are expected to grow.

The convenience-store sector has also become a favorite investment opportunity for private equity firms, oil and gas companies, and regional and family-owned players looking to capitalize on high price-to-earnings ratios, steady cash flows, and promising growth. Indeed, this sector has been the primary driver of increased EBITDA multiples in M&A since the COVID-19 pandemic. Given that the convenience-store sector is highly fragmented, the race is on to expand, capturing lifelong, loyal customers.

It is crucial for MR businesses to ensure that their convenience stores are attractive to consumers, and to differentiate their offerings from competitors. The availability of high-value, freshly prepared food and beverages is a major draw. Today’s consumers also demand a quick and easy shopping experience that often includes omnichannel or other tech-enabled services.

Foodservice: Fresh, healthy, sustainable, and affordable

Foodservice trends favor fresh, ready-made foods and beverages. Currently, MR food service contributes more than half the in-store gross margin. Profits in the prepared-food category have increased by 18 percent year-on-year—while in 2021, hot dispensed-beverage profits saw a 9 percent year-on-year increase (largely because of specialty coffee sales).13 In the same year, prepared-food sales in the United States averaged $32,000 per store per month, with a $19,000 gross margin.14

Fresh, local food service is compatible with a global trend toward healthier and more ethical eating: two out of three consumers have changed consumption behavior due to sustainability considerations.15 At the same time, financial struggles persist. In 2022, a McKinsey survey found that 74 percent of US consumers were trading down to less expensive brands.16The great uncertainty: US consumer confidence and behavior during inflationary times,” McKinsey, August 16, 2022. Many retailers now offer private-label brands to cater to consumers seeking value.

Tech-enhanced customer experience

Consumers of different age groups have different spending patterns in convenience stores (Exhibit 3). While baby boomers have a higher average basket value, Gen X and millennial consumers tend to visit convenience stores more often. Consumer preferences are also evolving—younger, digital-savvy consumers are eager users of new technology, have a lower tolerance for queuing, and want a quick, easy shopping experience as they refuel or recharge.17 Such customers expect high-tech payment and ordering options: e-pay, pre-order, delivery, hands-free mobile voice ordering, and self-checkout. We also see a trend toward online engagement, e-commerce, and customization.18

Younger generations have lower basket values but shop more frequently.

Looking to the future

Our research suggests that successful retailers will continue to leverage high traffic, diversify to serve new needs, and use strategic practices to drive growth in nonfuel services (see sidebar “Five strategic practices for the mobility-retail store of the future”). Three broad action areas will be particularly fruitful in generating revenue, hedging against changing fuel volumes and margins, and retaining customer loyalty.

Maximize the fuel business while preparing for e-mobility. Set fuel prices dynamically to drive volume and margins; market in-store fuel brands to capture market share; and develop a biofuel offering to ease the EV market transition.

Enhance operations and customer experience. Leverage next-generation merchant insights to drive performance and vendor management; reinforce loyalty via personalization, customized incentives, and enriched customer journeys; and deploy store-of-the-future technology to automate and streamline operations.

Develop innovative convenience offerings. Plan value propositions in high-growth, high-margin categories such as foodservice, and tailor value-added services to emerging customer profiles. Develop a commercial strategy (partnerships, joint ventures, and M&A) to expand the in-store offer, improve margins, and strengthen the brand.

Retaining customers and growing one’s customer base in the complex and competitive MR sector demands a combination of retail modes: fuel, EV infrastructure, tech-enhanced customer experience, and high-quality convenience-store offerings. Although the energy transition will likely take years, the shift to e-mobility seems inevitable. Forward-looking MR players will prepare for this transition by investing now in diversified stations that cater to increasingly discerning current and future consumers.

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