How the fuel industry can adapt to changing demands
Earlier this month, Hatch hosted an Executive Innovation Panel in Rosemont, IL that discussed trends in technology and consumer engagement in the Fuel & C-Store space. Various fuel & c-store brands, fuel providers, marketers and tech partners joined for an afternoon of networking, a panel discussion and Q&A. The panel consisted of Todd Lutwak, partner at Andreessen Horowitz; Dave VanWiggeren, CEO at Drop Tank; and Doug Rodewald, strategic advisor at Hoffman Street. While a variety of topics were discussed, three major themes emerged: retail technology innovation, consumer engagement and fuel marketing & innovation. Each theme will be discussed in more detail below.
Retail Technology Innovation
There’s no denying that technology is changing at a rapid pace in the retail industry and significantly impacting consumer demands. From grocery stores that do the shopping for you, to food ordering services that consolidate all of the pesky passwords you need to remember from all of your favorite restaurants, brands are looking for ways to use technology to better the consumer experience. In fact, according to eMarketer, brands with omnichannel consumer engagement retain 89% of their customers vs. 33% of brands with little or no omnichannel engagement.
A number of retailers have been successful in consumer engagement, many of them using loyalty as a catalyst. Nordstrom revamped their loyalty program in 2016 and saw a 30% increase in enrollment from Q1 to Q2 2016. They now have a larger addressable audience and have created a “Nordstrom Shopper,” or rather customers whose behavior they are able to impact with special discount days, early access to sales, etc. “I will look at somebody’s loyalty program and say if it modifies by behavior in any way, they’ve done something quite right,” Todd Lutwak. Nordstrom is getting it quite right, posting record sales in 2016.
While some retail brands are embracing omnichannel engagement, the fuel & c-store space has been slower to follow. This is largely due to the complex technology stack that includes an additional check out point at the pump. Due to the fragmentation in the industry, most retailers and fuel brands are still emerging in the customer engagement and loyalty space. “While what they [fuel & c-store brands] are doing may not look slick in comparison to other industries, it is a triple backflip in their world,” said Dave VanWiggeren of the slow progress being made in the space. Many brands such as Kwik Trip, Sheetz and Wawa are emulating QSRs by focusing on customer service and making fresh food offerings available. While some fuel & c-store brands have begun to address consumer engagement, there is still much more that can be done.
Consumer Engagement & Fuel Marketing
Just over half of Americans say that gas price is the reason they prefer one chain over another, but that number has dropped 6 points in the last few years alone. Consumers expect more from brands than low prices and discounts, pressuring retailers to find ways to keep them loyal. Engaging customers with products other than fuel has become increasingly important in the fuel & c-store space. Industries often do not get to set customer expectations as those expectations are typically set elsewhere. For example, the whole world expected 2-day shipping after Amazon came along and the retail world had to find ways to adjust quickly. The fuel & c-store industry must consider the best practices of other industries and attempt to emulate them.
The gas station is the one place people must visit, but it is never their final destination. While consumers still expect more than just low fuel prices, fuel retailers are facing an exceptional challenge because only 1 in 3 customers that purchase fuel set foot inside of the store. Most are not able to engage customers in the way they want to, but aggregating customer data and leveraging it through a loyalty program can help many fuel brands boost in-store sales. Small in-store adjustments such as placing high profit items in high traffic areas can show immediate results. Fuel brands and retailers must find ways to reward managers and staff that create ways to get customers into the store.
Consumer engagement relies heavily on data, which is the reason many retailers implement loyalty programs in the first place. However, due to the fragmentation in the industry and limitations point of sale systems traditionally pose, it is difficult to gain access to that data in the first place. Most gas stations are individually owned and those owners face daily operational challenges and likely do not have the resources to effectively focus on customer data. Therefore, it is important for fuel marketers to set the standard and demonstrate how that data helps company operations, boosts sales and then find ways for dealers to leverage the data. While loyalty data is getting easier to integrate into existing systems, “The loyalty players in this space have a long runway and a lot of responsibility,” Dave VanWiggeren.
Fuel Marketing & Innovation
By now, it has become clear that consumer engagement is imperative to success and profitability, but that the fuel & c-store space is lagging. Fragmentation of the industry, complicated technology stacks and the large investments made in those stacks are all impediments to innovation. The industry as a whole has limited itself due to inflexible POS systems and dated infrastructure. Fortunately, the industry is at a tipping point with platforms, cloud-based services and open APIs that are allowing for greater flexibility.
Consider QSRs for a moment. Rather than paying $30-$40K (at minimum) upfront for development for inflexible POS systems, many QSRs have opted for tablet-based programs at $300-$500 per month, knowing that those providers are constantly innovating and developing new features. This unbundling of services allows fuel brands and retailers to launch and make changes to existing programs much faster than the 18-24 month standard. Additionally, these platforms can connect to the pump, which can fundamentally change how the industry is collecting data and actually make consumer engagement more than just a pipe dream.
Another major innovation on the horizon is the implementation and impact of mobile payments. While its adoption has been much slower than anticipated across the board, fuel & c-store technology creates additional barriers. Physically changing out fuel pumps and POS systems in order to accommodate new technology is extremely costly, especially for individually owned locations. While this change will happen sometime in the future, there are potentially other changes in payment technology that could impact the industry more immediately, such as the ability to pay for retail purchases with Venmo.
While the fuel & c-store industry has been slower to adopt technology changes than other industries, there are major changes on the horizon. Spending on commerce platforms is expected to increase by 50% by 2019. It is expected that location-based services will play a large role in fuel brands and their relationships with their customers. Additionally, retailers will need to shift their focus from solely fuel and tobacco sales and consider the individual customer’s preferences through effective data collection and analysis.
To see how Hatch can power your consumer engagement strategy in-store and at the pump, visit our Fuel & C-Store page.