What can the fuels industry expect in 2021?
Based on how we thought 2020 was going to go vs. where it ended up, it may seem unwise to bother forecasting what to expect from 2021.
However, we can make some predictions that can help us prepare for both the best and worst case scenarios:
Market consolidation may not only continue, but accelerate.
While it is unlikely we will see deals on the scale of the 7 & i deal for Speedway, investors will seek convenience assets to add to their portfolio where EBITDA can be increased to show strong returns.
Depending on how the Democrats handle the current crisis, interest rates across the board are likely to remain low (Axios gives some good insight here), so the return needed to make loan-based investment is still low. This makes investing in resilient markets like fuel an attractive proposition.
Smaller retailers may also be more keen to sell. It is becoming increasingly harder to compete with multi-acre sites with fantastic convenience offerings and they will not be short of offers.
Margins will probably remain strong
Oil has had a bit of fun at the start of this year, but the EIA is predicting stability. This and the need from bigger groups to maintain margins in a reduced volume market means it is likely that margins will remain at a respectable level for most of 2021.
In a depressed market, reaching for volume is going to be tough, so more retailers might try to hold margins higher to keep a necessary level of fuel profit to continue business as usual.
Pricing habits will likely change
As COVID levels rise and fall, habits evolve and volumes are unpredictable; this makes setting automatic pricing strategies more difficult than ever. For the bigger groups using automated tools, these will need to be tweaked more regularly or require more manual intervention.
Before COVID, pricing was becoming more automated and you’ll be hard-pressed to find a large group that did not have software to perform the majority of its strategy implementation. These tools will continue to have a huge role in setting market pricing, but the way they are used could change as retailers react to changes around individual sites or geographical locations out of their control.
The NACS Consumer Survey continues to tell us that while price remains the dominating factor as to why consumers visit stations, this is on a downward trend from 72% in 2015 to 58% in 2020. What else you offer at your station rather than a low pole sign price could determine your success this year.
So, we can expect innovation to continue
There is no reason to believe that the innovation seen by the fuel retail markets in 2020 (and before) will dwindle in 2021. If anything, retailers will be looking for alternatives to fuel to create profit lines, but what these are will be determined by how COVID plays out.
Anything that can move people in and out of the store faster while maximizing basket spend will be desired by retailers, so expect technology that encourages this to be invested in during 2021.
Consumers are likely to favor pay-at-pump and mobile-app options.
Retailers will be hoping for more stability in 2021, and the development of vaccines seems to give some hope that this global crisis can be brought under control. In many ways we can count ourselves lucky that we have been impacted less than other industries and be confident that it has been proved just how essential (and resilient) an industry convenience is.
Surely 2021 can’t be anymore chaotic than 2020? Or could that be more famous last words?
Whatever happens, have a great and – more importantly – safe 2021.