There’s an oil boom right now. Worldwide demand for fuel is the highest it has been in eight years and it’s not showing any signs of stopping. The United States Department of Energy predicts that 2017 will show record demand from Americans, as miles driven increase and car sales skyrocket to all-time highs — just as they did in 2015 and 2016.
In the third quarter of 2015, cars in the UK were up 600,000, to 25.8 million. And America has 275 million cars on the road right now. Many of those cars in both countries need petrol. But there’s this weird thing happening in the petrol industry that doesn’t seem to be logical when you look at those numbers: For over a decade, the number of petrol stations around the UK and the US have been slowly, and very steadily, declining. From 2002 to 2012 the number of fueling stations in America went from 170,018 to 156,065. So, what's going on? How is it possible that demand for fuel can be so high, when places built exclusively for accessing it are disappearing?
If you look just at big cities around the world, the answer to that question is pretty obvious and simple. It’s real estate.
New Yorkers that drive, for example, know all too well that Manhattan is a “fuel desert.” According to a New York Times story on the dwindling access to petrol in the city, there are only 50 stations on the island (though other local news outlets report that number is more like 39), the city lost 30 in the last eight years, and there’s not a single one below 23rd Street. It’s a story that any big city with expensive real estate will echo. All you have to do is look at the most expensive neighbourhoods, and you will find the fewest petrol stations.
According to the US National Association of Convenience Stores (NACS), San Francisco, one of the hottest real estate markets in America, lost 40 percent of its petrol stations in 2014 and replaced them with housing. And, according to The Economist, London only has four stations inside its central congestion zone. When buying air rights can be as expensive buying land (like it is in NYC) a single story building — or a mostly empty lot — simply doesn’t make sense.
But while that’s a good argument for congested areas where people don’t even really drive that much, it doesn’t quite explain why the decline in stations is an international trend that also affects suburban and rural areas. After all, these are the places where consumers are buying the most petrol. The petrol-guzzling Ford F series pickup trucks have been America’s most popular selling vehicle for the last two decades — and they’re not exactly city cars.
Petrol isn't a filling station's moneymaker
The first major factor to consider when trying to understand this phenomenon is that petrol accounts for only about 30 percent of the profit at most stations around the US. That’s according to data gathered by the NACS, whose members sell about 80 percent of all US petrol. The average retailer sells about 4,000 gallons of petrol per day. That only amounts to about $200 per day in profit, according to Jeff Lenard, vice president of Strategic Industry Initiatives for the NACS. “If you only have that you’re going to close down. The only place you will see [a petrol-only] station is in the movies,” says Lenard.
Part of the reason for that is because of our current historically low petrol prices worldwide. Another part of the reason is that in the past service stations used to rely on mechanics to do car repair and bring in additional income beyond the pumps — but cars are so highly computerised these days they are often much too complex now. Mechanics’ skills have been replaced by prohibitively expensive digitised diagnostic equipment. But the biggest reason of all is that that entire model for how petrol is sold has changed completely in the two decades, thanks almost entirely to big box stores.
“There has been the change in the constitution of who sells fuel,” says Lenard. Starting in the 1990s price clubs, like megastores and price clubs like Walmart and Costco, starting getting into the fuel game. “Their model was they want you to go out of your way to get fuel,” he says. And he says petrol prices are so inherently tied to emotion: no matter how low or high the price of fuel is, NACS consumer polling always finds that people say they will consider abandoning their fuel vehicles if it goes up just two dollars, and curb the amount of their driving if it goes up by just one dollar. Because of this, the warehouse strores' new model worked. They sold fuel at such incredibly low prices people were willing to travel many, many miles out of their way to get the deal... even if that meant they burned all the money they were saving in fuel getting to and from the store. “Sometimes the inconvenience is an advantage — you have gone so far out of your way to get fuel you might as well go inside and fill up a shopping cart,” he says.
In other words, the new model took the money out of petrol. Big box stores weren’t selling fuel cheap because they wanted to profit on it — they were selling it cheap because they were going to make a profit on all the other stuff consumers purchased after they bought their petrol.
And this model is now finding its way into the more traditional petrol-buying locations. WaWa, for example, one of the Norteastern US’s most famous chain of convenience store filling stations, has recently opened several new locations in downtown Philadelphia that don’t sell petrol at all. And what this means is that even when petrol prices do go back up (as they’ve already started to do at the beginning of the year and are predicted to do more in 2018) we won’t start seeing lots of new filling stations popping up to take advantage.
Even electric vehicles aren’t likely to put a damper on this new model — because if you have to stop and recharge your battery you’ll still be following that up with your regular filling station habits, like buying a cup of coffee or a banana. “If you were to ask the general public: 'How do you feel about gas filling stations going away and still being able to fuel?' A significant percentage would say it sounds good. But if you say you lose the sandwich and drink and all the other things beyond the gas, then the conversation changes,” says Lenard.
The only thing that could eventually upend this model, he says, is the inevitable future of autonomous vehicles.
Those cars, he says, will make all the decisions about where and when to stop for refueling. And no one knows for sure what a petrol station will look like when it’s no longer catering to the whims of the consumer — but instead trying to predict the needs of the computer running their cars.
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