Fuel forecourt retailers or convenience shops are highly vulnerable to disruption. Although their operations have always provided a convenience-driven competitive advantage, they now have a lot more to grapple with.
South African consumers are more tech-savvy and time-strapped, demanding greater relevance and convenience from service providers, all within a tighter economy and rising fuel costs. Consumers are feeling the pinch, the competition for share of wallet at fuel stations has never been so heated.
A threat and an opportunity
Although disruption in this arena is inescapable, it is proving to be both a threat and an opportunity. Over 85% of South African companies are vulnerable to future disruption versus 70% globally, yet the majority of local companies are making a conservative play – competing in their traditional business channels, using traditional approaches.
According to our recent study at Accenture; (Fore)Courting the Consumer – the Road to Data-Driven Innovation for Fuel Retailers the South African convenience retail sector was valued at R35 billion in 2017, commanding 10% of the total market retail spend.
Since then, a new era of competitiveness has been steadily on the rise. This is attributed to new technologies such as analytics, the Internet of Things (IoT), artificial intelligence (AI), and automation, as well as access to enormous volumes of data and exciting ways of engaging with consumers and partners.
Success in this new era will depend on a retailer’s understanding of market dynamics and individual consumers’ needs, and their ability to innovate rapidly and continuously to deliver solutions to meet those changing needs. Furthermore, it will gear them for the inevitable radical change that will, in the long term, occur in the auto and transport sectors as electric vehicles are more broadly adopted.
Forces impacting forecourt retailers
With accelerating technological change, consumers’ entire living patterns are evolving. To remain relevant to the maturing digital consumer, fuels retailers need to dramatically re-invent the forecourt experience. New competitors are already making headway in this sector and forecourt retailers need to move quickly to fill emerging gaps.
Today’s consumers can continuously re-evaluate their options, choosing a provider that is most relevant to them in the moment. They are demanding greater convenience, health and wellness geared options, and hyper-relevance over loyalty to drive their choices. Loyalty programmes are no longer enough to provide a compelling experience that reaches beyond filling the tank.
In South Africa, fuel is largely regulated which prohibits fuel retailers from discounting fuel prices. They thus rely on partnerships to create attractive forecourt ecosystems to remain competitive. The shift to support brands with greater relevance is already impacting the bottom lines of companies across South Africa. In the study, Accenture finds that lack of relevance drove 66% of switching of brands among South African consumers, putting R438 billion in potential revenue at risk.
In addition, new competitors have taken advantage of the average consumer’s need to be provided with the 5Cs convenience of forecourt retailers (namely provision of access to coffee, chips, chocolate, cigarettes, cooldrink). E-commerce players such as Uber Eats can now deliver most of the 5Cs to consumers’ doorsteps with just a few swipes. Their strategy is data driven. These innovations are available to forecourt retailers right now; but just not being harvested well to create insights and drive services.
Building the right data assets will be essential. Forecourts have an opportunity to use in-store customer data to discover new ways to improve the customer experience online and offline, as well as drive up sales.
Why innovation matters and how SA forecourts measure up
Accenture conducted interviews with 100 South African C-suite executives from 16 industries to understand how their businesses are preparing for and are positioned to deal with disruption through innovation. The responses of the forecourt retailers are a cause for concern:
• 76% expect their industry to be disrupted by new innovations at some point within the next three years, especially from new competitors and technologies.
• 60% concede that their companies are not prepared for disruption.
• Only 23% are very satisfied that their company’s innovation efforts will position them well to overcome future disruption.
We have determined that when companies face disruption, they typically make cautious moves. They become defensive and raise barriers to entry instead of extending themselves outwards, they rely on what’s worked for them in the past instead of seeking deep change on the inside, and they tend to double down on efficiencies rather than committing to real innovation for growth.
Our research shows that over 73% of forecourt retailers in South Africa continue to compete in their legacy businesses using mostly traditional approaches or have just started transforming their legacy business into new business. While these are instinctual and understandable choices, unfortunately they don’t work because they keep companies in survival mode and away from actually shaping their future.
So, the reality is that playing safe amid disruption is very risky. The good news is that investment in innovation is growing and more companies are planning to allocate a bigger share of financial investments to innovation. However, only 5% of them aim to invest more than 50% in the next five years.
The Accenture Innovation Maturity Index
The recently launched Accenture Innovation Maturity Index framework, helps companies measure their innovation readiness against defined characteristics, evaluating the extent to which companies innovate and release value. Typically, high growth companies or the disruptors take a distinct approach to unlock trapped value with innovation by building deliberate structures to innovate and adopting seven practices that lead to organisational change.
Forecourt retailers lag behind other retail companies on the index scoring 53 points out of 100. Only a small group of South African companies are referred to as Innovation Champions – 7% of the sample – averaged 68 points, eight points lower than the 76-point average of Global Innovation Champions. Forecourt retailers also trail the rest of the market in both building innovation structures and implementing innovation practices.
In order for forecourts to catch up to champion companies they need to adopt certain characteristics as detailed in the study. They should pursue wise pivots – innovating to unlock value in new businesses while revitalising their core business allowing a steady process of change from the old, to the now and into the new. They must prioritise formal innovation structures to support their innovation execution and embed seven innovation practices highlighted in the report throughout their business.