COVID-19 may be a once-a-century event, but its impact on consumer behavior will endure.
The pandemic hit at a fragile time for oil and gas (O&G) downstream fuel retailers. This game-changing whirlwind blew into town while the industry slowly but steadily recovered from the 2014 downturn. It caused lockdown-driven demand reductions just as excess supply hit the market after negotiations to reduce crude oil production fell through.
The initial plunge in retail fuel demand resulted primarily from decisions among governments to lock down their populations. However, demand for these products will increasingly recover based on the decisions and preferences of individual consumers, who are free to choose how and whether they will resume former transport and consumption patterns.
The most influential factors affecting consumer demand for retail fuels include:
Commuting demand for land transport fuels
The consumption of transport fuels depends on the ability of residents, businesses and tourists of a particular country or city to travel freely. Londoners, for example, can choose among all modes of transport. Private transport from heavy goods vehicles and cars has nearly returned to pre-pandemic levels, whereas public buses and trains remain at 40-60% of 2019 levels. This suggests a significant though declining fear of using high-capacity public transport. It also provides an opportunity for fuels retailers to capture revenue from near-normal private commuter volumes.
On the other hand, given that many industries have firmly established the case for working virtually, a proportion of telecommuting employees will likely not return to the office anytime in the coming years.
A shift to online consumption
A soon to be published Accenture’s analysis1 of expected growth by sector from 2019 to 2022 indicates a large shift in activity away from traditional retail to communications and high tech, accelerated by COVID-19 and the need to access media and work from home.
The research suggests sector growth in excess of 22% ($827 billion) and 37% ($826 billion) for communications and high tech, respectively, over this period. At the same time, retail will shrink by 4.2% ($297 billion). Companies thus need to ensure their retail customers have access to digitally enabled purchasing options.
As the adoption of platform- and ecosystem-based business models accelerates, consumers will likely expect more connectedness, cost competitiveness, and convenience. As concerns over the spread of coronavirus continue, along with government-imposed limits on the size of public gatherings, businesses have resorted to innovative ways to reach customers. Examples of this includes bars that provide alcoholic drinks for pickup and restaurants that incentivize customers to return to their establishments by offering discounts on low footfall days. Another aid is the ability to order individually by table using mobile apps to reduce the need to queue with others, which increases virus exposure risk.
The pace of substitute product adoption increases
Substitutes like biofuels and greener hydrocarbon products have become increasingly desirable as alternatives to traditional fuels, even though they may cost more. Indirect replacements like electric vehicles (EVs) also exist, and there is broad alignment on the view that EVs will continue to displace internal combustion engine (ICE) vehicles in markets.
The COVID-19 pandemic has sharpened the focus of society on health, exposing shortcomings in this area. Given ongoing efforts toward a climate-friendly energy transition, an increased focus on health accelerates the case for cleaner local energy use and replacements for hydrocarbon fuels. Retail fuels businesses need to monitor their portfolio mixes and seek ways to maintain or improve their brand images within this context. They could, for instance, introduce carbon offsetting programs and/or promote the ability to use loyalty points for societal benefit.
Adapting to changes in consumer behaviors and understanding how they will influence demand will be critical to staying competitive in the current business environment. It also positions companies to respond resiliently to future market shocks and to take the lead on evolving consumer trends on the topics of social responsibility and the energy transition.
Disclaimer: The views and opinions expressed in this document are meant to stimulate thought and discussion. As each business has unique requirements and objectives, these ideas should not be viewed as professional advice with respect to the business.
1 Accenture and World Economic Forum Industry Action Group, Macroeconomic analysis - 2022 Flattened Curve Scenario