From the time the first U.S. gas station opened in St. Louis in 1905, growth in gas stations has exploded. By 1994 there were over 202,800 stations across the country. But, by 2013 the number of service stations had shrunk by 25 percent. What happened? Why did so many gas stations (almost 50,000 of them) disappear in such a short period of time? Three factors lead to the dramatic decline in the number of stations.
Urban gentrification has created not only painfully hip neighborhoods but also driven up the value of property in city centers. In San Francisco, where the city has seen a 40 percent decline in gas stations over the past 10 years, the sentiment of City Councilmember Scott Weiner reflects that of his constituents: “Replacing gas stations with housing and retail makes sense.” In Manhattan, there are 50 gas stations remaining, down 38 percent from just eight years ago. At this time, the very last gas station in downtown Vancouver is listed for sale. Gas stations in urban cores are going the way of speakeasies and gentlemen’s clubs.
Fuel Economy Standards
After the fuel shortages during the Arab oil embargo, Congress passed a law requiring certain fuel efficiency standards for cars and trucks built after 1978. The standard has increased gradually over the years, with a current goal of 54.5 mpg by 2025. While auto manufacturers have pushed back hard on such standards, those regulations have, according to one report, reduced fuel consumption by 14 percent relative to what it would have otherwise been. This, in turn, has reduced demand at the pump, aiding in the demise of weaker fueling stations.
In suburban areas, the growth of big-box stores — replete with enormous gas filling sites — has posed an existential threat to smaller surrounding filling stations. These big-box retailers can sell over 250,000 gallons of fuel monthly, over double what a traditional filling station sells. They can drive prices down, purchasing at a lower cost and use their refueling station to drive foot traffic into the stores. For owners of surrounding smaller stations, already operating on low margins, the entry of a big box retailer sparks great concern.
While big-box stores will likely not contribute to the demise of smaller stations to the same extent in the future, increasing fuel efficiency standards and rising land prices will continue to threaten the livelihoods of small service station owners. Further compounding the challenges for independent retailers are two new factors of dramatically increasing impact: alternative fuel vehicles — especially electric — and mobile gas delivery.
Electric vehicles (EV’s) have been on the road for decades, but it took the high profile success of Tesla and, in particular, the recently-announced Model 3 — which reportedly has over 400,000 reservations — to grab headlines and attention. While there have been over 540,000 electric vehicles sold in the U.S. to date, they still constitute less than one percent of all vehicles on the road. But with a growth rate in sales across all EV models of 32 percent annually, barring geo-political or domestic policy deviations, it is likely that they will have a large, negative impact on gas station businesses.
Mobile fuel delivery companies have started popping up in cities across the U.S. These start-ups typically offer a mobile app that allows a customer to order a gas fill-up for their car during a specified delivery window. Is it any wonder consumers are taking advantage? According to one study sponsored by Kimberly-Clark, the pump handles at gas stations are the most germ-covered public surfaces. According to the Department of Justice, there are over 63,000 violent crimes at gas stations every year. And, as these companies claim, there is never a good time for the car’s fuel light to go on. While technology has advanced and consumer expectations have jumped, the gas purchase experience has not changed for decades. If you don’t need to go to a gas station, mobile fuel customers posit, why would you?
Gas stations have had an astounding run. But as EV’s and mobile fuel delivery companies become increasingly popular, and as pre-existing market trends continue, gas stations will continue to fold at a rapid pace. The largest and strongest will survive, causing there to be longer distances between filling stations. The detour to the local gas station (which may not be so “local”) will become more painful, leaving EV-owners to revel in their foresight and mobile fueling customers only too happy to employ a service to take care of the increasingly onerous chore of filling-up the car.
Retail gas sales are still a huge part of the economy. Almost 40 million Americans fill-up every day with gas purchases representing approximately five percent of all consumer spending. However, the sector is in the midst of tectonic changes that will permanently change the refueling infrastructure in this country. Gas stations, ultimately, are subject to the same technology, sentiment and behavior shifts that affect all other sectors of the economy. They must either adapt or die.