Using a Software & Capital Program to Transition an Industry to Electric Mobility

Exploring how a large energy company, like Shell, might transition to green energy while creating value for station owners and consumers.

— Client

Case Study

— Focus

Design & Strategy

— Challenge

We challenged ourselves to explore how a large energy company like Shell Recharge can leapfrog the competition during the transition to electric mobility while creating value for station owners and serving consumers, shareholders, and local communities.

— Outcome

We propose the creation of unique software and programs that bridge the knowledge and capital gap amongst owners and provide a way to transition future-performing stations to electric charging.

— Impact

GoArchitect is an integrated design, strategy, and investment firm. We create independent case studies like this to analyze future opportunities and interesting companies in the markets we are passionate about.

Disclaimer: This case study was unsolicited and without compensation.

Proposal

Let’s start off with a frank statement, “The transition to electric mobility will not be a smooth ride.”

The reality is that the coming decade will see a huge shift in consumer habits, corporate investments, and local community priorities. As a design and community driven team, we began to wonder, how might those 3 groups benefit from this oncoming electric future?

For the sake of this case study, we are going to focus on one key group who find themselves at the intersection of consumer habits, corporate investments, and communities: small business owners who currently own and operate a gas station.

The gas station or convenience store, has transformed many times throughout the 20th and 21st centuries. Now, for the first time, it faces the truly daunting prospect of obsolescence. Reinvention is the only way forward. The difficult reality is that reinvention is often expensive and without proper planning, a futile endeavor.

Through this case study we will outline a radical but straightforward approach to how a large energy company like Shell Recharge can leapfrog the competition during this transition period while creating value for station owners and serving consumers, shareholders, and local communities.

To start: Create an analysis tool for station owners to understand the expected lifespan of their location and how to respond to a changing market.

As electric mobility becomes the standard across the US, many fuel stations will become financially untenable. They will experience severe drops in foot traffic to their profit-earning c-stores from the reduction in fuelling customers. However, not every station is doomed. There will be fuel stations who can make the transition to fast charging stations and maintain high foot traffic for c-store revenue.

Shell Recharge can create a property analysis tool for station owners to determine if their stations are in a positive “more-likely to succeed” zone for fast charging.

The dynamic tool will use traffic and other data points to make an educated estimation then provide suggestions on how to move forward if the station is estimated to be viable long-term or not. We call this tool the Fuel Investment Finder or FIFi™.

Empower station owners to move their business forward through the leasing of essential upgrades and fast chargers.

If a station is within a FIFi Positive Zone, Shell can lease fast chargers, batteries, and other necessary upgrades. We are calling this the Shell Recharge Transition Program.

This program benefits both parties:

The station owner can lease a white-labelled electric charger in exchange for a monthly fee + percentage of sales. This helps eliminate the large upfront cost of fast chargers, batteries, and construction work.

Shell Recharge can begin to earn income from the leasing of equipment, percentage of sales from charging, and from long-term relationships with owners across the country. As collateral, Shell can become a lien holder for providing these assets.

Turn a station’s uncertain future into a profitable opportunity while funding the Shell Recharge Transition Program.

If a station is not within a FIFi Positive Zone, the tool will provide an estimated number of years of remaining profitability. If the station meets certain criteria, FIFi can then provide a preliminary price estimate for the land and business.

If the owner decides to sell, FIFi can broker the sale between the owner and a buyer. FIFi takes a small brokerage fee to help fund the leasing of equipment through the Shell Recharge Transition Program.

If Shell determines that they would like to acquire the station, they can use FIFi to organize the sale. The seller can then be given cash from the sale or credits in a renewable energy fund that pays dividends from the Shell Recharge Transition Program.

Opportunity

Let’s take a moment and understand why tools like FIFi and the Shell Recharge Transition Program are essential innovations for the energy industry.

We need to respond proactively to the shifting business of fuel stations.

As much as 80 % of the fuel retail market could be unprofitable by 2035. This means about 130,000 jobs are on the line in the US alone.

The impending shift creates a severe challenge for the thousands of individual c-store and fuel store owners who sell about 80% of the gas in the US.

Using FIFi will help to clarify the specific conditions of an individual station and begin to lay out a path for stations on both sides of the profitability line.

While this tool will not protect some stations from going out of business, it will give the owners as much time as possible to make an informed decision. By bridging the knowledge gap with branded station owners, Shell can lead the industry in a coordinated response to the shifting economics of fuel stations.

We need owners to invest in the future of their stations while staying profitable.

It is widely known that food and drink sales are the real profit centers for fuelling stations. Therefore, part of the challenge is to keep c-store traffic high during and after the transition to clean energy. Through the Shell Recharge Transition Program, owners can avoid expensive debt and make upgrades quickly with minimal to no downtime.

By freeing up owner’s capital, they can make necessary upgrades to food, drink, and other in-store service areas; all of which will be essential revenue generators for EV customers who stay longer during charging. With proper planning, it may even be possible to expand the usable area of most stations as every parking spot can now become a charging station.

We need strategy on how to capitalize on prime real estate for future opportunities.

By estimating the remaining lifespan of a fuel station, it gives all parties time to create or discover future opportunities for the real estate a station sits on. These assets may, in the long-term, have the greatest impact since fuel stations are often situated on prime corners in communities. FIFi would make Shell an essential partner in this stage of transition, even for stations that become unprofitable. By acting as the broker, Shell can have first-mover advantage on the sale of all stations.

Business

By proactively engaging, consulting, and facilitating owners, Shell can be a leader in the transition to electric mobility. The creation of FIFi and the Shell Recharge Transition Program create a host of synergies between business units, revenue streams, and long-term market realities.

The creation of FIFi adds value to the Shell brand and proactively engages station owners to become partners with Shell Recharge.

FIFi can add value to the Shell brand by helping to lead the change to electric mobility not only amongst large corporations but individual business owners.

By identifying future-performing stations, Shell now direct new technologies, services, and investment into future-growth areas. By leveraging the data from FIFi and brokerage sales, Shell can gain a competitive edge as new players enter the market during a tumultuous transition period.

By integrating station brokerage services, Shell would have the data potentially years ahead of other players. It would also have first-mover advantage on upcoming real estate sales for prime corner real estate. This advantage could be shared with choice development partners in communities around the country.

FIFi’s core brokerage feature can provide value to station owners of any fuel brand. If an owner decides to sell their land or business, the brokerage fees earned from the transaction can be reinvested as financing for the Shell Recharge Transition Program.

This creates a unique scenario where Shell can benefit from the broad market’s transition, not just its primary customers.

By Leasing chargers to Positive-Zone stations the Shell Recharge Transition Program can create long-term & consistent revenue.

The reality is that many station owners cannot afford to install a significant number of level-3 fast chargers. Current install prices can reach $50,000+ per charger. This cost barrier can be overcome however through a leasing program that breaks down that high initial cost into a low monthly fee & commission for every kWh charged.

This allows the station to get the technology it needs at minimal cost while forming the basis for monthly-recurring revenue for the Shell Recharge Transition Program. This program further enhances the brand and exposure of customers to Shell by re-engaging “lost” customers who have transitioned to electric mobility ahead of the mass-market majority.

Revenue Calculation

Est. Cost to Provide Fast Charger: $50,000

Avg. Daily Revenue per Charger: $105

$0.35 per kWh * 50 KW rate * 6 hours of avg. Usage

Avg. Annual Revenue per Charger: $38,325

- Annual Maintenance Fees: $3,000

- Electricity Cost: $14,125

Assumes: 109,500 kWh annual average

Assumes: $0.129 per kWh (EIA.GOV)

Shell Annual Return: $6,475 (12.95%)

- Lease: $1,000 per year

- Performance: $0.05 per kWh = $5,475

Station Annual Return: $14,725 per Charger

By becoming a broker for the sale of non-future-performing stations, Shell can be central to the transition of equity between owners and developers.

The difficult reality of the transition to electric charging is that not every gas station will survive, at least not as a fueling station. The caveat here is that most gas stations are built on prime real estate on street corners in communities around the world.

This land can realistically be redeveloped into retail, housing, or countless other uses. Presently, gas station owners who wish to sell must deal with 3rd party brokers or agents who may not have the most optimal vision or data at hand. Owners are essentially on their own to deal with the transition and how to capitalize on it as best they can.

FIFI can equalize the power dynamic owners have by giving them actionable data and pricing estimates to get the best price for their store and land.

On the investor side, FIFI can provide deal discovery services to real estate developers and other investors who can capitalize on the availability of prime corner real estate. By creating a platform for deal flow, FIFI connects to an entirely new type of customer that Shell was not reaching previously.

To generate revenue, FIFI can act as a broker for the sale of the property to investors. Shell can also choose to purchase certain assets to strengthen other internal investments. FIFI could even provide a first-mover advantage where Shell can make an all-cash offer before the land is made public on the platform.

Process

The GoArchitect team approached each aspect of this case study from a design and people perspective. We believe that all design should serve to enhance people’s lives. Here is a brief insight into the aspects we considered.

What are the needs, fears, and realities of existing station owners? What would be the most valuable to them now and in 10 years?

Most gas stations are operated by small business owners who often lack the capital to make seismic changes. Likewise, they may not possess the specific industry knowledge to make optimal investments or the proper data analysis to know where to apply their capital.

While they may observe that a shift is on its way, the question of what to do is complex and fraught with uncertainty. With this in mind, existing owners need a platform to understand the context in which they operate and provide transition or investment options for the next phase of their business.

How can future tools use data to forecast industry-shifting conditions and realities in new ways?

As we consider how to serve owners and customers, we must recognize that not every station will be able to transition to an electric mobility world. For these businesses, there should be a way to maximize their key resources of land & location, in a simple and approachable way. Just like the big data tools, this tool should be understandable and approachable to the average station owner.

Not only will the tool be an asset to owners, it serves Shell’s long term goals. Shell must be proactive in responding to the shifting economies of its lessees and branded stations.

How might Shell Recharge leapfrog the competition while building upon existing assets?

Shell needs many paths to transition away from fossil fuels to clean energy. By aligning the interest of station owners with that of Shell, we can attempt to form symbiotic partnerships. These relationships  may be especially helpful as Shell seeks cash for extensive capital investments in electric mobility, energy storage, and other essential equipment.

Aside from the potential for capital, these relationships also represent key investment opportunities in communities around the country. Not every station will transition to electric charging. If and when these stations near their end of life, Shell can be a core player in the redevelopment of the land and whatever opportunities are created from this transition.

Closing

The arrival of electric mobility will bring both opportunities and challenges. Shell can be an industry leader during this transition by creating new tools, processes, and technologies that benefit station owners, communities, and the industry at large.

We believe that FIFi and the Shell Recharge Transition Program can be two innovative ways to accomplish this goal.

We recognize that many of the challenges ahead won’t be resolved with a single solution or approach but we believe that by focusing on the good of the customer and applying a design mindset, progress can be made.

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Disclaimer: This case study was unsolicited and without compensation.

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