Food trucks have enjoyed tremendous growth over the past decade. Here’s what has driven that growth and how the same factors will allow the on-demand fuel industry to not only develop, but thrive.
Its not a product, its a service.
Several months ago I wrote about how automobile fueling was not necessarily ripe for disruption, but rather ready for segmentation. I used the pizza market as an analogy. There are many places and ways to get pizza and while each company sells the same product, they aren’t always competing directly with one another due to the services they offer.
I was watching Ugly Delicious on Netflix recently and David Chang (Momofuku) points out that Domino’s is basically a technology company. (I’m not the first person to write about this.) Just like pizza delivered to your doorstep is a service, so is fuel delivered directly to your automobile. There will be a segment of the population willingly to pay extra to have fuel delivered to automobiles at home or their place of business.
I find it interesting that the fuel delivery service is often marketed to employers as a “perk” to employees – very similar to how food trucks offer to park in corporate parking lots so workers don’t have to leave the campus for lunch.
Its an arbitrage on real estate and red tape.
Opening a restaurant is a capital intensive business. Mainly, you have the overhead of the lease or mortgage of the building. What follows are the associated expenses of the upfit, permits, etc. A food truck side-steps some of this. Building a gas station is an equally capital intensive endeavor. Like a food truck, an on-demand fuel delivery business avoids a lot of overhead.
I’ve heard this referred to as an “arbitrage play on real estate”. While I’m not sure that’s entirely accurate, its an effective statement because it summarizes a big component of the business model. Real estate prices have sky rocketed in some areas of the country to the point that it makes operating a gas station on certain sites the less attractive investment. Stations in some areas are closing.
This essentially becomes a positive feed back loop: gas stations close > making it harder and more time intensive to secure fuel > making the delivery of that fuel more attractive > which reduces volumes at existing stations > making it less attractive to operate them rather than sell off the real estate.
Municipalities may actual warm to the idea of a non-permanent fuel delivery enterprise. City planning requires long-range thinking about how assets (re: real estate) will be allocated. Fuel delivery trucks are a flexible way of meeting demand for a product (fuel) while maintaining flexibility as fuel demands change (in both type and volume) over the coming decades.
It better meets customers’ needs.
Food trucks are synonymous with events in my mind. They show up at occasions where large numbers of people gather for a short, defined period of time. Imagine a festival in a local park. There may be a handful of restaurants that are within walking distance of that park. These establishments have a finite capacity for the number of people they can serve during their hours of operation. Just because you add several hundred potential customers into the mix, doesn’t mean they will be able to serve them. This is the beauty of the “food truck” model – they can appear on site for a short period of time and not only serve people as needed, but take advantage of the economic opportunity.
Now, imagine an event venue in an outlying area (concert arena, baseball stadium, etc). You have large numbers of customers gather, but usually only a few days a week. It might not be sustainable for a gas station to open across the street from the stadium because, after all, it is only able to serve x number of customers in a given period of time and the rest of the time it sits mostly idle. This is where the “food truck” model works really well. One on-demand fuel company already offers service to a mall in California. What a great idea for all those holiday shoppers.
It allows the “New Guy” to compete with industry incumbents.
All of this means the door is slowly opening to the competition. By offering a service the “big guys” aren’t offering and effectively reducing the barriers to entry to the fuel business, it means the “new guy” now has a way in. Competition is good for the consumer because it brings about innovation and spurs all players to provide the best experience possible at the lowest possible price.
This is the fifth article in the series. The previous article was Part 4 – What does the future of on demand fuel delivery look like?