Changing Payment Methods
When [image-nocss] prices rose to their highest levels in the summer of 2008, topping $4 per gallon, market indicators saw a solid shift in consumer spending habits away from cash and debit payment options, in favor of credit cards. In fact, in 2008 NPD estimated just over 25% of new credit-card debt was attributed to gasoline spending. As the economy struggled deeper into the recession, credit-card payments grew to 35% of gas transactions that summer. Industry analyst David Portalatin of NPD said, "Before, we faced a barrage of volatile prices at the pump, combined with a waning economy. It really was a one-two punch to consumers' wallets."
Recent economic activity has seen a boost in personal income, reported by the Bureau of Economic Analysis. Consumers are focusing on reducing rolling credit-card debt, which fell approximately $65 billion dollars in 2010 after peaking at $957.5 billion in 2008.
The bulk of fuel payments continue to be made with debit/ATM card options as buyers opt for the card instead of cash. Much of this is likely to be a shift in consumer behavior in viewing their debit card as a more secure cash alternative.
Compared to a year ago, cash/check payments for fuel have fallen to less than a quarter of transactions. While it is a strong sign gas buyers are opting to pay with debit/cash methods, some growth has been seen in credit-card payments as more susceptible buyer groups feel the squeeze of rising prices.
"Today we are in a much more susceptible place, economically," Portalatin said. "Consumers appear to be less inclined to be swayed by anything other than value."
On the Hunt for Value
In the past few months, discount/reward/loyalty programs increased over brand preference as a reason for gas purchase. With consumers seeking to capitalize on the money they spend on fuel, many are opting more for programs and emerging fuel retailers such as high-volume retailers where they perceive value in the buying power.
"Where quality messaging worked in the last go-round, this year consumers appear to be highly receptive to the total value offered through rewards programs," said Portalatin.
C-stores: What's in a Name?
As gas buyers turn more to grocery store and hypermarket options in a high gas-price environment, convenience stores may feel the squeeze. In the run-up to $4 per gallon gas in 2008, the percent of consumers making a c-store purchase in a given month fell more than 5% nationally. Though foot traffic declined significantly, several purchase drivers proved to be key to the success of c-store operators at that time.
One significant shift that emerged following rising gas prices in 2008 was the increased focus on the name of the chain. C-store shoppers buying on the name of the chain purchase more often and provide the channel with nearly one in five visits in a given month. Most purchase drivers have rebounded, but they still fall below pre-recession levels. Traffic attributed to name of chain buyers in 2010 was actually 15% higher than when gas prices peaked.
"As convenience stores focus on the total-brand concept, relating product offerings and store highlights back to the name of the chain, operators better position themselves to grow their business in a challenging marketplace," said Portalatin.
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The NPD Group is the premium provider of consumer information for the North American petroleum marketing and convenience retailing industries. Industry leaders utilize the essential market information available in NPD's Motor Fuels Index and Convenience Store Monitor to assist in making more effective business decisions.
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