As Gas Prices Change Consumer Behavior
Surveys point to altered spending habits, cuts in summer travel, uptick in interest in ethanol
[Editor's Note: This is Part 2 in an ongoing series highlighting the issues surrounding high gas prices and their effect on the industry. To read Part 1, click here.]
WASHINGTON -- With gasoline prices under the microscope, several new surveys provide insights into consumer spending patterns and intentions that [image-nocss] could affect traffic and gasoline volumes for retailers nationwide.
According to the National Retail Federation's (NRF) 2006 Gas Prices Consumer Intentions & Actions Survey, 76% of consumers believe fluctuating gasoline prices have impacted their spending habits, up from 67.2% in 2005 and 56.8% in 2004.
Consumers said they will find a variety of ways to cope with higher fuel prices. Most (44.8%) say they will simply drive less. Additionally, 37.2% of those surveyed say they plan to decrease vacation and/or travel, 36.2% will cut back on dining out, while only 22.2% will delay a major purchase such as a car or TV. Also, 8% of respondents say they will carpool, almost double the amount from the previous year (4.5%).
While the luxury market has been particularly immune to the rise in gasoline prices, new evidence suggests that even the recession-proof shopper may start pulling in the reins. According to the study, 69.3% of affluent shoppers (with household incomes of $50,000 or higher) concede that gasoline prices are negatively affecting spending, compared to 59.1% in 2005.
Higher prices at the pump act as a tax on disposable income. As prices continue to rise, it is inevitable that consumer spending will be affected, said NRF President and CEO Tracy Mullin. Consumers will be looking for retailers that provide the best return for their dollar. This clearly gives the advantage to discounters, warehouse clubs and online retailers over department stores and mall-based retailers. Click here to view the full survey.
The Travel Industry Association of America (TIA), meanwhile, forecasts travel volume growth of less than 1% this year amid relatively soft travel intentions. According to TIA's Summer 2006 Forecast, Americans will take 325.6 million leisure person-trips during June, July and August 2006. A person-trip is one person traveling 50+ miles, one-way, away from home.
I am concerned about a number of economic indicators with gasoline prices and the pocketbook impact they're having leading the way, said Dr. Suzanne Cook, TIA's senior vice president of research. We've had gasoline prices jump up for the summer travel season before and weathered it, but there are additional factors to be considered this year.
Cook said gasoline prices of $3 per gallon could be the tipping point for many Americans. For example, it is the point at which 10% of travelers say they would seriously consider canceling a trip. Between $3 and $3.24 per gallon, an additional 26% would seriously consider canceling a trip. While the higher cost of gasoline this year will add only about $30 to $50 to the cost of the typical vacation, that alone does not account for the possible impacts on travel spending decisions from the week-to-week costs of keeping their gasoline tanks full prior to a vacation.
She added that gasoline prices further complicate the picture because they threaten to fuel inflation and undermine economic growth and consumer confidence more generally.
Americans expect to stay away an average of six nights on their longest pleasure trip. Travelers plan to spend an average of $1,033 on their longest pleasure trip this summer, essentially unchanged from the summer of 2005 ($1,019); however, they will have to economize in some areas to compensate for higher hotel room rates and airline fares in addition to higher gasoline costs.
TIA said to expect a reverse of last summer's travel patterngasoline prices should cause weaker demand early this summer, but demand will grow stronger as the summer wears on and travelers get used to high gasoline prices. (This assumes that gas prices have stabilized and may even decline over the summer and that there are no more gasoline price surprises, or other events.)
When asked specifically about ways they might economize, 52% said they would look to economize on food purchases (52%). This could benefit fast-food chains and family restaurants. Other areas where they would attempt to economize are accommodations, activities and transportation. Almost one-third (31%) are looking for what they perceive to be more economical destinations22% said they would shorten their trip.
And 26% of those planning to travel less or not at all this summer cite gasoline prices as the reason versus 18% last summer. Auto travel (88% of leisure travel) will be sluggish and probably closer to home. Destinations near major population centers, as well as those offering creative incentives and new things to see and do could benefit.
Another survey also predicts a downturn in summer travel. According to the new MapQuest Summer Survey, as many as 72% of those surveyed who were planning to take a road trip this summer said that gasoline prices were affecting their plans. Nearly one in 10 said they plan to cancel trips to avoid the pain at the pump. But despite the prices, nearly half of Americans (49%) surveyed still plan to take a road trip this summer. Some 25% remain undecided on their summer travel plans.
The survey found that the South is the region where summer travel plans will be most affected by high gasoline prices, with 74% saying gasoline prices are affecting their plans, followed closely by the Midwest at 72%, the West at 71% and the Northeast at 68%.
It also found that while Memorial Day traditionally kicks off the summer travel season, only 12% said they had plans to hit the road then. Findings also indicate that travel volume will remain relatively consistent over the summer months, with August as the most popular time (29%), followed by July (27%) and June (24%). Of the major summer holidays, Independence Day weekend ranks highest for road-trips at 17%, with Memorial Day and Labor Day tying at 12%.
Finally, high gasoline prices are driving consumers to the Internet to research alternative fuel options such as ethanol and biodiesel. According to online competitive intelligence service Hitwise, the share of U.S. Internet searches for ethanol was up 212% for the four weeks ending May 13, 2006, versus the four weeks ending April 15, 2006. The share of searches for biodiesel was up 100% in that same period.
Hitwise data shows that the number of visits to the Gas Price Alert ( www.gaspricealert.com) and Gas Buddy website ( www.gasbuddy.com) increased 432% and 417%, respectively, for the week ending April 29 versus the week ending April 1. Overall, Gas Buddy received more than 25% of the traffic from searches on gas prices for the four weeks ending May 13, 2006. Click here to view Hitwise charts.