ELMWOOD PARK, N.J. -- The average U.S. household spent an estimated additional $535 on gasoline this past year, which is a significantly greater proportion of personal income, according to a report from The Food Institute.
Gasoline prices are now declining consistently with historical trends, which follow a cyclical pattern that indicates prices will rise in the spring of 2007. Manufacturers and retailers need to be aware of how this fluctuation will impact consumer shopping and purchasing behavior, according to Information Resources Inc.'s (IRI) study, [image-nocss] Gas Price ImpactHow Spending at the Pump Affects Spending at the Register.
For example, 42% of consumers are eating out less to cover the incremental cost of fluctuating gasoline prices. In addition, one-third of consumers are using coupons more often. Spending for consumer packaged goods (CPG) products does not appear to have been negatively impacted and consumers are spending more on entertainment-based CPG products such as beer, wine and spirits, said the report.
Historically, as gasoline prices increased, so did the dollar and volume sales in the meal solution category. Consumers reduced expenses by entertaining at home versus spending on entertainment, leading to an increase in the beer/wine/spirits, nonalcoholic beverages and snacks/dessert categories.
Consumers' shopping and driving patterns also changed as the price of gasoline fluctuated. As a result, convenience store sales had the greatest decrease in comparison to sales at food, drug and mass market channels. The decline in c-store trips can be attributed to stock-up purchases at other outlets and/or the availability of gasoline at alternate channels.
In addition, consumers are making fewer trips and are looking to accomplish more per trip. Local drug stores saw an increase in activity as more customers visited for fill-in purchases. Conversely, supercenters and club stores were negatively impacted by the rise in gasoline prices due to their stores' locations, which are typically further away. The rise in gasoline prices did not have the same impact on grocery-store sales, indicating consumers are staying closer to home.
The report from Chicago-based IRI recommends that CPG manufacturers and retailers take steps to protect and grow shares throughout the gasoline price cycles. It suggests manufacturers should increase growth potential within selected food and beverage categories, especially meal solution and entertainment, and should develop innovative displays as well as volume-building promotions.
Retailers should compare their pricing strategies to competitors, such as Wal-Mart. Wal-Mart's total store sales declined as gasoline prices increased. The number of trips consumers made declined; however, the amount spent per trip increased. As a result, the company plans to reintroduce the Rollback program to entice customers looking for savings.
According to the IRI study, changes in consumer spending in response to increasing gas prices include:
Delay Unnecessary Purchases 49% Eat Out Less 42% Cut Back On Entertainment 39% Changed Vacation Plans 35% Uses Coupons More 31%Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.