CPG Boost

Despite strained budgets, rising gas prices help packaged goods spending, IRI says

CHICAGO -- With current high gasoline costs, the average U.S. consumer is now being forced to reallocate spending and reconsider purchasing decisions. A new report by market research firm Information Resources Inc. (IRI) has revealed that the consumer packaged goods (CPG) industry as a whole actually grew during the first major price threshold barrier of $2 per gallon.

The latest insight comes from an IRI Times & Trends Special Report: Impact of Rising Gas Prices, which looked at current CPG spending trends and the impact of today's high gasoline prices on CPG demand.

The report [image-nocss] assessed spending patterns during three time periods in the past year in which average gasoline prices reached significant new levels (less than $2; $2-$2.25; more than $2.25 per gallon). When nationwide gasoline prices surpassed the $2 per gallon price in the spring, industry sales across all outlets increased 2.5% versus prior year after a period of flat sales when prices were below $2 per gallon. This sales boost was a result of consumers' reduced spending on entertainment and food outside the home, such as quick-service and full-service restaurants.

The report also cautions, though, that the growth, which has begun to increase at a slower pace in the past few months, may level off if average gasoline prices continue to rise to and beyond $3 per gallon, as consumers may be forced to tighten all aspects of their budgets.

Furthermore, contrary to what some analysts expected, the channels benefiting most from the uptick in spending were the major CPG channels of tradegrocery, drug and supercenters; while dollar and club stores' sales dipped. The latter outlets were significantly impacted by rising gasoline prices due to their focus on serving either lower-income consumers, who have very limited disposable incomes (dollar store consumers), or highly cost-conscious shoppers, who may have switched to a one-stop shopping outlet in closer proximity to conserve gasoline (club store shoppers).

In terms of department and category performance, all major CPG departments, with the exception of general merchandise, saw improved growth rates, including health and beauty care, edible, nonedible, bakery, frozen, dairy and deli.

Diving deeper into each of these departments, the report revealed the following product trends:

Food and beverage consumer price index has remained relatively low since December 2004, though gasoline prices are expected to drive price increases across a multitude of product categories as a result of higher distribution costs. Despite a dip in frozen pizza and soup sales after gasoline prices rose above the $2.25 mark, leading convenient meal solutions categories increased in sales, presenting a potential opportunity for manufacturers and retailers to effectively position their convenience and prepared food items. Sales of small indulgence items have shown mixed results. Salty snack and cookie purchases have increased; however, crackers declined after a short spike and candy sales have remained down. With the exception of carbonated beverages, all major beverage categories, including bottled water, shelf-stable bottled juices, coffee and sports drinks, steadily increased in sales after gasoline prices rose above $2 per gallon. Carbonated beverage sales spiked during the $2-$2.25 per gallon price range, but have subsequently plateaued. Within the beer, wine and spirits segments, sales of the latter two categories have increased more rapidly than beer, with the wine category benefiting significantly from higher pricing and product mix shifts.