Pressure at the Pump

By
Paul Reuter, Chairman emeritus and contributing editor

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Over the past month, I have been asking retailers how business looks down the road. The answer? Not so good!

On everyone’s mind right now is a convergence of economic drivers: high unemployment, a sluggish construction industry, a key new tobacco program introduced in March, supplier price increases in almost every category, and a potential backward slide in debit- and credit-card reform. But the big daddy is high gas prices.

Personally, I hate when people give me problems without solutions. I call that just providing a headache. So I wanted to understand what are we facing and then research some solutions.

Many suggested that a good place to start would be with lessons from 2008. So our industry’s good friend David Portalatin of The NPD Group told me his research showed:

  • From 2007 to Oct. 2008, when gas prices fluctuated from $3 to over $4, drivers cut back by 60 billion vehicle miles.
  • 49% reduced or consolidated their shopping trips.
  • 29% canceled or modified vacations.
  • 25% modified their commute by walking, biking, carpooling and/ or mass transit.
  • Traffic in c-stores declined by double digits.
  • In 2008, NPD saw that as much as 25% of the increase in revolving U.S. credit debt was created by gas purchases. Consumers have been paying that down, but credit purchases at the pump may be increasing, and this trend will flow into the store.
  • NPD data for the first quarter is not complete, but indications are that in-store traffic may be below last year’s, similar to the trend seen in 2008.

Another great industry friend, SymphonyIRI Group’s Thom Blischok, has spent considerable time and money understanding shoppers and has zeroed in on c-store clientele. Thom is never short on passion nor opinion, and he always provides sound thinking. He believes that what we are seeing is not a return to 2008, but a continuation of 2009 and 2010 and a permanent shift in consumer behavior. SymphonyIRI’s research shows that overall shopping trips are down across all retailers. In Thom’s view, shoppers have fundamentally cemented a longlasting behavioral shift from impulse to pausing before purchasing. Consumers are stressed and overall have too much to deal with.

Thom believes today more than ever and long into the future that c-stores are in a key position to deliver better than most. It all rests on our ability to zero in on what consumers are thinking and fulfill their needs. What’s different now is understanding the lessons from 2008 and the real shift that has occurred. Gas prices will exacerbate it all!

Blischok points out that we have the best locations, but winning in the price and value arena means identifying the 10 to 20 items that consumers benchmark, and sending a clear and consistent message about value. Be sure to have the assortment, including foodservice, that provides what today’s value-conscious fill-in shopper needs.

As important as the product offer is getting the message out via social networking, store signage, couponing and pump advertising. Speaking of which, it’s clear that discounts at the pump are motivating consumers more than anything in the past 30 years.

In speaking with Bill Douglass, his view is that petroleum “spikes” are becoming a biannual event, and he believes it will influence consumer behavior toward conservation over the long term.

In closing, David Portalatin said, “Ultimately, the real financial impact of gas prices is more important than any psychological barriers at $3 or $4. If we sustain the current increases, consumers might spend as much as $50 billion more at the pump in 2011 than a year ago. That may be unstable. Consumers would have to make significant changes in spending patterns or significantly reduce driving. Both are likely, as happened in 2008.”   

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