In the last few months, consumers have gotten thumped by rising gas prices. The cost of fuel in February was 16% higher than a year ago, which means that a typical Canadian family with one minivan in their driveway will pay about an extra $350 for the year if prices remain at current levels. That’s a lot of extra money to find. Rather than get a second job, though, most families are simply cutting back elsewhere in the household budget.
Groceries are one of the easiest places for people to make a cut
Groceries are a natural place to start. People shop a supermarket at least once a week and by clipping coupons, purchasing on sale and making fewer impulse buys, consumers know they can see immediate savings. “A lot of costs people have, like utility bills and their mortgage are fixed. You can’t go to your landlord and ask him to reduce your rent by 25%. So groceries are one of the easiest places for people to make a cut,” says Yu Ma, an assistant professor at the University of Alberta.
Ma knows a lot about the link between gas prices and grocery shopping. Last fall he co-authored a study examining the impact of higher prices on supermarket shopping behaviour. The study zeroed in on 2008, a year in which gas prices soared, with typical U.S. households having to spend more than 11.5% of their disposable income on gas compared to only 4.6% five years earlier. The study found when gas prices rise significantly, shoppers cut back on grocery shopping frequency, heading to larger stores such as supercentres to stock up the pantry.
Neilson Consumer Corner
When Gas prices rise, consumers tend to:
- *Combine errands and trips
- *Eat out less
- *Spend more time at home
- *Use more coupons
- *Buy less expensive grocery brands
- *Buy economy-sized products
But just as there is a downside to rising gas prices, there’s an opportunity as well for retailers. Ma says that to counteract consumers stockpiling at supercentres, traditional grocery stores should increase the frequency of their promotions. That will entice customers into the store more often. Retailers should also pump up the convenience factor in marketing. Tell shoppers they don’t have to drive far to your store, or they can even walk, Ma recommends.
He also points out that retailers should not overly focus on price when gas prices go up. In Ma’s study, shoppers wanted to save money but didn’t instantly buy cheaper, private-label products. Instead they looked for name brands on sale. Grocery shopping is still a psychological affair, he says. It doesn’t all boil down to a line item on the household budget.