Fuel costs having an impact on shopping trends

Posted by Daniel Palmer on 21st July 2008

Increasingly feeling the pain at the pump, more American consumers are taking steps to compensate for rising gas prices, according to new research from The Nielsen Company. Nearly two-thirds (63 percent) of consumers are reducing their spending, up 18 points since June 2007 and up 14 points in the last six months alone.Nielsen’s research also finds that more consumers are combining shopping trips (78 percent), and more than half of consumers are now eating out less (52 percent) and staying home more often (51 percent).

“With gas prices passing the $4 per gallon mark, consumers are altering their driving and spending habits at dramatic levels,” said Todd Hale, senior vice president, Consumer & Shopper Insights, The Nielsen Company. “While discretionary spending is likely to be a challenge for most low and middle income shoppers, even affluent consumers are looking for ways to make their dollars go further.”

Coupons are coming back in vogue, according to the research, with nearly one-third (32 per cent) of consumers using more coupons as a way to save money, up from 25 per cent in December 2007. Additionally, as many seek to get the bulk of their errands done while using less gas, 28 per cent of consumers report doing more of their shopping at supercenters, where more items are in one store.

“Consumers tell us that they are using more coupons, an opportunity for consumer packaged goods (CPG) manufacturers to align coupon and other promotions in stores serving consumers feeling the greatest impact from high gas prices,” Mr Hale added.

Private label brands were found to be benefiting from the weakened economic climate as more consumers (35 per cent) are buying less expensive brands, up 12 points since December 2007. While private label and lower-priced brands stand to benefit from higher gas prices, Mr Hale suggests retailers need to be cautious when making decisions about private label products.”Many retailers are increasing their focus on private label to help shoppers cope with rising gas and food prices,” he said. “While private label shows significant growth, it’s important to remember that more than half of private label sales growth comes from only four product categories – – milk, fresh eggs, cheese and bread or baked goods – – categories greatly impacted by inflationary pricing resulting from higher livestock feed prices or higher raw ingredient prices. Retailers need to be judicious in selecting categories where private label opportunities exist.”

Although a small base, Nielsen’s research shows some consumers are shopping online and carpooling or using public transportation more often. “CPG manufacturers and retailers should not ignore consumers’ desire for online shopping,” Mr Hale reported. “While we’re not suggesting a big increase in online food sales, this could mean opportunities for general merchandise, non-food and health and beauty manufacturers.”

While the outlook for the remainder of 2008 and 2009 are certain to be challenging, Hale advises CPG manufacturers and retailers to be creative, for their benefit and the benefit of their customers. “Swings in fuel supply will continue to have a tremendous impact on consumer shopping and buying behavior. Retailers can take a creative approach to promotions, pricing and partnerships, such as aligning themselves with gas retailers to reward loyal customers with less expensive gas, while manufacturers can minimize the impact of high gas prices by targeting products and advertising around at-home or at-work meals and at-home entertaining,” he concluded.