Petrol price fall is grocers’ gain

Posted by Daniel Palmer on 7th January 2009

Groceries are the top item on which American consumers are spending their savings from lower fuel prices, ahead of putting the money in savings, holiday gift buying and paying off credit cards, according to the results of nationwide research from retail analytics firm Precima. The study also discovered that fresh produce quality was the primary category which influenced switching between supermarkets.
Of the 3,013 consumers who were asked to choose from a list of ways they use money saved on gas, 48% said they’re spending it on groceries, followed by saving (42%), holiday gift buying (37%), paying off credit cards (30%), entertainment (10%) and other (14%).

Since mid-July 2008 prices have dropped over 50% across the world (in Australia the price has fallen from around $1.70 per litre to $1/litre).

The gas-to-groceries switch is even higher in certain key sectors. Among those survey respondents who said they’ve suffered a direct financial loss during the recession, 55% said they’re spending petrol savings on groceries, and for those whose annual income is under $35,000 this number is 59%.

Conversely, 34% of retirees said they’re spending gas savings on groceries. The number fell to 29% for those whose annual income exceeds $100,000.

“Clearly this is a silver lining for grocers in the economic dark cloud,” said Brian Ross, general manager of Precima. “With relief at the pump, consumers are returning to some of the aisles they may have foregone in recent months. This significant trend builds on findings we uncovered in earlier research that showed that consumers are now eating more at home. These trends present real opportunities for grocers who target their strategies to meet the needs of cash-strapped consumers.

In another significant finding from the survey, nearly two-thirds of respondents said the recession is changing the way they plan their grocery trips, particularly in regards to pantry-loading. No less than 27% of consumers said they can no longer afford to stock up on food and now buy only what they need week to week. Another 35% said they stock up more than they used to, but only when items are on sale.

Of the 65% of respondents who said their stocking habits have changed, 5% said they stock up more, 54% said they stock up only when items are on sale, and 41% no longer stock up at all. “Given the importance of winning the stock-up trip in key center-store categories, this is a clear call to retailers to look at pricing and promotional strategies for these items,” Mr Ross suggested.

In Australia, the downturn has not yet hit nearly as hard, although research last year did indicate that some shoppers were making fewer trips and stocking up. This was, however, at a time when petrol prices were pushing up passed $1.50 a litre. And research released by the ABS today shows that Australian consumers are still willing to spend, as a surprise 0.4% retail sales gain was recorded in November, with food retailing one of the most successful sectors.

Survey takers were also asked about the factors that drive their choice of grocery stores. When queried about the grocery category most likely to make them switch supermarkets to get a better price, the results were as follows:

* 76% fresh produce
* 72% meat and seafood
* 71% dairy

The other switch-store choices included paper products (62%), canned foods (55%), snacks-beverage-candy (53%), convenience foods (41%), deli (39%) and baby products (15%).