Higher Gas Prices Not Discouraging Buyers

While U.S. consumers continue to take measures to adjust to rising gas prices, these actions are not as drastic as those taken in previous years.

Unlike 2008, when the average price for regular gas jumped above $4 a gallon, today’s improving job market and strengthening economy are helping consumers cope better than during this recent economic downturn.

In the spring of 2011, consumers have adjusted to a new spending reality, but actions taken to cut down on spending habits, such as eating out less, buying less expensive grocery brands and doing more things at home are less prevalent compared to the summer of 2008 and are similar to the actions taken in the summer of 2010 when prices were well below $3 a gallon.

Trip compression, however, continues to dominate as a key strategy for 67 percent of households looking to save on high gas prices. And while this level is down from 2008 levels (78%), it is up four percentage points from last year. Additionally, nearly half of consumers (46%) will continue to seek lower priced gas stations and eat out less (45%) and over one-third (36%) will shop closer to home to offset high prices at the pump. Coupon clipping is also part of the gas-price offset strategy for 36 percent of households in 2011 – up four percentage points from 2008.

Another positive sign that the economy is slowly heading in the right direction is that U.S. automakers reported a solid April, with the big three auto manufacturers posting healthy sales gains – up an average of 22 percent. Small, gas-thrifty vehicles were not necessarily the biggest sellers.

One in five households (21%) say they are reducing spending to a great degree, which is down from one in four (26%) in 2008. However, with gas prices about 90 cents higher per gallon than year a ago, this is an increase from 18 percent of households reducing spending to a great degree in 2010 – indicative of how some households are still feeling considerable pain at the pump.

Also in decline are saving strategies consumers deploy to lower costs: 21 percent say they are shopping more at supercenters, which is down eight and five percentage points from 2008 and 2010, respectively. Currently, 12 percent say they are buying larger economy sizes – down four percentage points compared to 2008/2010 and 10% say they are shopping at warehouse clubs – down three percentage points from 2008/2010.

More savvy shoppers are taking advantage of incentive programs linked to grocery spending to buy gas; 28 percent of consumers say they are using their grocery shopper loyalty cards to save up to 10, 20 and 30 cents on a gallon of gas by redeeming points at participating gas stations. This savings is not only helping to take the pain out of the pump for consumers, but it is also helping to drive traffic for retailers.

With four out of six households saying they are combining errands to reduce their driving and control their gas spending, some retailers and manufacturers will feel more pain than others. Eating out less and continued interest in at-home and value-oriented activities is a sure sign that it is time to turn the volume up on product solutions and merchandising activities to capture sales from at-home consumption.

Manufacturers and retailers should offer consumers meal deals, recipe ideas, at-home entertainment options and tips & tricks for at-home personal care and in-home cleaning products. Retailers with gas saving promotions are in the driver’s seat; those without programs need to pull other levers to offer value – be it convenient location, value proposition or unique offerings, now is the time to tout those benefits.

With recent declining global oil prices and falling demand as U.S. consumers are driving less to cope, gas prices may fall about 50 cents by Memorial Day, which would be a welcomed change. However, if gas prices remain elevated throughout the summer, chances are that consumers will react with greater severity, just like they did in 2008.