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Rising Gas Prices Boosts CPG Spending in Major Channels: IRI Study

CHICAGO -- With gasoline costs soaring and projected to only rise higher, the average U.S. consumer is reconsidering purchasing decisions. So far, some of them are purchasing more CPG products, which bodes well for grocers.

Marketing information firm Information Resources, Inc. (IRI), this week said research it conducted since the hurricanes hit show that business for the CPG industry as a whole actually grew during the first major price threshold barrier of $2 per gallon. IRI's "Times & Trends Special Report: Impact of Rising Gas Prices," also showed that, contrary to what some analysts expected, the channels benefiting most from the uptick in CPG spending were the major traditional channels of trade -- grocery, drug, and supercenters -- while dollar and club stores' sales dipped.

The latter two outlets were significantly affected by rising gas prices due to dollar stores' focus on lower-income consumers, who have limited disposable incomes; or and on highly cost-conscious shoppers such as club store members, who may have switched to a more convenient one-stop-shopping outlet to conserve gas.

All major CPG departments, with the exception of general merchandise, saw improved growth rates, including health and beauty care, edible, nonedible, bakery, frozen, dairy, and deli, said IRI.

The report assesses spending patterns during three time periods in the past year, in which average gas prices reached significant new levels (less than $2; $2-$2.25; and more than $2.25 per gallon).

When nationwide gasoline prices surpassed the $2 per gallon price in the spring of this year, industry sales across all outlets increased 2.5 percent vs. the prior year, after a period of flat sales when prices were below $2 per gallon.

This sales boost was a result of consumers' reduced spending on entertainment and food outside the home, such as quick-service and full-service restaurants. The report also cautioned, though, that the growth, which has begun to increase at a slower pace in the past few months, may level off if average gas prices continue to rise to and beyond $3 per gallon, as consumers may be forced to tighten all aspects of their budgets.

The report revealed the following pricing trends:

--The food and beverage consumer price index has remained relatively low since December 2004, though gas prices are expected to drive price increases across a multitude of product categories as a result of higher distribution costs.

--Despite a dip in frozen pizza and soup sales after gas prices rose above the $2.25 mark, sales of other leading convenient meal solutions categories increased, presenting a potential opportunity for retailers to effectively position their convenience and prepared food items.

--Sales of "small indulgence" items have shown mixed results. Salty snack and cookie purchases have increased, but crackers declined after a short spike; and candy sales have remained down.

--With the exception of carbonated beverages, all major beverage categories, including bottled water, shelf-stable bottled juices, coffee, and sports drinks, steadily increased in sales after gas prices rose above $2 per gallon. Carbonated beverage sales spiked during the $2-$2.25-per-gallon price range, but have subsequently plateaued.

--Within the alcoholic beverage business, the wine and spirits segments saw sales increase more rapidly than beer did, with the wine category benefiting significantly from higher pricing and product mix shifts.
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