High Gas Prices Disrupt U.S. Consumer Spending

Dramatic fluctuations in gas prices are disrupting U.S. consumer spending and expected to continue, leaving consumers with less money to spend at retail, entertainment and dining out, according to a new study by The Nielsen Company. Nielsen's research shows that in 2007, the gas share of consumers' weekly spending ranged from 12 to 16 percent. As gas prices continue to rise, Nielsen expects consumers' gas share of their weekly spend to rise to 19 percent.

"With gas prices expected to hit $4 per gallon this year, consumers will be spending nearly a fifth of their household budget on gas," says Todd Hale, senior vice president, Consumer & Shopper Insights, Nielsen Consumer Panel Services. "That kind of increase has a direct impact on what they can afford to spend and is something retailers will need to address."

According to government statistics, the price of regular gas in 2007 ranged from a low of $2.11 per gallon to $3.21 per gallon. Nielsen's research shows that higher gas prices create a modest change in the number of average weekly gas trips, with consumers averaging 1.3 trips to the gas pumps per week, up from 1.24 trips when gas prices were at their lowest ($2.11 per gallon).

"The increase in gas trip frequency as gas prices rise suggests that some consumers are seeking to limit the amount of money spent each time they're at the pump," says Hale.

Though consumers may be making more trips to the pumps each week to limit the amount they spend per trip, they are not able to limit the amount they spend on gas each week. Nielsen's study shows that the amount of money consumers spent on gas each week increased dramatically as a result of higher gas prices. Per trip spending rose significantly, up 40 percent from $24.42 per trip when gas was at its lowest price, to $34.11 when gas prices hit their peak. With consumers making more than one trip to the gas pump each week, overall weekly gas spending rose from $32.02 to $46.72 per household -- a 46 percent increase.

"Consumers tell us they are combining errands and trips, eating out less and doing more things at home to counterbalance rising gas prices," says Hale. "Nevertheless, the amount of money spent on gas each week is still taking a huge bite out of consumers' budgets."

With more than 146,000 U.S. locations, convenience stores are the preferred stop for consumers, attracting nine times more gas buyers than warehouse clubs or grocery stores. Warehouse clubs, however, see a higher level of gas spending per trip.

"If we take a look at the size of automobiles in a typical warehouse club parking lot we can understand why warehouse clubs grab more money spent on gas per trip," said Hale. "Generally, you'll see more affluent consumers driving SUVs and luxury cars, leading to higher per trip spending on gas."

Retailers, especially warehouse clubs and some grocers, are offering low gas prices or gas discounts based on in-store purchases as a way to ease gas cost strain and build shopper loyalty. Convenience store retailers can make the most of consumers' frequent gas trips with loyalty programs and value price offerings to enhance in-store sales. Some convenience stores are attracting consumers with a stronger focus on their food service business and capturing meals that might otherwise go to fast-food and casual dining restaurants.

"Today's consumers are looking for value and convenience and this year, the impact of rising gas prices is something all retailers will need to address through assortment, pricing and promotional strategies," says Hale.