Higher Gas Prices Affecting Grocery Spending

Just as the CPG industry was beginning to show signs of growth, a new hurdle emerged: rising gas prices.

With national gas prices 40 percent higher on average today than a year ago, many shoppers are having difficulty affording their weekly groceries. It is also a difficult situation for CPG companies, with manufacturers experiencing increased costs due to rising commodity and processing prices, and retailers seeing tight margins squeezed even tighter.

That’s according to SymphonyIRI’s new Times & Trends Special Report, “The Ripple Effect: High Gas Prices Bring Pain Beyond the Pump.”

“Volatility in gas prices has caused consumers to rethink vacations and airlines to boost prices,” said John McIndoe, SymphonyIRI senior VP of marketing. “Even though gas prices have eased in the last month, they are still high and continue to put a strain on the family budget. The bottom line is that shoppers still face a lot of uncertainty with the ups and downs of the economy and will continue to evaluate their purchases very carefully for the foreseeable future.”

High gas prices are rippling through the CPG marketplace and making a significant impact on budget-strained shoppers. In fact, nearly half of consumers feel their grocery budgets are being squeezed by higher prices at the pump. As a result, grocery shopping patterns are changing. Shopping trips are being consolidated, and consumers are showing a growing affinity for closer-to-home retail options, with four out of 10 shoppers being forced to reduce or completely eliminate trips to their preferred retailers due to rising gas prices.

Shoppers also are adjusting their behaviors in other obvious and subtle ways. Shifts in trip missions during the first and second quarters of 2011, versus the same period in 2010, show grocers losing pantry stocking trip missions to mass/supercenter and club, which is a significant change. Private label, on the other hand, is presently showing small signs of a potentially major change in trends. While private label dollar share increased 0.4 points during the first and second quarters of 2011, unit share declined slightly during the same time periods. Whether these trends continue remains to be seen, as national and brand named marketers continue to vie for consumer spending.

“In the weeks and months ahead, as the U.S. economy and U.S. consumers continue to search for firm footing, CPG shopping behaviors will be marked by caution and frugality,” said Susan Viamari, Symphony IRI’s Times & Trends editor. “CPG marketers must carefully track and diagnose the economy as a whole, as well as the key influencers of behavior shifts, such as commodity and gas prices, and be ready to react quickly and aggressively to course-correct in near real time.”

CPG manufacturers and retailers seeking to maximize opportunity within the new, emerging retail environment should consider the following action items:

Market Assessment: Manufacturers and retailers should conduct frequent and granular assessments of key and target consumer groups in order to improve responsiveness and speed-to-market opportunities.

Strategy Development and Execution: Manufacturers should develop a private label risk strategy, focused on their own and competing categories where private label threat is strong and growing. Manufacturers should also ensure distribution, assortment and merchandising support efforts are closely aligned with shifting trip mission trends. Retailers should invest in creating a “halo brand” to drive private label growth and further develop multi-tiered private label lines, ensuring a strong value brand for lower-income shoppers. In addition, retailers should understand trip shift dynamics across income segments and the specific value proposition offered by competing retailers for each segment.

Measurement: Manufacturers and retailers should leverage modeling/simulation to gain perspective on cause and effect prior to rolling out new marketing strategies as well as monitor actual versus expected impact frequently after rollout.

This month’s Times & Trends Special Report, “The Ripple Effect: High Gas Prices Bring Pain Beyond the Pump,” can be downloaded at www.symphonyiri.com/Insights/Publications/TimesTrends/tabid/106/Default.aspx.

SymphonyIRI Group offers innovative solutions and services for driving revenue and profit growth in CPG, retail and health care companies.