CHICAGO, Oct. 4, 2005 — With gasoline costs soaring and projected to only rise higher following the damage caused by hurricanes Katrina and Rita, the average U.S. consumer is now being forced to reallocate their spending and reconsider their purchasing decisions. Information Resources, Inc. (IRI), today revealed that the CPG industry as a whole actually grew during the first major price threshold barrier of +$2.00 per gallon. The latest insight comes from an IRI Times & Trends Special Report: Impact of Rising Gas Prices, which looks at current CPG spending trends and the impact of today’s high gas prices on CPG demand.
The report assesses spending patterns during three time periods in the past year in which average gas prices reached significant new levels (less than $2.00; $2.00-$2.25; more than $2.25 per gallon). When nationwide gasoline prices surpassed the $2.00 per gallon price in the spring of this year, industry sales across all outlets increased 2.5 percent versus prior year after a period of flat sales when prices were below $2.00 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 cautions, 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 $3.00 per gallon, as consumers may be forced to tighten all aspects of their budgets.
Furthermore, contrary to what some analysts expected, the channels benefiting most from the uptick in spending were the major CPG channels of trade - grocery, drug and supercenters; while dollar and club stores’ sales dipped. The latter outlets were significantly impacted by rising gas prices due to their focus on serving either lower-income consumers, who have very limited disposable incomes (dollar store consumers), or highly cost-conscious shoppers, who may have switched to a one-stop shopping outlet in closer proximity to conserve gas (club store shoppers).
In terms of department and category performance, all major CPG departments, with the exception of general merchandise, saw improved growth rates, including health and beauty care, edible, non-edible, bakery, frozen, dairy and deli. Diving deeper into each of these departments, the report revealed the following product trends:
- 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, leading convenient meal solutions categories increased in sales, presenting a potential opportunity for manufacturers and 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. However, 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 $2.00 per gallon. Carbonated beverage sales spiked during the $2.00-$2.25 per gallon price range, but have subsequently plateaued.
- Within the beer, wine, and spirits segments, sales of the latter two categories have increased more rapidly than beer, with the wine category benefiting significantly from higher pricing and product mix shifts.
- Rising gas prices seemed to have no effect on the healthcare sector, as its growth rate has mimicked the same gas price growth pattern in the total CPG industry.
“In our industry, quickly meeting the changing needs of the consumer is the key to success,” said Janet Eden-Harris, executive vice president and global chief marketing officer, IRI. “IRI is continually seeking ways to provide a more complete—and real time—understanding of consumers’ behaviors and needs. This study provides critical and insightful analysis into how consumer buying patterns are affected by the sharp increases in gasoline prices.”
The complete report can be found under the News & Events/Thought Leadership section of the IRI website (www.infores.com).
About Information Resources, Inc.
Information Resources, Inc. (IRI) is the world’s leading provider of enterprise market information solutions and services, empowering its clients to grow their business profitably in a complex marketplace. Driving the transformation of the consumer packaged goods (CPG), retail, and healthcare industries, only IRI provides a unique combination of real-time market content, advanced analytics, enterprise performance management software, and professional services. The company’s portfolio of services, solutions, and technology enable leading retailers and their suppliers around the globe to see what they are missing, act faster with greater confidence and win at the shelf. Ninety-five percent of the FORTUNE Global 500 in CPG and retail leverage IRI to power their business. For more information, visit www.infores.