“Just when some positive economic reports and improving consumer confidence news are picking up, rising gas prices in North America could take a toll on consumer spending power, shifting consumers back to staying at home and shopping for value until prices subside.,” write Todd Hale and Carman Allison of The Nielsen Company in a new report.
“With ongoing political unrest in the oil-rich Middle East region, gas prices are edging back up to 2008 levels when they topped over $4.00 a gallon in the U.S. and $1.40 per litre in Canada. While there are some similarities between 2008 and 2011, much is different.
“In 2008, increased demand drove gas prices up during the heavy travel summer months of July and August, topping out in the U.S. at $4.11 during the week of July 7. Today, with summer still months away and with prices in the U.S. already nearing the $4.00 mark at some locations, it is possible that gas prices may surpass 2008 levels. In Canada, these prices translate to about a 30 percent increase over the U.S. prices. The difference between now and 2008 is that gas prices are not rising from demand, but rather from political instability abroad.”
They go on: “Consider this: in 2010, there were 2.1 cars per household in the U.S. Assuming that each car is driven 1,000 miles per month and achieves 20 miles per gallon of gas, a price increase of 10 cents per gallon translates to an increase of $10.50 per month in household expenditures. As prices increase, households could be paying an extra $52.50 with a 50 cent increase, $105 with a $1.00 rise and $210 if prices jump by $2.00. In Canada, similar assumptions can be made: a 10 cent increase per litre translates to a $30 additional monthly outlay; $65 with a 25 cent rise and $124 with a 50 cent increase.”
Hale and Allison point out that these increases hardly are happening in a vacuum - prices on a lot of things are going up, putting ever-greater financial pressure on people who now will be forced to make hard choices about how to spend their money.
“The impact to consumers is real and wallets will continue to be squeezed,” they write. “Household wages are not keeping pace with inflation, so in the end, consumers will need to dig deeper into their pockets to pay for ‘everyday’ things. The coping mechanisms consumers applied during the recession will be their back-up plan as we head into the summer. Trip capture will once again be paramount and there are opportunities for retailers and manufacturers to convert a likely decline in out-of-home eating and entertainment into spending for at-home options. We would urge manufacturers and retailers alike to actively engage their consumers and shoppers on this front and not simply sit on the sidelines. Value messaging will be important, but also think about the emotional connection with messaging that reflects the fun and enjoyment to be had with family members and friends.”
“With ongoing political unrest in the oil-rich Middle East region, gas prices are edging back up to 2008 levels when they topped over $4.00 a gallon in the U.S. and $1.40 per litre in Canada. While there are some similarities between 2008 and 2011, much is different.
“In 2008, increased demand drove gas prices up during the heavy travel summer months of July and August, topping out in the U.S. at $4.11 during the week of July 7. Today, with summer still months away and with prices in the U.S. already nearing the $4.00 mark at some locations, it is possible that gas prices may surpass 2008 levels. In Canada, these prices translate to about a 30 percent increase over the U.S. prices. The difference between now and 2008 is that gas prices are not rising from demand, but rather from political instability abroad.”
They go on: “Consider this: in 2010, there were 2.1 cars per household in the U.S. Assuming that each car is driven 1,000 miles per month and achieves 20 miles per gallon of gas, a price increase of 10 cents per gallon translates to an increase of $10.50 per month in household expenditures. As prices increase, households could be paying an extra $52.50 with a 50 cent increase, $105 with a $1.00 rise and $210 if prices jump by $2.00. In Canada, similar assumptions can be made: a 10 cent increase per litre translates to a $30 additional monthly outlay; $65 with a 25 cent rise and $124 with a 50 cent increase.”
Hale and Allison point out that these increases hardly are happening in a vacuum - prices on a lot of things are going up, putting ever-greater financial pressure on people who now will be forced to make hard choices about how to spend their money.
“The impact to consumers is real and wallets will continue to be squeezed,” they write. “Household wages are not keeping pace with inflation, so in the end, consumers will need to dig deeper into their pockets to pay for ‘everyday’ things. The coping mechanisms consumers applied during the recession will be their back-up plan as we head into the summer. Trip capture will once again be paramount and there are opportunities for retailers and manufacturers to convert a likely decline in out-of-home eating and entertainment into spending for at-home options. We would urge manufacturers and retailers alike to actively engage their consumers and shoppers on this front and not simply sit on the sidelines. Value messaging will be important, but also think about the emotional connection with messaging that reflects the fun and enjoyment to be had with family members and friends.”
- KC's View:
