By: Joe Pawlak, Managing Principal
Starting last spring, prices across the board began to rise as sharp increases in demand for goods and labor intertwined with supply chain disruptions. No particular industry, product or service has been spared by rising costs which have been passed along to consumers. The rate of consumer inflation continued to rise to a 7.9% annual increase in February, the largest jump since 1982, according to the Bureau of Labor Statistics.
Foodservice menu prices have also been skyrocketing in this environment, driven by higher raw material and labor costs. Despite this, consumers have continued to accelerate foodservice spending since the nadir of the pandemic, propelled by pent-up demand and economic recovery. In addition, grocery price proliferation has provided no relief nor reason for consumers to shift to the at-home channel.
Gas prices have been elevated as the pandemic waned, however, until recently, they have not been particularly problematic. Price has ranged from the low- to mid-$3 per gallon over the past 12 months. However, the incursion into Ukraine has precipitated a major spike in oil prices, driving up gas at the pump to much more than $4 per gallon on average nationally, up $1.40 over the same period last year and over 70 cents over the past few weeks alone.*
Historical experience has shown that a spike in gas prices, especially those that result in $4-plus per gallon, has an impact on consumer restaurant spending. To understand the current conditions, Technomic conducted an overnight survey on March 10, 2022, with 475 consumers ages 18 and older nationally who drive gas-powered vehicles.
Consumer Pain
Based on our survey, a whopping 86% of consumers say that rising gas prices are having an effect on their spending on other goods and services, and half say that gas prices are having a significant impact.
The data show that the youngest Americans—18- to 24-year-olds—are most impacted as this group has lower discretionary income. Not surprising, those with an income of $150,000 or more annually are least impacted.
Every 50-cent increase in gas price has a $68 billion impact on consumer spending.
Spending Cuts
Americans use about 135 billion gallons of gas per year.* As such, every 50-cent increase results in a $68 billion impact on consumer spending. For many consumers, cutting back on driving is a nonstarter. Using cars is a necessity to get to and from work or school, run errands and conduct their normal mandatory activities throughout the day. Therefore, spending cuts are made in other areas to adjust for higher prices.
Restaurants and other leisure activities are the main areas where consumers say they are cutting back due to high gas prices. This is not surprising as these are typical spending areas where consumers indicate that they cut back on when their own financial prospects become tenuous, including periods ...to read the rest of our findings, please download the full whitepaper here.
*US Energy Information Administration