Gas Prices Force U.S. Consumers to Reduce Discretionary Spending

More U.S. consumers are taking steps to compensate for rising gas prices, with nearly two-thirds (63 percent) reducing their spending - up 18 percentage points since June 2007, and up 14 points in the last six months alone - according to new research from The Nielsen Company, MarketingCharts reports.

More consumers are combining shopping trips (78 percent), and more than half of consumers are now eating out less (52 percent) and staying home more often (51 percent), Nielsen found (view table).

Clipping Coupons, Shopping at Supercenters

Increased fuel prices are leading nearly one-third (32 percent) of consumers to use more coupons as a way to save money, up from 25 percent in December 2007 - view table. Seeking to get the bulk of their errands done while using less gas, 28 percent of consumer report doing more of their shopping at supercenters, where more items are in one store.

The increased use of coupons is “an opportunity for consumer packaged goods (CPG) manufacturers to align coupon and other promotions in stores serving consumers feeling the greatest impact from high gas prices,” said Todd Hale, SVP, Consumer & Shopper Insights, The Nielsen Company.

Trading Down

More consumers (35 percent) are buying less expensive brands, up 12 points since December 2007, Nielsen found. See table of grocery tradedown behavior, June/July ‘06 - June ‘08.

While private-label and lower-priced brands stand to benefit from higher gas prices, Hale suggests retailers need to be cautious when making decisions about private label products.

“Many retailers are increasing their focus on private label to help shoppers cope with rising gas and food prices,” said Hale. “While private label shows significant growth, it’s important to remember that more than half of private-label sales growth comes from only four product categories - milk, fresh eggs, cheese and bread or baked goods - categories greatly impacted by inflationary pricing resulting from higher livestock feed prices or higher raw ingredient prices. Retailers need to be judicious in selecting categories where private-label opportunities exist.”

Slight Increases in Online Shopping, Carpooling

Nielsen’s research shows some consumers are shopping online and carpooling or using public transportation more often. (View table.)

“CPG manufacturers and retailers should not ignore consumers’ desire for online shopping,” said Hale. “While we’re not suggesting a big increase in online food sales, this could mean opportunities for general merchandise, non-food and health and beauty manufacturers.”

The outlook for the remainder of 2008 and 2009 are certain to be challenging, Hale suggests, adding that CPG manufacturers and retailers can nevertheless be creative, for their benefit and the benefit of their customers.

“Swings in fuel supply will continue to have a tremendous impact on consumer shopping and buying behavior,” said Hale. “Retailers can take a creative approach to promotions, pricing and partnerships, such as aligning themselves with gas retailers to reward loyal customers with less expensive gas, while manufacturers can minimize the impact of high gas prices by targeting products and advertising around at-home or at-work meals and at-home entertaining.”

About the Survey: Results are based on Nielsen Homescan survey responses from nearly 50,000 U.S. consumers, geographically and demographically representative of the total U.S. population. The survey was conducted during the first week of June 2008, when regular gas averaged $3.981.