The Challenge: Fill Up Tanks and Carts
By George Anderson, Editor-in-Chief, RetailWire
Here’s something to add to the definite events in life. You will die, pay taxes and eventually spend more at the gas pump.
Gas prices have risen over the past two weeks, according to various sources including the Lundberg Report and AAA. The average price for a gallon of regular was $2.22 nationwide at the roughly 9,000 gas stations included in recent numbers released by Lundberg.
While the past couple of weeks do not represent a sudden spike in prices and it may be true the cost of fill-ups have been relatively stable over recent months, everyone knows warmer weather, vacation trips and higher prices are only a few months away.
It has been suggested in some quarters that consumers have become acclimated to the high prices paid at the pump, but research suggests the truth is more complicated.
Fuel prices on the national level are 50 percent higher (a conservative estimate) than five years ago.
Back in June and July of 2005, ACNielsen asked consumers how high gas prices were affecting their driving, shopping and other habitual activities. At that time, 61 percent said they were combining trips to run errands, 31 percent were eating out less and 30 percent were spending more time at home.
A year later, all those numbers had increased between seven and nine percent and nearly half of all consumers said they would reduce spending by a small or great degree.
In addition to combining errands, consumers are also looking for other ways to offset the high price of gas. They report buying larger pack sizes to last longer before needing a replacement and increasing the frequency and the amount of item they buy online.
Warehouse clubs and supercenters have done best during the high gas price era while store counts in supermarkets have remained relatively flat. Dollar stores, drugstores and mass merchants have seen counts head southward.
In terms of trips, all channels with the exception of clubs have seen a falloff. Indicative of the combining errands and limited trip tendencies, stores across all channels have seen the value of market baskets rise.
It’s worth pointing out that one off the lynchpins of one-stop shopping is general merchandise and health & beauty care. More than representing seven to eight percent of the store sales, these product classifications open up to customers the option of combining shopping trips and eliminating extra stops at other stores.
So what does this mean for retailers, specifically those with a one-stop shopping profile?
Todd Hale, senior vice president – consumer analytics for ACNielsen, believes retailers have a number of strategies and tactics to become the first and only stop on the reduced shopping trips being made by consumers.
“Adding gas pumps to grocery store parking lots and/or providing gas discounts (to buy gas at a gas operator) based on spending in stores turned out to be a good thing for many grocers this past year,” he said. “In our ever increasing ‘fast-paced’ life, advertising messaging around saving consumers time and money should be a real focus.”
Even though GM/HBC growth has been slow, these product classifications are superbly positioned to play a key role in stimulating increases in market baskets: high-volume, high-profit products available in a wide variety of store.
Discussion Questions: What steps should retailers make to become the preferred one-stop consumers choose when gas prices rise? Should GM/HBC play a major role in programs designed to prompt one-stop shopping in a costly-gas world? How should that role be fulfilled?
Whether gas prices rise sharply or not, retailers are already doing their best to increase profitable traffic. As for 1-stop shopping, the slogan is better known than the actual experience. A retailer that tries to sell everything to everyone ends up appealing to no one. Without specialization there is no excellence, and eventually, no audience. Retailers are editors. The assortments have to be edited to the point they’re profitable and make a statement to shoppers. General interest magazines are dead. General interest TV is declining. Several decades ago, department stores stopped trying to be all things to all people.
Retailers need to offer good value, meal solutions and differentiating strategies that encourage consumers to visit their stores. If you look at the FMI Trends for 2006, consumers preferred supermarkets that offered clean, neat stores, high quality produce and high quality meats, accurate shelf tags, low prices and convenient locations. The basics are still paramount as well as offering overall value and customer service.
The gas war is on in my neck of the woods. Here in a bedroom community Northwest of Sacramento, Safeway has opened a pump station less than half-a-mile from Raley’s ripoff gasateria. And they’re whipping Raley’s bohunkus. Not only are Safeway’s per-gallon prices generally a dime below Raley’s, but you can scan your Safeway card at their pumps for an instantaneous additional dime discount per gallon! How cool is that? Twenty cents per gallon cheaper than Raley’s!
Years ago Raley’s paid more than a third of a million dollars for a frequent shopper program that they shelved. Today they have no card to help their shoppers save money on gas. Instead, they run silly promotions for those purchasing more than $50 in “stuff,” and then the shopper has to scan the barcode on their paper receipt at the Raley’s pump to receive a discount. So, if you spend $49 today at Raley’s and $1 tomorrow, you don’t get the discount. That’s because Raley’s has no way of keeping track of individual shoppers’ loyalties.
Higher gas prices = smaller cars = less room and changed mentality about buying BIG. Feel poorer, spend less, circle the wagons by patronizing local stores.
I suspect discount gas would be popular, but I’m not sure it will change the underlying retail buying habits. If you can still sell the gas profitably–great, but how many retailers are prepared to run a gas station?
Someday the price of energy will drive the creation of online/offline consolidation businesses. Likely winners are grocery retailers, since shoppers are least likely to want to choose meat and produce sight unseen. But a service where consumers can shop online for a variety of goods and pick them all up at the grocery store allows for volume purchasing and consolidated transportation costs, and increased convenience for the consumer, all while reducing the consumption of fuel.
Not all retailers are doing a good job with the one-stop concept. Two different retailers in my area do not have gas available on-site. You can get coupons at any site for reduced gas price but then you have to drive to the “area” location. When that drives consumes a reasonable amount of gasoline, the advantage is gone. That benefit becomes no benefit.
Over time, as George Anderson points out, consumers have gotten used to the sticker shock at the gas pump. For many of us, it’s just another unavoidable cost, although it still pains me when I see $50 going into my gas tank. Many shoppers may have tried to combine retailer visits into one trip, sought out “one-stop” shopping venues, larger pack sizes and patronized retail locations closer to their homes. While some are still doing some or all of these things to save on gas, I think consumers eventually return to frequenting retailers perceived to offer the best blend of price, selection, quality, customer service and shopping environment. That said, warehouse operators like Costco who offer many of the above important shopping criteria plus gas on site with prices better than surrounding c-stores or service stations can’t help but entice customer traffic and produce larger cash register rings.
Steps that etailers should make to become the preferred one-stop consumers choose should have nothing to do with fuel prices. Fuel prices are just another barrier to keep shoppers from stores. Certainly not to the point of a bridge being closed, but still a barrier. What do retailers do to get shoppers during road construction, a new competitor opens, the economy slumps, or just having a poor location to begin with? Fuel prices should be the least of retailer’s worries. It doesn’t take long for people to adjust.
Recent shopper research studies all indicate that the consumer is making more “quick trips” for a few items and less “stock-up trips.” This would seem to fly in the face of the gas price driven shopping theory.
The great retail battle today is over these quick shopping trips. The C-store would seem the natural, but more expensive choice. Drug stores now appeal to women with convenience consumables like bread and milk. Dollar stores are adding coolers and food. Even Supercenters are vying for these quick trips.
Retailers who best serve these types of trips with convenient, one-stop shopping have the opportunity to capture shoppers. Once the shoppers are in the store, they can build the market basket with impulse items and sales.
Our local grocery store (Giant Eagle) has an excellent gas-price rewards program (10 cents off per gallon for every $50 spent) that has done a good job in changing the way that people shop. They sell gift cards for most major retailers (taking a small piece of the pie for themselves, of course) and they have also driven people to shop for more items at the grocery store that they would have ordinarily purchased elsewhere (drug store, Whole Foods, etc). They have also expanded this program to their convenience stores and rewarded people for stopping on the way home for milk.
Unfortunately, beyond capturing a larger part of the market that is relatively “easy” to capture while avoiding the “jack of all trades, master of none” pitfall, there is only so much that a grocery store can do about gas prices and a reduced desire to travel. I like having a grocery store near the local Home Depot or department store to minimize drive times, but short of relocation, that’s a hard advantage to claim.
In order to ensure that the retailer is the preferred destination, the retailer needs to ensure the following: a) they have the most desired item in stock, b) they ensure that the register lines are not too long, c) there are sales associates available, d) sales associates are able to answer consumer questions.
Sounds like the making of good customer experiences and good customer service, doesn’t it?