New IRI Research Examines Impact of Gas Price Fluctuations
CHICAGO -- From fluctuating prices to getting consumers out of their cars and into the store, gas continues to present challenges for convenience store operators. But new research from IRI explains there is hope for overcoming these hurdles.
According to the latest IRI Point of View, Gas Price Fluctuations Fuel a Convenience Channel Opportunity, even a one-point increase in converting a shopper from fuel to inside the store will bring more than $700 million to the industry's bottom line in a single year.
"Since more than 80 percent of convenience stores sell gas, and changing gas prices affect shopping trips and basket size, convenience store decision makers must develop approaches for rapidly adapting their offerings and promotional strategies in an environment of variable and generally upward trending fuel prices," said Carl Boraca, author of the IRI Point of View and vice president, content product management, for IRI.
"Doing so requires a solid and granular understanding of how to draw more shoppers into the store, even in the face of high gas prices, and knowing which categories are most impacted by fluctuating gas prices," he added. "Connecting these dots could boost industry earnings by millions -- possibly even billions -- of dollars annually."
IRI's second-quarter MarketPulse survey found that 44 percent of consumers are likely to cut spending on groceries if gas prices rise by 50 cents per gallon. More than half (57 percent) of consumers will reduce trips, and 52 percent will switch spending to stores that are closer to home, which may or may not include grocery stores.
In addition, Millennials are impacted greatly by an increase in gas prices because they are generally on strict budgets. According to IRI, 49 percent of Millennials say they will make fewer, larger trips to reduce gas consumption; 49 percent will become heavily focused on price; and 40 percent will reduce the number of stores they visit.
Many factors will influence the actual impact of fluctuating gas prices on shopper behavior, including store location and banner, shopper mindset, and simple needs and resources. In general, though, historical trends provide a general sense of purchase elasticity at the department level, the research firm said.
Specifically, the health care and general merchandise categories are impacted the most. These departments have traditionally been "secondary" areas for c-stores, so they tend to be the first to get eliminated or redirected to an alternate or even lower-priced channel by consumers. In contrast, beverages, which tend to be a key driver of trips for convenience stores, do not see a sharp falloff in sales when gas prices climb, according to IRI.
Despite where gas prices stand, getting consumers from the forecourt to the cash register takes some critical steps. Outdoor advertising such as pumptoppers, window displays, stacks/displays outside the store, and ad or video displays on top of pumps, have proven effective at driving fuel buyers into the store. Analysis demonstrates that product growth is twice as high when outdoor causal advertising is used, compared to when it is absent across a variety of key convenience categories.
However, outdoor advertising is, generally speaking, underdeveloped by convenience store marketers. Even in the warmer months, which are a peak time for outdoor advertising, less than 5 percent of convenience stores' all commodity volume (ACV) is supported with outside displays.
In addition, marketers must understand that no two shoppers are alike. Each shopper follows a different path when making different purchases. Convenience store marketers must thoroughly understand their various shoppers, what activates them, which offers they find most appealing, and how to use the right media to reach them.
"Convenience stores with gas pumps average 277 fill-up trips per day," Boraca said. "And, each trip represents an opportunity to sell goods inside the store. To boost the fuel-to-shopper conversion rate and drive revenue growth, convenience store marketers must empower their decision making with research. Through analytics, we know which shoppers and products are going to be most impacted when gas prices rise. We also know the message and the media that will influence the ideal audience for combating this challenge."
Chicago-based IRI delivers market and shopper information, as well as predictive analysis.