Checking gas prices

Though hard to fathom, higher oil prices may present a growth opportunity for grocers.

For what it is worth, here is my read on rising gas prices.

• They are caused by a number of reasons, including the incomprehensible closing of domestic oil refineries, increased international demand and unstable political conditions, primarily in the Middle East and Nigeria.

• Though no one can be sure what is going to happen, it now appears that prices will continue to increase through most of the summer. By Labor Day, the bet is that prices will be closing in $5 a gallon in much of the country, though the chance of $6 a gallon or even more is not out of the question.

• Gas will remain in abundant supply for the foreseeable future, meaning that much of the increase in prices is man-made. Eventually, the bubble will burst and prices will come down to more reasonable levels. Unfortunately, when that is going to happen is anybody’s guess.

• Supermarkets can benefit from this big uptick in fuel prices.

What! Can that last point be true? Is there actually a way for grocery retailers to benefit from rocketing gas prices?

The answer to both questions is yes and, of course, it all has to do with the basic fact that everyone has to eat, higher oil prices or not.

Of course, supermarkets will suffer like any other business that relies on the constant delivery of merchandise. The basic fact that it is going to cost a lot more to get products from point A to point B is enough to send shivers through the heart of any supermarket operator.

But the food store has one inherit advantage during these tough economic times. It is actually in a better position than most business segments to survive and even thrive during these tough economic times because it offers a value-alternative to people in need of something to offset the price of higher gas.

The logic is simply that consumers are going to be forced to cut back on incremental purchases to pay for gas at the pump. Spending $100 or $200 more a month for gasoline to get to work and other necessary trips means that most people will have to reduce spending by a similar amount elsewhere.

For many, the easiest way to cut back is going out for fewer meals at restaurants. Do the math here. A trip to a casual restaurant for a family of four is certain to cost at least $60 or more. That same family can eat a great home cooked meal—with all of the ingredients purchased at the supermarket—for less than half that price.

This is just history repeating itself. Just four years ago, the last time gas prices spiked, consumers went into a deep funk on spending, particularly on incremental purchases. The result was a dramatic downturn in activity at restaurants, from the mid-priced units to the high-priced ones.

At the same time, grocery store operators, reported an uptick in volume at their stores, particularly from the fresh and prepared sections.

If gas prices keep going up—or even stay around the $4 a gallon level of early March—grocery retailers should be prepared for an onslaught of interest from money-crunched consumers looking to stretch their dollars a bit further in these strange times.

I suggest that retailers look at the price at the gas pump as they develop their business strategies in the months ahead.

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