Gasoline Prices Change Consumer Spending

For years, gas prices in the United States have been fluctuating--at times reaching more than $4 per gallon

For years, gas prices in the United States have been fluctuatingóat times reaching more than $4 per gallon. This fluctuation has significantly affected Americanís disposable income.

Dinesh Gauri, an assistant professor of marketing in the Whitman School of Management at Syracuse University, recently studied approximately 1,000 households to determine how consumers modify their shopping behaviors when higher gas prices put pressure on their budgets. Specifically, Gauri and his coauthors tracked shopping trips and purchases of almost 300 product categories across retail formats including grocery stores, drugstores, mass merchandisers, and warehouse clubs, during 2006-08.

ìWe specifically wanted to find out if, as a result of higher gas prices, consumers shifted their shopping from one retail format to another, if they bought more generic brands over national labels, if they bought more sale items, or if they were consuming less of certain items to make up for the increased expenditure on gas,î says Gauri.

The researchers found that an increase in gas price significantly reduces shopping frequency, purchase volume, and dollar spending. For a 100% increase in gas price, the average household reduces these three variables by approximately 20%, 6% and 14%, respectively. Though consumers travel less and eat at home more as gas prices increase, a substantial reduction in overall purchase volume and dollar spending still is evident. ?

One-stop shopping formats benefit as gas price increases. In other words, consumers consolidate their shopping as gas price increases. Drug stores and mass stores are the most vulnerable to macro-economic conditions. When gas price goes up, consumers visit them less, though they buy a bigger share of their requirements there when they do visit.