Preparing for Higher Pump Prices

While these difficult economic times continue to peck away at customers’ disposable income, fuel prices are creeping up, which will only further erode discretionary spending.

Gasoline prices nationally have increased steadily since September, rising nearly 60 cents to an average of $3.11 for a gallon of regular unleaded, according to the Department of Energy at presstime. Some experts, such as former Shell Oil President John Hofmeister, are predicting $5 gas within two years, which would drive up the cost of many goods sold in convenience stores. This is bad news at a time when the industry can least afford it.

There is no doubt that global demand is causing a bidding war that is inflating prices, but it is extremely unlikely prices will reach $5 a gallon, at least for a decade or longer. The Oil Price Information Service (OPIS) anticipates prices will range from $3.50-$3.75 per gallon heading into the summer driving season and that sounds more in line with what consumer can expect.

The magic number for prices at the pumps tends to be $3.50. That’s the number where we hear the most consumer complaints, and where spending inside convenience stores tends to dip. This threshold aside, fuel is one area that motorists cannot avoid. While spending in some areas, like entertainment, electronics, apparel, etc., will inevitably go down, spending in other areas will go up.

For example, as we saw in 2008, more people took vacations closer to home and opted to drive rather than deal with higher airline costs. As a result, more dollars were spent locally sustaining small businesses through tough times. People may also hold off a year or two buying a new car, but will require more repairs and maintenance on their current vehicles.

As for Hofmeister, it should be noted that he is the CEO of a grass-roots group called Citizens for Affordable Energy, which is heavily pushing alternative energy solutions. He is likely an investor in some alternative energy project like harnessing wind or solar energy, or some emerging technology that will reduce the nation’s dependence on oil. In fact, the name of his new book is “Why We Hate the Oil Companies,” a peculiar title for a former oil company CEO to say the least, which just raises my suspicions about his motives.

Regardless, he is correct in stating that the nation needs to develop energy alternatives to deal with global demand, and lawmakers are coming around, albeit slowly. Hofmeister is doing his best to sound the alarm. His prediction is surely embellished, which is unfortunate, because the message is an important one.

Tapping Loyalty

This is also a good time to revisit your loyalty programs. Higher fuel prices typically present a big opportunity for retailers—especially grocery chains—that already have gas rewards programs in place. If you don’t have a program in place, get one. Make it meaningful and tie it to other areas of your store to drive penny profits, including your foodservice program and other high margin categories and product lines.

Driving traffic to your stores with a strong gasoline rewards program does several things. For starters, it gives you an opportunity to sell customers more stuff once they’re on the lot. Second, it helps build a solid base of repeat business as fuel prices begin to recede, and the importance of this cannot be overlooked.

I urge you to take the time—a lot of time in fact—at the upcoming NACSTech show to start the due diligence process by exploring the existing loyalty options. There are literally dozens of scaleable, customized solutions available for chains of all sizes. If you are not currently offering a fuel rewards program you are already a step or two behind the market leaders not only in convenience, but in the grocery industry as well. The time to act is right now.

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