INTRODUCTION

With an estimated $535 extra spent on gasoline this past year, coupled with rising CPG product prices due in large part to rising fuel costs, U.S. households have felt their budgets strain.

Yet, as detailed throughout this report, and consistent with findings from IRI’s September 2005 gas price assessment, the CPG industry does not appear to have been negatively impacted. In fact, total industry sales actually appear to have benefited as consumers shifted spending from luxuries, such as dining out and entertainment.

What did change, however, is the way in which consumers shop. Across income segments and across channels, consumers significantly reduced shopping trips, accelerating a longer-term trend.

This assessment provides CPG manufacturers and retailers with insights required to see and act upon new opportunities and risks related to gas price cycles.

KEY FINDINGS

Gas prices follow a cyclical pattern. Over the past year, while gas price swings have been large relative to historical trends, prices have followed a predictable, cyclical pattern – softening in the fall and winter and climbing in the spring and summer; recent price declines are likely to turn again in the spring. Manufacturers and retailers can plan for future gas price cycles.

Rising gas prices appear to have benefited CPG sales. Consistent with prior gas price hikes, consumers cut back spending on dining out and entertainment, benefiting CPG food and beverage sales. Beer/wine/spirits, beverages and snack foods all saw improved performance as gas prices surpassed $2.75 per gallon this spring. However, demand growth has been tempered by relatively large price increases across numerous CPG products.

Consumers conserved shopping trips in an effort to conserve gas. Gas price spikes this past spring and summer accelerated long-term declines in shopping trip frequency across most CPG channels; the drug channel has grown trips, however, and reaped CPG share gains with strong growth across several health and beauty care categories.

Shopping trip reduction was not limited to lower-income consumers. While incremental gas costs hit lower-income consumers’ budgets the hardest, trip conservation was evident across income groups as gas prices increased. All CPG manufacturers and retailers need to explore the impact of trip reduction on distribution, merchandising and competitive strategies.

Wal-Mart lost trips but maintained share. Despite the fact that Wal-Mart total store sales have been negatively impacted by gas prices (per company statements), the company successfully maintained CPG share as consumers seeking savings -- particularly lower-income consumers -- significantly increased purchases per trip when gas prices spiked.