Last week, the price of diesel fuel went to an all time high. The tea-leaf readers indicate that the rising price of oil has not reached its ceiling.

For the CPG supply chain to keep its trucks on the road…it has to have an effect on the price of consumer goods. As the price of fuel is ultimately passed on to the consumer, it most certainly will impact the shopper’s ability to buy and, therefore, impact the economy. It’s not a pretty picture.

There is a threshold, but we haven’t hit it yet. And we don’t know what that level is yet. At this level, there is little to no impact. In fact, some of the shopping indexes are up, including the department store index released yesterday. There is very little retail can do to estimate the threshold for behavior change. When it is reached, it will be sudden and sure. However, the elasticity between this level and that point is truly unknown. It’s not an issue with supply, it’s an issue with demand and that makes it even more tricky to predict. I think, personally, we are a ways from the threshold, but I can’t be sure of that and every expert I have heard to date, from Alan Greenspan to college and university professors, have all had differing and conflicting opinions. It’s a crap shoot. What we do know, if anything, is that this and has been a consumer driven economy and even more so since 9/11. In that light, consumers have been and always will… Read more »

Market forces always prevail. When those forces impact on us, we adjust to the extent of our abilities and stay with our preferred or established patterns. But if the forces continue to grow and pressure us, we have to consider alternatives to our behavioral patterns, which include shopping. Question: Are rising energy prices a natural market force?

Current oil and natural gas prices are beginning to strain the economy and marketplace. Alan Greenspan has expressed hope that market forces would freely spur conservation by businesses and consumers (good luck, Alan), initiate more energy exploration, and that policymakers would avoid doing anything that could stifle the meaningful functioning of the markets. Having said that, we must recognize that the current impact is the worst in a generation. If rising energy prices become institutionalized, a growing market force, then retailers should have a plan in place to succeed from fewer trips to their stores.

It appears that the threat of rising oil prices to retailing specifically, and the economy in general, is bigger than most of us think. Remember, we are not traveling in completely uncharted territory at the prices we’re seeing today, and they’re only expected to go higher. It doesn’t appear that these petroleum prices have been passed through yet to consumers in the form of the price for other goods and services. The only exceptions would be services that have been able to raise prices in line with fuel costs, e.g., Federal Express. Having said that, the impact of the increased cost of gasoline directly on consumers, I think, is already having a significant effect on their spending. The retailers who will be most at risk as this unfolds include: >C-Stores and other retailers where in-store inside purchases are directly tied with gasoline purchases. >Any retailers who are perceived to deliver relatively lower value to consumers, i.e., those where a trip to that store doesn’t deliver as much value as a trip to another store. The… Read more »

Higher oil prices do inherently cause challenges to any economy that imports oil. It means that these economies have to take away resources from other activities like technology, education and infrastructure and devote those resources to paying for oil. It is a dollar for dollar trade off, unless we have a government that wants to mortgage its future through deficit spending. Then it’s a dollar now for $1.50 later trade off. Either way, we pay a cost in a macro-economic sense. On the micro-economic level, the impact of higher oil will soon be felt by consumers in the form of higher product prices resulting primarily from higher transportation and packaging costs. Productivity increases have delayed and will limit the true impact on the consumer at least in the short-term. Again, there is a trade between resources going to pay for higher oil and those being invested in productivity-enhancing technologies, so there ultimately will be a serious problem unless oil prices go down. The retail channels that will be most impacted by higher oil prices are… Read more »

The bottom line…if they aren’t seeing much of an effect yet – they will! If prices for gas continue to spiral out of control, people will have to adjust. The impact of these increases at the pump are starting to amount to dollars per tank – not just cents.

Also, isn’t it interesting that Wal-Mart is the number 1 Fortune 500 company, and they’re known for “Low Prices…Always!” At number 2 on the list, is the esteemed Mobil/Exxon conglomerate. What are they known for? Ever higher (record high) prices at the pump. Hmmmm…what’s wrong with that picture?

I’m holding out for $3.00 a gallon before we see serious behavior change. Adjusted for inflation, that is what gasoline cost in 1981, which was the record-high. Even at that level, the price of gas is a pittance compared to the hundreds of dollars a month the car payment costs, and the hundreds on top of that for insurance, in some cases…

And really, if you travel in other countries, by the time you convert liters to gallons and the local currency to dollars, it’s pretty common to be spending 4 or even 5 dollars a gallon. But the price of gas (or petrol or what-have-you) isn’t something you will hear the locals complaining about much.