April 2017

Feature

How Gas Prices Affect Consumer Behavior

The 2017 NACS Consumer Fuels Survey reveals five insights for retailers.
Jeff Lenard
*Results are from the annual NACS Consumer Fuels Survey, conducted January 3-6, 2017, by market research and consulting firm Penn Schoen Berland. Overall, 1,114 Americans who said that they had purchased gas in the previous 30 days were surveyed, and the margin for error for this survey is 2.95% at the 95% confidence level. In some cases, consumer survey results from previous years are included for context. In many cases, subcategory information is also included or referenced to identify specific opportunities for retailers.

If there is one message from consumers we are hearing loud and clear—even after two-and-a-half years of relatively low prices—it’s that price still matters when they buy gas. And these same consumers will reward retailers who understand how and why they shop, not just for gas but for inside-the-store items as well. That’s where NACS can help.

Here are five insights from the 2017 NACS Consumer Fuels Survey on fuels-related trends that you should watch as you seek to grow sales at the pump and inside the store.

Let’s begin by dispelling one lingering myth: Low gas prices don’t mean that consumers will drive more—that is, unless they are driving down the street for a better “deal.” All this, despite near-record fuel demand in 2016.

Lower gas prices are often cited as a primary reason for the increased fuel consumption and there is no question that demand increased since it cratered in 2008—the year gas prices reached a record $4.11 per gallon.

 

In 2016, motor fuels demand in the United States increased to 9.32 million barrels per day—and the U.S. Department of Energy expects consumption to increase to record levels in each of the next two years. Americans drove 2.6% more miles in 2016.

Gas prices were high in 2008 when demand was low, so low gas prices in 2016 must be why demand was high. That’s an easy conclusion to draw…but that’s not what consumers told us. Only one in three consumers said their driving behavior has changed because of low gas prices—and that doesn’t mean they were driving more. In fact, of the 33% of Americans who said their driving behavior had changed, most said they were driving less.

 

There are enormous variations by age. Those consumers age 50 and older overwhelmingly say that they are driving less, and that makes sense, especially since 42% of this age group indicated that they were retired—and on a more fixed income. Today, consumers don’t drive more because they want to; driving isn’t all that fun to most people. The leisurely “Sunday drive” is long gone. So why would people drive more? One simple answer: jobs.

More than 40% of all Americans (41%) who said they are driving more said it was because of their job, whether it was a new job, a second job or a longer commute. Only 8% said that they were driving more because gas prices were low.

In looking at the results, consumers are essentially saying that a low unemployment rate affects miles driven more than low gas prices. And that is particularly true for younger Americans, with nearly half (49%) saying they were driving more because of a job. The trend is even more pronounced for consumers working in larger cities: 55% said they were driving more because of a job.

 

Across all demographics, consumers said that they were driving more because of their job, but some variations were evident. Family was an important reason that those ages 35-49 were driving more, with one in five citing that they take their kids to more school or other activities (20% combined).

That’s not to say that Americans don’t like low gas prices—they overwhelmingly do. But they see gas prices as part of a broader economic outlook. To paraphrase that old joke, “A recession is when your neighbor doesn’t have a job. A depression is when you don’t have a job.” Jobs are the reason consumption is increasing. Yes, gas prices are about half of what they were at their peak in 2008—but so is the unemployment rate. (In January 2017, gas prices were $2.34 and unemployment stood at 4.8%.)

 

While economic conditions affect why Americans are driving more, the gas price is still the main reason that a driver seeks a particular location—but it is losing some appeal to convenience.

And despite a variety of online gas-price tools, the gas price sign remains the most popular way that consumers shop for price.

Retailers can encourage consumers to select their stores regardless of the price on the sign, however. Time-starved morning gas-purchasers (6:00 to 10:00 am) are most likely (65% of them) to depend upon the price sign when making purchasing decisions, and those buying gas midday (10:00 am to 2:00 pm) are most likely to select a store based on a loyalty card or another gas discount (20% of them).

 

Who cares the least about the gas price sign? Those who buy food inside the store. The gas price sign was only important to 54% of consumers who said they bought a sandwich at a convenience store where they also purchased fuel.

 

What about signs or other advertisements at the pump encouraging in-store purchases—do they work? More consumers are paying attention to them, but there are variations when and why they notice.

 

Those purchasing fuel at night—after 7:00 pm—are much more likely to notice store ads at the pump than time-starved morning commuters (56% to 44%, respectively). And those who are looking to purchase healthy items or sandwiches notice most of all. (The “healthy” subcategory includes customers who said they bought at least one of the following items at a c-store over the past 30 days: fresh or cut fruit/vegetables, nuts/trail mix, yogurt, health/nutrition bars, a packaged salad or bottled water.)

 

Roughly half (49%) of all consumers say that they have a preference where they buy gas. Not surprisingly, the gas price is the top reason—but it has decreased in importance over the past two years, from 71% to 61%. Meanwhile, the quality of food has increased five points, and now one in seven consumers say that this drives their purchasing decision for gas.

 

That percentage climbs for certain demographics: 27% of younger consumers (ages 18-34) and those who buy healthy items (also 27%) say that the quality of the in-store offer influences where they purchase gas. And that percentage increases even more (36%) for those who say they bought a sandwich over the past 30 days at a convenience store that sold gas. And while the average American driver fills up their tank once, maybe twice a week, many are also filling up inside the store. Nearly half of all U.S. drivers (48%, a strong 5-point jump from last year) say that they buy something inside a convenience store at least once a week.

 

Men are more likely than women to shop at least once a week (52% vs. 43%) and younger consumers are much more likely to shop weekly than those 50 and older (67% vs. 30%). But the particularly loyal convenience store customers are those who buy sandwiches in stores (80% are weekly shoppers) or those buying healthy items (79% are weekly shoppers).

 

A big part of this sales growth is simply that more Americans are seeing positive changes at convenience stores. Compared to three years ago, consumers are seeing significantly more prepared foods and healthy items, enhanced services and store remodels. They are even more likely to say prices went down rather than up on in-store items. It’s clear that a strong in-store offer is changing perceptions and store sales and even attracting some customers previously focused on price.

 

There has been a slow but steady change in how consumers pay for their gas. Over the past eight years, cash payments have dropped 9 points to 26% of transactions. Meanwhile, debit payments jumped 10 points to 37% and are now the most common payment method at the pump.

There are some demographic variations. Men (39% of their transactions) and those over age 50 (47% of their transactions) are most likely to pay by credit card. Meanwhile, debit cards are preferred by younger consumers ages 18-34 (45% of their transactions), and women (41% of their transactions).

 

But will more consumers change how they pay to save at the pump? A significant percentage of consumers already have.

While many consumers have already switched how they pay for fuel, there still is considerable room to incent consumers to use less-expensive payment methods. Three-quarters of all drivers (74%) say that they would pay by either cash or debit card to save a nickel a gallon.

 

And while they say that price isn’t quite as important as it used to be, consumers still say they would drive out of their way or cross a busy street to save money on their fill-up.

Remarkably, these metrics hold across all demographics and gas purchase hours. Even one in four (24%) of those time-strapped morning gas purchasers say that they would drive 10 minutes out of their way to save five cents per gallon.

 

So why would consumers inconvenience themselves to such a degree for such small savings—about 50 cents on an average fill-up? Perhaps they feel they are taking control of their financial destiny (no matter how small) and doing it to an industry that may not care about them, which brings us to our last opportunity…

 

Consumers have embraced the change that they have seen in our industry, particularly related to the in-store offer, but a number of misperceptions remain about who the industry is and how it sells gas.

Give some thought as to how you can tell your community story. While most consumers (57%) say that convenience retailers are small businesses, certain groups are less likely to believe it. For instance, there is a 10-point spread between genders (62% of men vs. 52% of females) and by age (51% of those ages 18-34 vs. 66% of those age 50 or more). Females and younger consumers are also the two groups that most retailers are aggressively courting.

 

Regardless of your store size, there is an opportunity to show your concern for the local community, especially with respect to charitable contributions. Another way to demonstrate you care might be telling them how you are addressing other issues that they care about, like skimming. Three-quarters of consumers say that they are concerned about the possibility of having their credit or debit card information stolen by a skimmer. And they see the gas pump as the place where skimming is the biggest concern.

 

Your contribution to the community and its well-being is also important to consider as you look at consumer perceptions of gas profits. The good news is that more Americans agree than disagree with the statement that retail profits at the pump are about 5 cents per gallon (43% vs. 22%). The bad news is that 35% don’t know. And since consumers predict that gas prices will rise 50 cents in 2017 and end the year at $2.84 per gallon, retailers may be lumped in as part of the reason why gas prices rise, if consumer predictions are indeed correct.

 

There is no question that low gas prices are good for convenience and fuel retailers: Expenses (especially swipe fees) decrease, sales inside the store increase as overall economic sentiment increases and consumers have more money to spend inside the store. Unfortunately, like the weather, which also affects sales, the price of oil is well beyond the control of convenience and fuel retailers. Therefore, it becomes critical for retailers to best tell their story.

NACS conducts its annual Consumer Fuels Survey to help retailers do just that and tell their story around fueling. The information we compile is shared at www.nacsonline.com/fuels.

To a certain extent, low gas prices are one of the reasons why misperceptions linger. Over the past two-and-a-half years, gas prices have rarely been in the news—that’s a good thing—but because fewer reporters have written about gas prices, they also are less familiar with an industry that they infrequently cover.

Jeff Lenard

Jeff Lenard is the NACS vice president of strategic industry initiatives. He can be reached at jlenard@nacsonline.com.