Gas-Price Increases Making Consumers, Operators Nervous

In spite of a recent flurry of good economic news about jobs, housing and international trade, an unusual jump in winter gasoline prices has both consumers and restaurant operators wondering if this year will be a repeat of last spring. Last year, prices leapt almost 80 cents a gallon between early February and late April peaking at more than $3.90gal. The surge in gas and food prices undercut consumer spending and confidence and short-circuited a budding foodservice recovery.

According to AAA’s Daily Fuel Gauge Report, the average national price for a gallon of self-serve regular hit $3.57 Feb. 21, up nearly six cents from last week’s average price and up 18.5 cents in the past month. Diesel fuel prices have seen a similar trend, following the price of crude oil. Oil prices have shot up worldwide over concerns about tensions with Iran and stronger demand in the United States, thanks to an improving economy and mild winter in many parts of the country.

What has many observers concerned is that fuel prices usually fall during the winter months. Some observers fear that by the summer peak driving season, gas prices could pass the record $4.11 average seen in mid-July 2008.

Joe Pawlak, v.p. at Technomic, expressed concern when asked by FER Fortnightly how the higher gas prices might affect a foodservice market managing only very modest growth.

“I think it could be troubling again once we hit a $4.30 to $4.40 mark,” he said. “Consumers have already cut back their driving to account for $3.50 gas, and it might be more difficult to find more ways to cut back. They will look to make accommodations in other ways, including spending less for food away from home. At this point, the industry is just eking out minimal growth.  If we hit a $5 mark, we could see the industry spin back into recession.”

The gas-price run-up comes at a time when operators are benefiting from a very mild winter in much of the country. And after more than a year of wholesale food-price increases, wholesale prices fell in January for the third month in the last four. Prices fell 0.3% at the finished goods level, according to the Bureau of Labor Statistics’ Producer Price Index data, released Feb. 16. At the same time, operators raised menu prices 0.4%, the biggest monthly increase since August last year.  

"Anything that has a  dampening effect on consumers’ disposable income presents a challenge to restaurant operators," Hudson Riehle, senior v.p. of NRA’s Research and Knowledge Group, told Fortnightly. "As the nation’s economic recovery remains modest, substantially higher gasoline prices will force consumers to reallocate their cash-on-hand to accommodate these increases. While many will alter driving behavior to manage gasoline expenditures, other consumer spending will likely be affected as well. This can be particularly challenging if the prices remain elevated for a prolonged period of time into and through the travel and tourism season this summer."