Foodservice Equipment Reports

Gas Prices Still Falling; What Does It Mean For Foodservice?

It’s conventional wisdom that when gasoline prices come down, foodservice sales—at least at commercial operations—go up. It’s conventional wisdom because there is a huge body of evidence to support it.

So we were taken back a bit when Joe Pawlak, v.p, at Technomic, told us last week that while lower gasoline prices are indeed a factor in their upward revision of the firm’s 2015 operator forecast (see story this issue), they consider the improving employment environment as more important. And they have evidence for that from their ongoing consumer research. “We have found that although (the gas price decline) has put more money in consumers’ pockets, they are using most of this new-found cash to pay bills, credit cards, and other essentials, not on discretionaries like foodservice,” he said.

Gasoline prices continued to fall last week, by the way. The average national price of a gallon of regular on Monday, Jan. 19 was $2.061, down from Sunday and down almost seven cents since Jan. 12. Gas prices are down more than 60% since late June 2014. As of Monday, they were running $1.226 lower than a year ago. Diesel prices are also down dramatically, which helps the foodservice distributors and equipment and supplies dealers that run delivery vehicles.

Technomic is almost certainly correct that many consumers are using the gas-price “bonus” to pay down debt and for uses other than foodservice. Part of what’s driving this is that Americans in less affluent households have never really recovered from the Great Recession. And they know gas prices come down and go back up.

The current “bonus” is quite large for households with income below, say, $50,000 a year, which is almost 50% of all American households. The U.S. Energy Information Administration revised up its estimate of the benefit last week, reporting the drop in gas prices amounts to a $750 gain a year per household at current prices. Households that heat their homes with oil, rather than natural gas or electricity, are receiving an additional $750 bonus.

But we have also seen a lot of evidence from Technomic, The NPD Group, NRA and others that commercial foodservice sales, and perhaps more importantly, customer traffic counts, improved substantially beginning around September, when the full scope of the oil and gas price collapse became apparent.

The low gasoline prices can’t but help foodservice operators this year. The lower prices not only put more money in customers’ pockets, they help with their mood and attitude. The Thomson Reuters University of Michigan Consumer Sentiment Index hit another post-recession high in the mid-January reading, announced last Friday. Combine improved sales and traffic with stabilizing food-price increases (see story this issue), and many operators should have a better year in 2015 than 2014.

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