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As gas prices creep ever closer to $4 a gallon throughout much of the US, the sharks are once again circling.
Recently, a USA Today feature documented rising gasoline prices and the (perceived) economic slowdown with an ode to the tortured, troubled consumer who is allegedly making a permanent turn toward simplicity and denial. Not missing a beat, the so-called trend experts are there to provide the play by play:
“The new status isn’t how much you’ve got, but your ability to show what you don’t spend,” says futurist Watts Wacker, “This is a seminal moment. It’s not a fad that will die out when the economy picks up.”
Trends guru Faith Popcorn puts it this way: “It’s cooler not to spend.”
Even though gas prices continue to climb and overall fuel consumption is on the decline* (at least for the time being), we still think consumers are pretty much going to do what they always do. Namely, continue to put gas in their cars, head off to work and live their lives.
*According to the Wall Street Journal, March 3, 2008
Here’s the deal.
There is a long and enduring trend in American culture whereby whenever watershed moments appear to be upon us, both consumers and experts alike feel the need to draw context around the moment by pontificating about: a) what is happening, b) why or how their behavior is changing and c) what all of this means.
The unfortunate reality is that all of this haranguing usually has little to nothing to do with actual, real world behavior simply because nobody ever takes the time necessary to carefully study said behavior.
It is much easier for us all — consumer and expert alike — to talk about the important implications of these sobering times as we continue to shop for our high-performance luxury sedans and drive our children to Pilates.
And hey, if you don’t believe us, check out the following missive we culled from the early days of Tinderbox blogging, some two and a half years ago, when the prospect of $4 a gallon gas seemed a little less fathomable.
A Prediction: What Will Happen When Gas Hits $4 a Gallon? (Wednesday, September 21, 2005)
We’ve written much over the years on the problems associated with assuming consumer behavior necessarily has much to do with the topical, “water-cooler” style dialogues which occupy our daily lives. We all (ourselves included) love talking about this stuff, but when push comes to shove our actions rarely follow suit-at least not in the ways we might predict.
Enter the great $4 a gallon gasoline debates. If you listen to the experts you’d think the sky were about to come crashing down any day now. Look at what a few of the many pundits have to say on the matter:
- “If gas hits $4 a gallon, then all bets are off for the U.S. consumer who has shown remarkable resilience to higher gasoline prices…The precipitous gas price hikes will hit U.S. consumers both psychologically and in their wallets, economists say.” (Source: CNN/Money)
“Hypothetically speaking, if the gasoline crunch forces prices up to $4 a gallon in the next three months, that would be a pretty big hit to the economy and to the consumer,” said UBS economist Jim O’Sullivan. (Source: CNN/Money)
“It doesn’t matter how high your income, when gas hits $4 a gallon, you’re going to start paying attention to prices,” said Richard Guha, a principal at the New England Consulting Group in Westport, Conn. “Now is the time for Target to change its advertising to the world at large ... and to reassure people that, yes, you can find low prices here.” (Source: vindy.com)
Look, the only thing certain here is that when gasoline hits $4 a gallon, we’ll be spending more money to fill up our tanks.
A recent CNN article described the hardships consumers are enduring as a consequence of high gas prices. One reader noted:
“As with everyone else, I have had to cut back on entertainment, travel and food. An interesting trend that I have seen at work (I work for a pizza shop): When I started working there five years ago, no one ever ordered a medium pizza, it was always a large. Over the last 6 months to a year, however, not only have we begun to have fewer customers, but many of our customers have been forced to settle for a medium instead of the large. At least a third to half of our orders are now for mediums. A family of four has to struggle to make a meal out of a medium pizza. What happens when the economy gets worse? Do they cut back to the small pizza (you can’t feed a family of four with a small), or do they stop purchasing all together?”
While surely rising costs are hurting some Americans, at the same time pizza companies like Domino’s and Papa John’s reported 2% increases in revenues for 2007 over 2006 — this in spite of promotional price wars and rising costs for key ingredients that have driven pizza into a near-commodity status.
Americans are still opting to eat out; the fast casual restaurant segment is experiencing significant growth. Qdoba Mexican Grill saw 2007 revenues increase 43% over 2006 while Chipotle’s revenues increased 26%. Americans still like to eat out — they are just refining their choices toward what they view to be at the intersection between higher quality foods and value.
To those who predict major lifestyle changes associated with the rising cost of gasoline-increased carpooling, changing priorities, cancelled vacations, fewer trips to the store, etc. — I’d like to remind you what all of the data always tells us. Namely, consumers lead incredibly complex, frenetic, complicated lives.
So despite what we may say about our plans to use less gas, how easy — and practical — would it really be to find an alternative day care, cancel your daughter’s soccer league, rebook your vacation or start carpooling to work with your annoying neighbor. As most dual-wage earner households understand all too well, it’s all we can do to get through the week as it is — let alone try to reconfigure our lives to scrimp on gasoline.
And to those who predict major, consistent changes in consumer spending patterns due to rising gas costs, I’d remind you of all the naysayers who once suggested consumer involvement with luxury brands was a mere byproduct of the roaring 90’s. “Once the DOW falls below 10,000 or Nasdaq slips below 3,000” the pundits said, “luxury brands are dead in the water.” Well, guess what, both indices have hovered at those points (or below) for several years now and the consumer interest in luxury brands continues, undaunted.
Despite our best intentions, the consumer household budgeting algorithm remains a mystery to all — a most unsystematic, complex practice that seeks to match a hodgepodge of inputs (fixed assets, credit, rebates, FSA payments, bonuses, etc.) with a potentially unlimited array of outputs. All we can really conclude, in the short term, is that households will be spending more money on gasoline.
But lest we keep shooting fish in a barrel, let us remind ourselves that we are as bad as the pundits when it comes to hysterical discourse. Consider the following comments gleaned from recent consumer dialogue on the issue:
“I was thinking about buying an 84’ Corvette, but if gas hits $4 a gallon, anything other than a moped will be too expensive to drive/ride...”
“So, when gas hits $4 a gallon, and about 10 Hummers are sold a year, then what?”
“…By the time gas hits $4 a gallon, a lot of us won’t be using gas powered autos.”
“Looks like Bush is one step closer to his dream of bringing about the apocalypse. When gas hits $4 a gallon, there’s going to be fighting in the streets.”
And finally, as if this were not enough, here is what we have to look forward to talking about after gas surpasses $4 a gallon:
“I know that if gas hits $5 a gallon, I am buying a pony, ’cause hay can’t be that pricey.”
Tinderbox is a part of The Hartman Group, Inc. Copyright 2008. All rights reserved.
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