News and Views

- June 19, 2008 -


What's the Impact of $10 a Gallon?

  BrainTrust Panel Discussion Question: Do You Think America's Love Affair with the Road has Reached a Capitulation Point with Rising Gas Prices?  


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Each business morning on, retailing execs get plugged in to the latest industry news and issues with key insights from a "BrainTrust" of retail industry experts. Here are excerpts from one of these unique RetailWire online Discussions, along with results from's Instant Polls.


By Tom Ryan, Managing Editor, RetailWire

Recently exploring what would happen if gas prices reached $10 a gallon, an MSN Money columnist predicted thousands of truckers going out of business, airplanes sitting idle, and scores of restaurants and stores shutting down. On the rise would be car-pooling, hybrid vehicles, inline skates, telecommuting, rooftop vegetable gardens, home cooking, recycling, and solar and nuclear power.

According to Todd Hale, senior vice president of Consumer Shopping & Insights, Nielsen Consumer Panel Services, at $10 a gallon, the average family's gas bill would leap from 16 percent of its retail spending to about 40 percent. Consumer spending on eating out, apparel, electronics, and vacations would fall sharply. Businesses and farmers would be squeezed by rising costs of transportation, petrochemical fertilizers and plastics. Food prices alone could jump by a third or more.

Although Goldman Sachs last month predicted gas prices may rise to as much as $5 a gallon if the U.S. economy and dollar doesn't improve, prices in the U.S. are nowhere near $10. But consumers are already clearly altering their habits as gas prices soar:

  • According to the Transportation Department, Americans drove 11 billion fewer miles in March than they did in March 2007, a drop of 4.3 percent. It is the first time since 1979 that traffic has dropped from one March to the next, and the month-on-month percentage decline is the largest since 1942;
  • A recent survey by the AAA found a rare year-on-year decline of one percent in the number of people planning to travel this summer;
  • With national gas prices hitting $3.94 nationally a gallon over the Memorial Day weekend, fuel demand in the U.S. has fallen sharply and is headed for its first annual decline in 17 years;
  • A Nielsen survey completed in December - when regular gas averaged $3.06 - was already finding that consumers were looking to battle high gas prices by combining shopping trips and errands (70 percent), eating out less (41 percent) and staying home more often (39 percent).

"The psychology has changed," Sara Johnson, an economist at Global Insight, told The New York Times. "People have recognized that prices are not going down and are adapting to higher energy costs. It's a capitulation."

Discussion Question for the BrainTrust panel: Do you think America's love affair with the road has reached a capitulation point with rising gas prices? If so, how will this impact consumer spending? Regardless, what opportunities might retailers be missing that have resulted from the hike in gas prices?   


RetailWire Instant Poll Results:

RetailWire BrainTrust Comments:

First, if gas did hit $10 a gallon, the number of things affected would be much greater than simply driving habits. The cost of goods, for example, would soar. At some price level, change will be forced, not voluntary. Today, we are still at a point where for most (certainly not all) behavioral changes moderate the impact of the higher gas price. As in business, burning platform issues drive significant changes.

Kenneth Grady, General Counsel and Secretary, Wolverine World Wide, Inc.

Bill Phibbs , President/CEO,
The Retail Doctor & Associates, Says:
Hopefully, this is a speculative bubble, or...we are truly in for a new profound face of business--less.

What do you say? Send us your comments here

Fuel costs, more than consumer altruism, will propel a great leap toward retailing of local items. This will be true of fresh produce, dairy, and much, much more. We may even see a return to American-made blue jeans! While higher fuel costs will hurt consumers in the pocketbook, there is big potential for entrepreneurs to take advantage of selling local, no matter how "local" is defined.

Lance Jungmeyer, editor, The Packer

The Economist did an analysis that showed that oil would have to reach $135/barrel before it exceeded the relative (inflation adjusted) prices of the 1980s, and it would have to reach $150/barrel before it hit the price peaks seen in the late 1970s. Last time I checked, we weren't far off those marks. So while $10/gallon seems outrageous, so does $150 a barrel! It's all relative.

The problem with changing habits in the US is that in a lot of places our cities are not designed for anything other than cars. So while there may be some short-term behavior changes, they're not going to last unless the infrastructure catches up. It's great to say you're going to ride your bike more, but not if you have to take your life in your hands every time you ride because you have to share streets with a lot of car traffic.

Nikki Baird, Managing Partner, Retail Systems Research

Are these doomsday articles really news or fear-mongering? Expect riots at $10 a gallon by the middle class. Expect the U.S. political structure to change at $10 a gallon.

Economists quoted in the NYT ... said oil could just as easily retreat to $60 a barrel as increase to $200 in the next few years. Particularly if, as these articles seemed to point out, we are adapting to higher prices and driving less.

As much as "experts" say China and India are driving prices upwards, I would expect their demand to be influenced by record prices--just like the U.S. Hopefully, this is a speculative bubble, or...we are truly in for a new profound face of business--less.

Bob Phibbs, President/CEO, The Retail Doctor & Associates

$10 a gallon gasoline may seem like a crisis, but in reality it is an opportunity for our society to question and revise the wisdom of running our nation on petro-powered vehicles. Ours is ultimately not a globally sustainable system. Oil will run out in a foreseeable time frame (two centuries at most), and we will need most of what is left for raw materials--to make the plastics, medicines and other substances to supply a world with more than 10 billion consumers.

Einstein had it more right than he knew: Energy is matter. Every kilowatt of power we save today or generate using non-petroleum sources leaves raw material over for another plastic syringe or dose of anti-cancer medication for our great-great-great grandchildren. What could be more conservative than that?

James Tenser, Principal, VSN Strategies

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