An Empirical Investigation of the Impact of Gasoline Prices on Grocery Shopping Behavior

Yu Ma, Kusum L. Ailawadi, Dinesh K. Gauri, & Dhruv Grewal
Journal of Marketing
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Executive Summary
In recent years, gasoline prices in the United States have fluctuated widely. Because it is difficult for consumers to alter their gas consumption in the short run, this variation in gas price significantly affects the portion of disposable income that is available for other categories of household expenses. In this article, the authors examine the effect of gas prices on consumers’ grocery shopping behavior. They not only study the impact on a household’s shopping frequency, total purchase volume, and dollar spending but also examine which of several potential avenues are used to save money on grocery shopping. They conduct the analysis on a home-scan panel of approximately 1000 U.S. consumers. The data track panel members’ shopping trips and purchases of almost 300 product categories across retail formats including grocery stores, drugstores, mass merchandisers, and warehouse clubs, during the 2006–2008 period.

After controlling for general economic conditions and the retail marketing mix, the authors find that a 100% increase in gas price leads the average household to reduce shopping frequency by approximately 20% and total expenditure by about 14%. They also document a substantial shift in spending away from traditional grocery formats to one-stop shopping supercenters. A 100% increase in gas price results in a 3.6% reduction in grocery format share and a 24.9% increase in supercenter share. As might be expected, consumers buy fewer full-price name brands, but contrary to reports in the popular press, they shift more to promotions on name brands than to private label. Indeed, for a 100% increase in gas price, regular-priced national brands lose 12% of their share, promoted national brands gain 29%, and private label gains only 3%. Furthermore, among consumers who continue to buy name brands, top-price-tier share stays unchanged, mid-price-tier share increases, and bottom-tier brands actually lose share. Thus, households consume less and consolidate their shopping as rising gas prices take a bigger bite out of their wallet, but they preserve their preference for quality brands, looking for them on promotion to save money.

The implications for manufacturers and retailers are important. The role and leverage of large supercenters increases in tough economic times, and manufacturers must balance their focus on these formats with greater support and trade deals for their traditional retail partners. Manufacturers of products associated with impulse buying must also reckon with fewer opportunities for sales as shopping frequency decreases. In general, manufacturers must recognize that promotions work and should use them to keep their consumers from switching to private labels, and retailers must realize that private labels, though important, should not be overemphasized at the expense of attractively merchandised name brands. Finally, it may be dangerous for well-known brands to extend into a low price tier and likely lower-quality space—they may not be able to get their costs low enough to compete with private labels, and they run the risk of hurting their brand equity.

Yu Ma is an Assistant Professor of Marketing in the School of Business at University of Alberta. He received his PhD in Marketing from Washington University in St. Louis. His current research interests include multicategory choice modeling, empirical analysis of competitive strategies, and impact of store layout on sales.

Kusum L. Ailawadi is the Charles Jordan 1911 TU’12 Professor of Marketing in the Tuck School of Business at Dartmouth College. She received her BSc and MBA from Delhi University and the Indian Institute of Management, respectively, and her PhD from the University of Virginia. Kusum researches consumer and competitor response to major shocks and policy changes, retail strategy, and the balance of power between manufacturers and retailers. She has published in all the major marketing journals and won the William Davidson, Harold Maynard, and John D.C. Little awards and the MSI/JMR Competition for Academic-Practitioner Collaborative Research. She serves on the editorial boards of Journal of Marketing, Journal of Marketing Research, Journal of Retailing, and Marketing Science and is an associate editor for International Journal of Research in Marketing.

Dinesh K. Gauri is Assistant Professor of Marketing in the Whitman School of Management at Syracuse University. He received his PhD from the University at Buffalo. He also holds master’s degrees in Economics from University at Buffalo and in Mathematics and Computer Applications from Indian Institute of Technology Delhi, India. His research interests include consumers’ price search, retail strategy, promotion effectiveness, and retail store performance-related issues. His dissertation research received the best doctoral dissertation proposal award from Fordham University Pricing Center in 2006 and an honorable mention award for the Levy and Weitz doctoral dissertation proposal competition sponsored by the American Marketing Association Retailing special interest group and the Miller Center for Retailing Education and Research at University of Florida in 2005. His research has been published in various journals, including Journal of Marketing, Journal of Marketing Research, Marketing Science, and Journal of Retailing. He serves on the editorial board of Journal of Retailing and Journal of Business Research.

Dhruv Grewal (PhD, Virginia Polytechnic Institute and State University) is the Toyota Chair in Commerce and Electronic Business and Professor of Marketing at Babson College. He was awarded the 2010 AMS Cutco/Vector Distinguished Educator Award, the 2010 Lifetime Achievement Award in Retailing (AMA Retailing special interest group), and the 2005 Lifetime Achievement in Behavioral Pricing Award (Fordham University). He is a Distinguished Fellow of the Academy of Marketing Science. He has also coauthored Marketing Research (Houghton Mifflin, 2004, 2007), Marketing (McGraw-Hill, 2008, 2010 [Awarded Revision of the Year]), and M Series: Marketing (McGraw-Hill, 2009). He was coeditor of Journal of Retailing (2001–2007). He is working on a book on game-changing innovative retail strategies. He currently serves on several editorial review boards, such as Journal of Marketing, Journal of Retailing, Journal of the Academy of Marketing Science, and Journal of Public Policy & Marketing.

Journal of Marketing, Volume 75, Number 2, March 2011
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Author Bio:

Yu Ma, Kusum L. Ailawadi, Dinesh K. Gauri, & Dhruv Grewal
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