gas prices

Gas prices are a new thing for restaurants to worry about

New reports have assessed the impacts of soaring gas prices in America on the cost of food and the levels of spending in restaurants.

While the data focuses on the U.S. specifically, much of it can be applied to Canada, where the price of fuel has also jumped in recent months due to factors including Russia’s invasion of Ukraine.

Food prices have already been climbing sharply for the last 12 months or so as a result of a combination of factors including the prolonged effects of the pandemic, rising demand for products, higher production costs, labour shortages, and supply chain disruptions.

While diners in North America were thought to be ramping up their spending in restaurants again as restrictions have loosened, Technomic’s report warns that dining out is one major leisure activity that people are now cutting back on due to high gas prices.

Spending cuts

The report notes that historical experience has shown that a spike in gas prices has an impact on consumer restaurant spending.

Based on Technomic’s survey, a whopping 86 per cent of consumers say that rising gas prices are having an effect on their spending on other goods and services, and half say that gas prices are having a significant impact.

Restaurants and other leisure activities are the main areas where consumers say they are cutting back due to high gas prices. This is not surprising as these are typical spending areas that consumers indicate they cut back on when their own financial prospects become tenuous, including periods of recession or other economic uncertainty.

49 per cent of respondents said they will spend less at limited-service restaurant, a similar number (48 per cent) identified full-service restaurants, and 29 per cent cited grocery stores. However, history has shown that full service is more affected. In 2008, the last time when gas prices in the U.S. went above $4 per gallon, full-service restaurants were hit much harder by reduced spending than limited-service.

Still dining, but spending less

Meanwhile, Alignable data found that two-thirds (66 per cent) of restaurant owners say they are struggling with high gas prices, and for some, these price jumps have affected delivery sales. A new AAA study finds that higher gas prices may deter consumers from driving as much, which could lessen their frequency at drive-thru restaurants. Restaurants that heavily rely on delivery could also take a hit as some delivery providers pass fuel surcharges onto consumers.

Meanwhile, Technomic concludes that when consumers feel financially challenged, they don’t typically trade out of foodservice but trade down.

For example, instead of frequenting a higher-end restaurant, a consumer may opt for a less-expensive casual dining or fast-casual experience. Or, instead of visiting a sit-down casual-dining restaurant, they move to a quick-service establishment. Consumers also economize when eating out by scrapping extra spending such as add-on desserts, appetizers, and beverages.

Hard to predict full impact

However, even though costs may be going up and consumers may have fewer dollars in their pockets, they still require the benefits offered by restaurants and other foodservice establishments. Consumers still need convenience, experience, time savings, relaxation and socialization — all things that restaurants offer. And, despite reports to the contrary, many still don’t want or have time to cook.

The report warns that the current surge in fuel prices could also have a different impact than in the past, as consumers have been experiencing high inflation for almost a year and so the gas-price shock factor could be reduced as consumers are accustomed to seeing higher prices across the board.

One lasting negative impact for consumers could be that as operators manage higher costs and potential traffic drops, they may need to raise prices even more than they have in recent months.

“One thing that the pandemic has taught us is that using restaurants and foodservice is a deep-rooted habit for North Americans,” concludes the Technomic report. “Diners will continue to find ways to enjoy its perks despite any external challenges.”

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