Inside track by Mark Wingett
“A strong majority of restaurant operators said the recent increase in gas prices has negatively impacted their business, either on the sales or operational side. A prolonged period of elevated gas prices could have a particular impact on restaurants with customers on the lower end of the income scale, as gas expenditures take up a higher proportion of their disposable income.”
So said the National Restaurant Association’s (NRA) chief economist Bruce Grindy at the start of last week when analysing the impact of rising gas prices in the US, which have risen by 62 cents since the beginning of the year, while in some major cities, including Chicago, Los Angeles, San Francisco and Seattle, they have already risen well above the $4 mark.
Fast forward to the middle of the week and the mention of jerry cans and fuel strikes means Grindy’s point became very much front and centre of the pub and restaurant operational landscape here.
According to figures in the US, the overall spending impact of the rise in gas prices has not been significant, with total restaurant sales reaching a record monthly high of $43.4bn in February. However, these figures represent total industry sales volume, including new restaurants entering the market.
On an individual restaurant level, the impact of rising gas prices is more pronounced. According to a NRA survey of 600 restaurant operators over the week starting 15 March, nearly 75% of respondents said the recent increase in gas prices had had an extremely negative impact (28%) or somewhat negative impact (45%) on their business.
The survey found that impacts were felt on both the sales and operational sides of the business, with operators reporting both lower sales and higher supplier prices – often due to fuel surcharges. Among those that reported lower sales, operators said their sales were off by an average of 5%. The report also found that limited-service operators were affected more than their full-service counterparts, while corporate-owned chain (82%) and franchisee (79%) operators were also more likely than independent operators (70%) to say the recent rise in gas prices has negatively impacted their business.
In an analyst note published this week entitled “Running out of Gas”, Panmure Gordon’s Simon French said that the relationship between month-on-month (MOM) petrol demand and year-on-year like-for-like (YOY LFL) pub and restaurant sales in the UK had strengthened more recently.
He said: “There is some visibility on the direction of petrol prices so if its is reasonable to assume that MOM volumes typically fall when prices rise then we are also able to conclude with some certainty that YOY LFL sales will also be negatively impacted. Therefore if petrol prices remain at elevated levels we expect pub and restaurant demand for destination-led units to remain under pressure. Some of this should be redirected towards community-based outlets.”
Indeed, the worry is that record petrol prices, not forgetting a confirmed 3p increase in fuel duty from August, have the potential to alter longer-term leisure habits with consumers reassessing the need to travel meaningful distances to undertake regular out of the home leisure activities.
As French points out the winners from this scenario could be the more community and city centre-based operators, such as Spirit and JD Wetherspoon on the pub side and high street-focused restaurant operators.
On the flip side, it has the potential to pose further challenges for out-of-town operators, such as The Restaurant Group and Mitchells & Butlers with its increasing presence at leisure parks.
Whilst late in the day, the panic buying over fuel could also have put a late dent in what is thought to been an improved month in terms of sales for operators against a weaker performance in February. However, the surprisingly mild weather should offset this and should again have helped pubs to continue to outperform restaurants.
What is does prove is how a few mis-chosen words from an MP can still have on every aspect of the economy (Halfords saw sales of fuel cans rise 225% last week) and consumer behaviour. Now if we can only get one to mistakenly say that pubs are going to run out of beer...
