As was mentioned in this space last week, several key supermarket retailing figures interviewed for that issue predicted that economic events are moving in the right direction, and that the prospect of increased sales is in view.
To some extent, that outlook was verified by many of those at last week's Food Marketing Institute convention and exposition in Chicago. As compared to last year's event, the mood seemed elevated and more than a little optimism was expressed about how the future of the business is likely to unfold.
Regrettably, though, a dark cloud that has been gathering over the economy for some time got sufficiently dense last week to occlude just a bit of the economic sunshine. That cloud is the price of fuel. All of a sudden, the price of fuel is all over the media, and for good reason: The American Automobile Association said last week that the average price for a gallon of regular gasoline reached $1.84, which is an all-time high. By comparison, the same product cost $1.51 a gallon a year ago. Diesel fuel was at $1.78 a gallon last week, a bit off the all-time high of $1.83 set in March. Last year's diesel cost was $1.58.
There is very little reason to imagine that these prices will do anything but continue to increase apace. The petroleum markets are unnerved by recent terrorist events in Saudi Arabia, which produces about 10% of the world's supply. Already spot shortages are developing or are perceived to be developing in California. Such fears set off buying spikes, and the summer driving season has yet to begin in earnest.
One petroleum analyst quoted in the Wall Street Journal last week predicted that if there were a decline in daily production of just 2.5 million barrels of oil (Iraq's contribution), as compared to the net daily production of about 80 million barrels, the price of a barrel could increase two and a half times. That could cause the price of gas to approach $5 a gallon. The upward move of fuel that has happened to date -- never mind what could happen in the future -- is certain to have a significant and negative effect on high-dollar retail channels, such as supermarket and mass. Not only is petroleum a ubiquitous raw material used in packaging and shippers, but the channels have long logistical trains that run on diesel.
More than that, the channels are dependent on shoppers' ability to drive to stores, and to spend once there. But gas-price increases have the same effect as a tax hike: Consumer dollars that could otherwise be spent in stores are siphoned away. That's especially true for those with little disposable income above necessities.
As you'll see on Page 33 of this week's SN, one senior executive at Wal-Mart Stores expressed concern about the effect high fuel prices have on retailing: "Gas prices are a real issue. This is a very effective tax on lower-income consumers. It's probably $5 a week in additional expenses."
Let's hope that the more dire predictions about the future direction of petroleum prices fail to materialize. It's bad enough already.