People in the US are eating, smoking and drinking away their savings from cheap gasoline, and if that is not great news for their doctors, it is handing windfall revenue to companies from Monster Beverage Corp to tobacco giant Altria Group Inc.
The lowest oil prices since 2009 translated into a US$115 billion windfall for consumers last year, according to the American Automobile Association — about US$550 per driver. Analysts say four-fifths of that cash got spent — often within a stone’s throw of gas stations.
Rather than buy a new sweater or a toy for the kids, motorists have spent much of the money at restaurants and bars, or on items purchased in gas stations, such as cigarettes and salty snacks.
“The biggest share of savings is going to the sin goods: the cigarettes, the booze, the junk food,” retail researcher Customer Growth Partners president Craig Johnson said. “You get a small portion going into savings, but truly not that much.”
So far, restaurant companies have been the biggest winners, sucking in about 18 percent of the extra cash, according to a report by the JPMorgan Chase Institute, which analyzed 57 million credit and debit card purchases. The next biggest share went to groceries, followed by entertainment.
Fast-food chains, like McDonald’s, Wendy’s or Taco Bell — often located near gasoline stations — are getting the biggest benefit from lower prices, because they cater to lower-income customers who are seeing a bigger change in their monthly budgets and are more likely to spend their spare change, consumer research firm Technomic Inc president Darren Tristano said.
“It is the lower-income groups who are eating out more frequently and pushing the sales in those categories,” Tristano said.
While the gasoline savings are not big enough to sway someone to go out to an expensive dinner rather than cook at home, diners are using the money in small ways to treat themselves, like adding bacon to their burger or buying lunch rather than packing it from home, he said.
At outlets like the Olive Garden and Longhorn Steakhouse, owned by Darden Restaurants Inc, customers are ordering more alcohol, desserts and appetizers, Darden CEO Eugene Lee told analysts on a conference call in June last year.
The S&P 500 Restaurant Index rose 22 percent last year, a year when the main benchmark S&P 500 posted a loss.
There has also been an increase in sales of food items sold at gas station and convenience stores, such as energy drinks, snacks and beer, as consumers fill up their tanks more regularly, according to Bloomberg Intelligence.
Sales of energy drinks such as those made by Monster, Red Bull GmbH, PepsiCo Inc and Coca-Cola Co rose 12 percent in November last year from a year earlier.
Tobacco companies have been touting the benefit of cheap gas on their US sales for months. Altria, the largest seller in the US, posted a 9.4 percent gain in third-quarter profit and said lower gas prices gave smokers more money to spend on cigarettes, which are often sold at gas stations.
The energy windfall, combined with a better job market and cutbacks in government anti-smoking programs, have been driving sales across the industry — making last year probably the first time in more than a decade that the number of cigarettes sold increased.
Unlike food and tobacco companies, retailers have not been publicly hailing the benefits of lower gas, according to a review of corporate transcripts from last year.
However, they probably got a boost from customers spending some of their fuel-pump savings during the holidays: Thanksgiving-to-Christmas sales were up by 20 percent, according to MasterCard Advisors, which analyzes credit card purchases.
Meanwhile, if people in the US are not looking after their bodies, they might be using the extra cash to take better care of their cars.
The average number of kilometers driven rose 3.4 percent through October last year, according to the US Department of Transportation.
Cooper Tire said that is leading customers to buy new tires more frequently, and other parts makers say they are seeing drivers use the savings to fix up their vehicles.
However, the extra kilometers have not been good news for insurers.
Allstate Corp blamed part of its profit decline last quarter on an increase in accidents, as lower gas prices and an improving economy prompted more people to drive.
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