6 Unexpected Ways Rising Fuel Prices Are Affecting Retailers

There’s a reason the price of chewing gum is up 7% year over year, and it’s not all about supply and demand. It turns out that chewing gum is a gross habit, regardless of personal opinion.

The average 42-gallon barrel of oil has historically produced nearly 20 gallons of gasoline and four gallons of jet fuel, according to Earth Science Week. That leaves 18 gallons for other uses, from making plastics and painting to asphalt and ammonia. And yes, to make candies and gum.

Many of these other uses of petroleum affect retailers’ operating costs and the brands they sell far beyond the length of a gas pump. From product ingredients to containers that carry products to the light needed to read labels, petroleum and natural gas are needed at virtually every stage of the buying journey.

Fuel For Thought: 6 Ways Crude Drives Up Retail Prices

Thousands of everyday products are now made from petroleum, thanks to chemists who, for more than a century, have been exploring new uses for it. Thus, when the price of the barrel approaches 100 dollars, the ripple effect is significant. Here are six ways the fallout is reaching consumers in the retail industry.

1. The products we buy. Ingredient prices typically represent around 70% of a CPG company’s cost of sales, and many of the ingredients in these products are derived from petroleum, including aspirin, clothing, lipstick, toothpaste, and signs. solar. For example:

  • Clothes – Polyester is a synthetic petroleum fiber incorporated into 60% of clothing worldwide.
  • Beauty products – Lipstick and other cosmetics are made with paraffin wax, which is obtained from petroleum.
  • Cheese, fresh produce and chewing gum – Paraffin wax is also used to coat cheeses and raw fruits and vegetables, and is used in chewing gum. (The Food and Drug Administration approves its use if it meets ultraviolet absorbance limits.)
  • Rug – Synthetic fiber flooring uses nylon or petroleum-based olefin.

2. The packaging in which the products arrive. Petrochemicals, from which plastic is derived, accounted for 14% of total oil consumption in 2019 and are expected to account for half of oil demand growth through 2050. Plastic bags, for example, are based petroleum, as well as molded products and containers. for detergents come. As a result, Procter & Gamble recently raised the prices of its detergents and toiletries due to the rising cost of the raw materials needed to make its plastic bottles.

3. Farm plants. Tractors and other agricultural equipment run on fuel. So the cost of a barrel correlates with the cost of growing and harvesting an acre of corn or grain. This, in turn, contributes to increased expenses in agriculture as a whole, as cows, pigs and other animals eat these crops, as do people. Similarly, all companies that process food from agricultural products, from cereals to orange juice, will have to pay more for their ingredients.

4. The plants that make these products. Rising oil prices are making it more expensive to manufacture everything “from air conditioners to zippers” because at least some of the materials in manufactured goods are petroleum-based. Then there are the heating and cooling costs of these large facilities (see warehouse costs below).

5. From manufacturer to warehouse. Rising fuel prices make shipping more expensive, literally. The cost of shipping a container from China to the US West Coast was 12 times higher two years ago, The New York Times
NYT reported March – $16,353 as of March 11 (quoting Freightos, a freight booking platform). It can be Taiwanese furniture or Vietnamese clothes, it doesn’t matter. Everything has to arrive at US ports on giant ships, and they require giant energy reserves.

6. From warehouse to store. The average commercial tractor-trailer gets 6.5 miles per gallon of gas. Make this diesel, which is more efficient, but costs $5.14 a gallon in early April, nearly $2 more than a year ago. It pretty much covers everything.

How to Explain the Extended Reach of Oil to Consumers

Basically, oil saturates all stages of consumerism. Retailers and brands can help their customers understand how the cost of a barrel comes back to them, which could offset the sticker shock. Here are five simple steps:

  • Tell buyers what they need to know. Just the basics, please. Messages on online sites and in the aisles can illustrate how fuel affects all retail operations and what is being done to reduce costs for the shopper: “We dim the lights to save Energy.”
  • Tell them in a super-quick to understand way. Customers may take longer to compare prices, but they don’t want to spend time reading museum-length explanations. Imagery is a great tool for quick communication. simple charts and graphs can illustrate the correlation between gasoline prices and packaging, for example.
  • Buy and sell local! Retailers who sell local brands – that is, locally made and shipped – can reduce their carbon footprint by reducing the fuel needed to transport goods to their stores. Their customers will appreciate knowing that.
  • Take comments. Retailers and brands can ask shoppers for their ideas on saving energy at home or in the store. Not all ideas may apply to retail, but it helps build a like-minded community that builds trust in the brand.
  • Reward them with something of value. Retailers and brands with rewards programs can offer bonus points or discounts to members who choose to buy products in bulk, use fewer bags, or switch to their own reusable bags, among other energy-efficient options. .

These steps may not convince all shoppers to spend an extra 10 cents on a pack of gum, but they will help them feel like retailers trust them to make the right, informed decisions about their purchases. This should pay dividends when gas prices come back down.

About Timothy Cheatham

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