We’ve talked recently about how the price of oil impacts U.S. trade and the average American’s pocketbook, but we’ll take a different angle here to look at how the price of oil impacts retail sales in anticipation of the April advance retail sales figures to be released tomorrow, Thursday, May 12.

Rising fuel costs are an immediate drain on our wallets, but it also means that grocery stores and warehouse clubs can take advantage of our taste for fuel and our desire to save a few cents per gallon to get us in the door.

Grocery stores, warehouse clubs and supercenters sell gasoline to increase store traffic - leveraging consumers’ inelastic demand for gas to drive overall store sales, with club membership or customer-loyalty programs as the gateway to discounted fuel.  Between the 2002 and 2007 Economic Censuses, automotive fuel sales at grocery stores, warehouse clubs and supercenters more than doubled from 1.5 percent of total automotive fuel sales to… well, still just 5.1 percent (but regardless, it’s a big jump).  We are still a year away from data collection for the 2012 Economic Census and several years away from its data releases, but if anecdotal evidence is any indication, it is quite feasible that these retailers now account for a double-digit share of total gasoline sales.

On the other side, the amount of money flowing through gas station cash registers (or paid at the pump) has surged in recent months as the cost of petroleum has climbed. (See Figure 1.)  From September to March, retail gasoline prices (across grades) rose by 31 percent, and nominal sales at gasoline stations rose 15 percent.  And if anything, this increase in gas station sales is low by historic standards.  In general, a 10-percent increase in the cost of unleaded gas translates into an 8-percent bump in gas station sales.1  From March to April, gas prices rose 6.6 percent to $3.85 a gallon.

The fact that gas station sales have increased by less than rising fuel costs is an interesting reminder that gas stations bring in more than 20 percent of their revenue through non-petroleum products —albeit one might argue that those products are as healthy for our bodies as motor vehicle emissions are for the environment.  In 2007, in fact, the $5.8 billion spent at gas stations on food and tobacco products accounted for about 13 percent of their overall sales, and slightly exceeded the $5.6 billion spent on mid-grade and premium unleaded gasoline.  (In the 2007 Economic Census, donuts are grouped together in the appetizingly named category of “bakery products not baked on the premises, excluding frozen,” which had sales of $1.3 billion. These sales, along with countless other items, are included in the light pink slice of the pie chart below.)

We'll keep a close eye on sales at both warehouse and other discount retailers, and gas stations in tomorrow's data, and how they impact overall retail sales in tomorrow's data.

~Mark Doms, Chief Economist, U.S. Department of Commerce

May 11, 2011

• 1. This relationship is based on a simple regression of log gas stations sales and log gas prices, and it is consistent with data from the 2007 Economic Census, breaks out gas station sales by product line and shows that automotive fuel represents about 80 cents of every dollar in overall sales at gas stations.