Photographer: Chris Ratcliffe/Bloomberg

The Sinful Winners: Where Americans Spend Their Gasoline Savings

  • Fast food to the fore as restaurants get 18% of extra cash
  • Tobacco companies thank pump prices for their turnaround year

Americans are eating, smoking and drinking away their savings from cheap gasoline, and if that’s not great news for their doctors it’s handing windfall revenue to companies from Monster Beverage Corp. to tobacco giant Altria Group Inc.

The lowest oil prices since 2009 translated into a $115 billion windfall for consumers last year, according to the American Automobile Association -- about $550 per driver. Analysts say four-fifths of that cash got spent -- often within a stone’s throw of the fuel pumps. 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,” said Craig Johnson, president of retail researcher Customer Growth Partners. “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, said Darren Tristano, president of Technomic Inc., a consumer research firm.

“It is the lower-income groups who are eating out more frequently and pushing the sales in those categories,” said Tristano.

While the gasoline savings aren’t 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, Eugene Lee, the company’s chief executive officer, told analysts on a conference call in June. The Standard & Poor’s 500 Restaurant Index rose 22 percent in 2015, 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, PepsiCo and Coca-Cola rose 12 percent in November from a year earlier.

Tobacco companies have been touting the benefit of cheap gas on their U.S. sales for months. Altria, the largest seller in the U.S., 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 2015 probably the first time in more than a decade that the number of cigarettes sold increased.

Car Care

Unlike food and tobacco companies, retailers haven’t been publicly hailing the benefits of lower gas, according to a review of corporate transcripts from last year. But they probably got a boost from customers spending some of their fuel-pump savings during the holidays: Thanksgiving-to-Christmas sales were up 20 percent, according to MasterCard Advisors, which analyzes credit-card purchases.

Meanwhile, if Americans aren’t looking after their bodies, they might be using the extra cash to take better care of their cars. The average number of miles driven rose 3.4 percent through October, according to the Department of Transportation. Cooper Tire said that’s 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.

“We continue to believe gas prices have a real impact on our customers’ ability to maintain their vehicles, and as cost reductions help all Americans, we hope to continue to benefit from this increase in disposable income,” said William Giles, chief financial officer at Autozone Inc., in a December conference call with analysts.

But the extra miles haven’t 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. Researchers examining the link between road accidents and fuel costs in Mississippi found a knock-on effect in the form of higher traffic fatalities nine to ten months after prices went down, according to a 2013 study.

With oil prices already near a 12-year low after adjusting for inflation, and tensions escalating in the Middle East, there probably won’t be a repeat of last year’s gains in 2016. On the other hand, futures markets see crude staying below $42 a barrel, and that would ensure much of the extra cash would still be available to consumers.

“On a year-over-year basis, the growth is likely to be down a little,” said Tristano. “But if gas remains relatively low, I think we will still see some conservative growth.”

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