There’s a reason the price of chewing gum is up 7% from last year, and it’s not all related to supply and demand. It turns out that chewing gum is a crude habit, regardless of personal opinion.
The average 42-gallon barrel of oil historically has 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 paint to asphalt and ammonia. And yes, to make some candies and gum.
Many of these other uses for petroleum affect the operating costs of retailers and the brands they carry well beyond the length of a gas pump. From product ingredients to the containers that carry the products to the light needed to read the labels, petroleum and natural gas are necessary through virtually every step of the path to purchase.
Fuel For Thought: 6 Ways Crude Boosts Retail Prices
Thousands of everyday products spring from petroleum today, thanks to chemists who have been – for more than a century – exploring new uses for it. So when the price of a barrel nears $100, the ripple effect is extensive. Here are six ways through which the ripples reach consumers in the retail industry.
1. The products that we buy. Ingredient prices typically make up about 70% of a CPG company’s cost of sales, and a lot of those products’ ingredients are derived from petroleum, including aspirin, apparel, lipstick, toothpaste and solar panels. For example:
- Clothing – Polyester is a synthetic petroleum fiber incorporated into 60% of clothing worldwide.
- Cosmetics – Lipstick and other cosmetics are made with paraffin wax, which is obtained from petroleum.
- Cheese, 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.)
- Rugs – Floor coverings made with synthetic fibers use petroleum-based nylon or olefin.
2. The packaging that products come in. Petrochemicals, from which plastic is derived, accounted for 14% of all oil use in 2019, and are projected to command half of oil demand growth through 2050. Plastic bags, for example, are petroleum-based, as are the molded products and containers for detergents come. As a result, Procter & Gamble recently raised prices on its detergents and grooming products because of the rising cost of the raw materials needed to make its plastic bottles.
3. The plants on the farm. Tractors and other farm equipment run on fuel. So the cost of a barrel correlates with the cost of growing and harvesting an acre of corn or grain. That, in turn, contributes to rising expenses across all of agriculture, because cows, pigs and other animals eat those crops, as do people. Likewise, all companies that process foods from farm products, from cereal to orange juice, will have to pay more for their ingredients.
4. The plants that make these products. Higher oil prices make it more expensive to manufacture everything “from air conditioners to zippers,” because at least some of the materials in the manufactured goods are petroleum-based. Then there are the costs of heating and cooling such large facilities (see warehouse costs, below).
5. From the manufacturer to the warehouse. Rising fuel prices make for more expensive shipping, literally. The cost to ship a container from China to the West Coast of the United States was 12 times as much two years ago, The New York Times reported in March – $16,353 as of March 11 (citing Freightos, a freight booking platform). It could be furniture from Taiwan or clothing from Vietnam, doesn’t matter. It all has to get to U.S. ports on giant ships, and they require giant energy reserves.
6. From warehouse to store. The average commercial semi-truck gets 6.5 miles per gallon of gas. Make that diesel, which is more efficient, but costs $5.14 a gallon in early April – up nearly $2 from a year before. That about covers it.
How To Explain Oil’s Expansive Reach To Consumers
Basically, oil saturates all stages of consumerism. Retailers and brands can help their customers understand how the cost of a barrel cycles to them, which could offset sticker shock. Here are five simple steps:
- Tell shoppers what they need to know. Just the basics, please. Messaging on e-sites and in the aisles can illustrate how fuel touches all retail operations, and what is being done to save costs to the shopper: “We’re dimming lights to save energy.”
- Tell them in ways that are super-fast to understand. Customers may take more time to price compare, but they don’t want to spend time reading museum-length explanations. Imagery is a great tool for fast communication; charts and simple graphics can illustrate how gas prices correlate with packaging, for example.
- Buy and sell local! Retailers that sell local brands – meaning made and shipped locally – can reduce their carbon footprints by reducing the fuel needed to transport the goods to their stores. Their customers will appreciate knowing this.
- Take feedback. 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 establish a community of like-mindedness that builds brand trust.
- Reward them with something of value. Retailers and brands with reward programs can give bonus points or discounts to members who choose to buy bulk products, who use fewer bags or switch to their own reusable bags, among other energy-friendly options.
These steps might not convince all shoppers to spend 10 cents more for a pack of gum, but they will help them feel like retailers trust them to make the right, smart decisions about their purchases. This should pay dividends when gas prices shift back down.