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High Energy Prices Are Expected To Impact The Restaurant Industry Throughout 2001

February 19, 2001

Utility expenses usually capture roughly two to three percent of the typical restaurant’s sales dollar.

A mong factors that helped fuel growth in the restaurant industry in recent years was low energy prices. The steady downward trend in gasoline prices meant additional disposable income in the pockets of consumers—income that could be spent in restaurants. That trend changed dramatically during the last several months, however.

According to the Energy Information Administration (EIA), the average retail price per gallon of gasoline in the U.S. rose to $1.71 in the week of June 19, 2000—the highest nominal price on record in the United States. Moreover, it represented an increase of more than 80 percent over pump prices just 16 months earlier.

Although pump prices declined somewhat since last June’s record high, they still averaged $1.52 during the week of Feb. 12. Shortly after absorbing the effects of rising gasoline prices last summer, consumers were jolted again by soaring natural gas and heating oil prices this winter.

Driven by dwindling supplies, prices for both natural gas and heating oil were running at or near record levels this winter.

The impact on a typical household was staggering. Average household expenditures on natural gas were projected to total $927 in the Midwest this winter—up 72 percent from $540 per household last winter, according to EIA. Even more significantly, expenditures on heating oil were projected to reach $1,061 for a typical household in the Northeast this winter— more than double the $520 that house- holds spent on heating oil two winters ago.

Although consumers will get a reprieve from high home heating bills as winter comes to a close, gasoline prices are once again expected to rise as we enter the summer driving season. EIA projects that average pump prices will remain above the $1.50 mark throughout the 2001 summer driving season, with prices varying significantly in different regions of the country.

Low-income households are being disproportionately impacted by the current trend of high energy prices. The lowest 20 percent of households in terms of annual income spend nearly 19 percent of their take-home pay on home-heating fuel, electricity and gasoline, according to Bureau of Labor Statistics (BLS) figures.

In contrast, households in the upper 20 percent in terms of annual income— which are also the households who spend the most in restaurants—spend less than four percent of their take-home pay on those energy-related items.

Impact on Operators

In addition to affecting consumers’ pocketbooks, rising energy prices are impacting the expense column of restaurants. In the 12 months ending December 2000, natural gas prices for commercial establishments jumped nearly 50 percent, according to BLS figures.

Meanwhile, electricity prices in the commercial sector increased four percent during the same 12-month period. Electricity is the largest utility expense for most restaurants, with gas ranking second. Together, these utility expenses usually capture roughly two to three percent of the typical restaurant’s sales dollar. Therefore, significant jumps in energy prices make a dent in the bottom line.

As an industry in which a large portion of the growth is driven by cash-on-hand, fluctuations in energy prices this year will continue to have implications for the restaurant industry. The National Restaurant Association will continue to monitor the energy situation, and assess the impact of energy prices on both consumers and restaurateurs.

Source: NRA Washington Weekly

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