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Large shopping centres set to suffer as petrol cost will keep people away

Consumers will have to be selective about what they spend their money on and how far they travel to shop for goods. Photo: Igor Karimov 🇺🇦/Unsplash

Consumers will have to be selective about what they spend their money on and how far they travel to shop for goods. Photo: Igor Karimov 🇺🇦/Unsplash

Published Jun 1, 2022

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The rising petrol price is expected to see consumers being more selective on what they spend their money on, and how far they travel to buy goods, and this could see them staying away from large shopping centres.

FNB commercial property economist John Loos says it is well-known that the cumulative fuel price increase has added significantly to overall consumer price inflation, and this week’s increase sustains this pressure.

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And because people cannot avoid buying petrol, they will have to reduce their spending on non-essential items and delay some low frequency purchases.

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“We believe that this impact could be felt more in larger super-regional and regional shopping centres, which are more significantly focused on such purchases, including entertainment, eating out, and clothing and footwear retail.

“Smaller convenience and neighbourhood centres focused more heavily on essential food and grocery shopping are likely to feel this indirect impact of fuel inflation to a lesser degree.”

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Indirect impacts of fuel price on retail

The rising cost of fuel also impacts the prices of products that South Africans buy. In a statement, Agri SA says the consequences of rising fuel prices have already been “acutely felt” in the agricultural sector, where fuel is one of several input costs that have been rising sharply, placing significant pressure on a number of agricultural commodity sectors.

“And whilst farmers have little control over food prices beyond the farm gate, increasing input prices have already been felt by consumers who are facing the result of these cost pressures – (in the form of) higher food prices – at the till.”

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In an article on Forbes.com, Bryan Pearson, former chief executive of Canadian loyalty marketing services LoyaltyOne, and global expert in loyalty, retail marketing, and analytics, outlines five unexpected ways that fuel prices impact shopping centres:

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– 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. These also include cosmetics, cheese, chewing gum, and rugs.

– 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 moulded products and containers for detergents come.

– 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.

– 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, such as warehouses.

– Transport costs, to and from warehouses and stores: Rising fuel prices literally make for more expensive shipping and transport. Products have to be transported from production sites to warehouses and then stores.

Retail property recovery hindered

At a recent media briefing on the state of the country’s retail property market – before this week’s steep petrol price hike, Loos believed that super-regional shopping centres were closing the performance gap between themselves and the smaller community and neighbourhood centres.

“The good news appears to be that Covid-19 has receded as a risk in South Africa, and restaurants and entertainment areas of retail have been partially on the mend. This can greatly improve the fortunes of those larger ‘experience’ shopping centres that are heavier on non-essential spend and entertainment, and perhaps this is what we are already seeing in the super regional category, if not as much in the smaller regional categories.”

Unfortunately though, with the latest fuel price increase, and predictions that petrol will soon cost more than R25 a litre, this progress may be lost.

IOL BUSINESS

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