Pump Panic and Cascading Costs - Real Ordeal or Permission to Profit?

Speaker A: M. Foreign. Hi and welcome to Speakerman Speaks Retail with me, Carol Speakerman. I help retail companies sharpen their market positioning so they can get credit for the great stuff they're already doing and accelerate growth. Through my workshops, advisory services and thought leadership platforms, we'll bridge the gap between where retail's headed next and how you fit into that future. Here on the podcast, I curate fresh takes on where retail's going next through my latest retail trajectories and interviews with experts who help us chart the course. Welcome back to another Retail Heat Map, where we decode retail's biggest headlines and figure out what they're really telling us about where retail's headed next. It's been a minute since we were last together because I'm in the throes of moving, which we all know is one of life's greatest joys. And but to make it even spicier, it's going to be a short term local move that's a Runway to a much bigger move that I'm really excited about. You'll be hearing more about it down the road, so stay tuned. But in the meantime, I had to squeeze in an episode before heading to my new digs. Because retail has been an absolute scorcher lately, I've been fielding calls from media outlets around the globe all asking variations of the same question. How screwed are customers when everything costs more? The answer depends on who you are, where you shop, and how much financial cushion you've got. But spoiler alert, most people are feeling the squeeze in ways they didn't see coming. The short answer is that we're all in the same leaky boat, but some are going to have to bail a lot faster than others. The longer story involves a perfect storm of fuel price spikes, geopolitical chaos that shows no sign of resolution, and corporate behavior that ranges from earnest struggling with cost increases to blatantly opportunistic margin padding. And just when you think you've got a handle on all of it, we've got a slew of sidebar stories that only add to the pricing panic. Like Walmart rolling out digital shelf labels across 4,600 stores while Pinky's swearing that they won't use it for surge pricing. Sure, Jan, but here's the thing. All these seemingly random stories connect to one massive retail reality. We're in the middle of a cascading cost crisis that's touching every corner of the consumer economy. But unlike previous inflationary waves that felt temporary, cyclical, and solvable, this one has structural legs that could fundamentally reshape how we shop, what we buy, where we're willing to buy it, and where retailers place their strategic bets. But the ripple effects are already playing out in front of us. We're not just talking about paying more at the gas pump though. That's painful enough and it's certainly where anxiety hits the hardest. We're talking about petroleum being embedded in virtually every product journey, creating compounding cost pressures that hit households from every direction. So let's dive into the heat map and unpack what's really happening when petroleum prices go haywire and drag everything else along for a long, very, very expensive ride. Let's start with the elephant in the room. Fuel prices that are making everyone's wallet weep and creating retail ripple effects that are turning into a tsunami. I was recently a guest on China Global Television Network's business show. I spoke with CGTN's Francis Kuo about how the disruption in the Strait of Hormuz is creating a domino effect that's reshaping consumer behavior and retail strategy in real time. Gas prices have already experienced the largest single day increase since March of 2022. Analysts are predicting that prices could rise 5 to 10 cents daily in the near term with no clear trajectory beyond that. Now we're already seeing national averages nearing $5 a gallon. And some west coast markets are hitting significantly higher prices. And gas prices always get more political and psychological energy than any other economic variable. That's what makes it so insidious. Shoppers feel outraged and poor the minute they leave the gas station. And that's not a great frame of mind to be in to head to the mall, to go out to eat or to browse the interwebs when you get back home. But wait, there's more. Petroleum doesn't just go in your gas tank. It's embedded across the entire supply chain in ways that a lot of consumers don't even think about. It fuels. The trucks delivering the products to stores, the the ships bringing goods from overseas, the tractors that are harvesting food, the planes that move everything that needs to get somewhere fast. If it's manufactured, packaged or shipped. Petroleum is in the mix. Anything made of plastic like packaging, bottles, containers, kids toys, home goods, synthetic clothing, cosmetics, personal care products and pharmaceuticals are all rely heavily on petroleum based ingredients. Fertilizers for agriculture are petroleum dependent that jacks up food prices. So these aren't luxury items that we can easily skip. They're everyday essentials that are basically unavoidable. The global mechanics though are a real wake up call about A third of global seaborne oil passes through the Strait of Hormuz when that flow gets disrupted. And right now it's seriously disrupted with no, no resolution. Timeline Oil prices spike immediately. The really frustrating part is that it takes about three to six weeks for crude oil to be refined into gasoline and other products. But retailers and suppliers price stuff based on future costs, not just current inventory. That's why you'll start seeing price adjustments, sometimes within days. Before the actual supply chain disruption even hits the system. The psychology kicks in even faster. Just the anticipation of higher costs drives prices up, uh, preemptively. Perception becomes reality before reality even fully arrives. We saw this early in the COVID crisis with toilet paper. Just the fear of shortage created actual shortages. And that was even before the supply chain hiccups started happening. But here's what really gets consumers frustrated. Prices rocket up immediately when oil spikes, but then they crawl down like molasses when costs eventually fall. When costs spike, companies raise prices immediately to protect their margins and stay profitable. But when they fall, companies tend to drag their feet passing savings along because, well, they can. If everyone in the industry is doing the same thing, there's really no competitive pressure forcing anyone to drop prices more quickly. That's a safety in numbers move that drags those price increases out a lot longer than they should. So everyone's affected, but it's not hitting everyone with the same impact. That's a fundamental truth. During any economic upheaval, uh, some groups get crushed while others do fine or even gain advantages. Lower income households are getting absolutely walloped because they spend a disproportionate chunk of their budget on necessities like gas and groceries, utilities and basic household goods. When gas jumps from three to five dollars, that's a meaningful hit to disposable income for families already living paycheck to paycheck, or the luxury of putting off purchases until prices stabilize. Small businesses are suffering for equally painful reasons. They don't have the negotiating clout with suppliers that the big guys do. They can't order in volumes that add up to better pricing. And they don't have the reserves to wait things out, or the supply chain diversification to hedge their bets. A small retailer or supplier dealing with 15 to 20% cost increases faces an impossible choice. Either raise prices and risk losing price sensitive customers, or absorb those increases and watch profits evaporate. Industries dependent on transportation and logistics are getting a direct hit. Travel companies, delivery services, restaurants with delivery models. Any business built around mobility. But here's the thing. Higher gas prices also mean fewer destination shopping trips. Consumers start gravitating toward one stop shops where they can get a lot more done in one trip. And that's how Walmart just keeps on winning. Because shoppers can grab groceries, pharmacy, automotive, clothing and electronics all under one roof. Not to mention the fact that Walmart has built trust around its value pricing and more recently its arsenal of convenience options to where customers can get all that stuff without even leaving the house. As I always say, retail's new rule is diversify or die. And Walmart keeps showing the advantages that diversification brings in the midst of all kinds of market challenges. Of course, Amazon has this nailed too. You don't even have to get in your car at all. And their delivery network is sophisticated enough that they can absorb some of those fuel cost increases. Target sort of dabbles in diversification and convenience, but it's still more of a destination shop. And I think that could throw a major wrench in Target's turnaround plans. They just announced unexpectedly positive Q1 results, but they're in a race against the clock. The faint positive signals that Target's emitting right now will have to gain major steam in Q3 for the company to withstand the headwinds we're talking about. I like a lot about Target's plan under Michael Fidelke, and we're gonna be talking more about it in future episodes. Going back to Walmart. They announced earnings right after Target, and let's just say they're not setting the world on fire either, at least according to Wall Street. But the markets always expect leaps and bounds from Walmart and the company always likes to under promise and over deliver. What's more important, and speaking of signals, is Walmart's CEO talking about how customers are buying fewer gallons of gas when they go to the pumps? Fewer than 10 gallons to be exact. And that hasn't happened since 2022. Walmart is a bellwether for the entire industry. So this really doesn't bode well for the rest of the year for anyone. But let's talk about the other side of the coin. Those regional players and specialty retailers and and those standalone, narrow, focused boutiques going back to diversify or die. They're really gonna feel the pain. Because expecting shoppers to burn expensive gas to browse or shop a single category may be just too much to ask in this landscape. But even the retail giants aren't immune. The difference is that those larger, more diversified retailers can lean into other revenue streams. Marketplace fees, advertising revenue, membership income, financial services. All of that can ease the pressure. But what about retailers that actually sell fuel? Well, for these guys, it can be pretty thankless. Fuel is a low margin business, and the only reason some retailers even sell it is to drive traffic to that big box behind the pumps. And when you're advertising high gas prices, lighting up those big by the gallon digits right in front of the building, it's a real buzzkill that can impact the overall business. Plenty of customers think that retailers are rolling in it when gas prices go up. Instead, they're barely breaking even despite the increases. But in the meantime, those customers have less money to spend in that big box. The fact is, retailers of every shape and size are pretty helpless in this situation. They don't control geopolitical conflicts. They can't influence oil supply chains or OPEC decisions. They can't really even set prices at the pumps in any meaningful way. All they can do is try to read the tea leaves and adapt to consumer behavior shifts that inevitably follow. Fewer trips, smaller baskets, delayed purchases, and a relentless expectation for value and convenience along with it. Okay, let's go to the even darker side, the honor system that not everyone is honoring. The billion dollar question that I keep getting asked by reporters is, are, uh, companies using this current chaos as cover to raise prices even beyond their actual cost increases? Well, the answer is who knows? Because it's almost impossible to prove in individual cases. But yeah, you gotta bet there's some shenanigans going on. Sure, some companies are absolutely dealing with real verifiable cost increases across their supply chains. Transportation, raw materials, and labor costs are all up. Energy costs beyond just fuel, like electricity, heating, cooling, massive warehouses and retail spaces, all are climbing. So the pressure is coming from all sides. But wait a minute. Corporate profit margins in many sectors have actually been steady or even higher during recent inflationary periods, Even through tariffs, even as fuel prices skyrocket. So that raises legitimate questions about whether some companies are grabbing while the grabbing's good. And when everyone's raising prices simultaneously, it's creating a, uh, permission structure to just keep on keeping on. But corporate communication is key right now and very telling. Companies are spending so much time and energy on earnings calls explaining cost pressures and supply chain snags. And when executives feel the need to do that, it means that they know their key stakeholders, like investors, customers, and regulators are putting all of it under a microscope. So the reality is probably a mix of legitimate cost pressure and opportunistic leaps that vary by industry and company. Some businesses are struggling to maintain profitability, but others are using chaos as cover for margin expansion they couldn't possibly score under simpler and more transparent conditions. Everyone is on an honor system, and there's really no way to separate the grabbers from the strugglers. Honor systems work about as well as you'd expect when quarterly profits are the priority. But consumers are paying attention, and companies that take advantage now will get spanked later. Speaking of price psychology and corporate promises, let's dive into Walmart's announcement that all of its US Stores will have digital shelf labels by the end of this year. I've been weighing in on how Walmart's framing just reinforces that price transparency is a major trigger for consumers. Walmart's wisely been positioning this rollout as being all about operational efficiency and labor redeployment. They're talking about reducing price update timing from two days to just a few minutes, freeing up labor for customer service, improving restocking accuracy, and enhancing e commerce order picking. They're emphasizing how the technology helps identify out of stocks in real time and ensures pricing accuracy across all their channels. The great news is all of this is true, and all of it really matters. These next gen labels have all kinds of capabilities built in that go way beyond a simple price display. They can provide nutritional information, sourcing details, and promotional highlights. Now, a lot of that is stuff that Walmart talked about years ago, so it's crazy that digital shelf labels turned out to be the vehicle for making it happen in 2026. But the great news is that technology isn't just sophisticated, it's aesthetically pleasing. There are no flashing lights. There's no glow. The providers have done an amazing job of not drawing attention, but there are a few capabilities Walmart's not shouting from the rooftops that are just as compelling. These labels can technically change prices every 10 seconds. Retailers can't stop talking about hyper personalization. Dynamic pricing is the ultimate expression of that. Now, whether retailers want to draw attention to it is a whole other matter. In Walmart's case, they're explicitly saying they won't go there. But make no mistake, Walmart already can. Walmart's right to tread lightly here because consumer sensitivity around price transparency is sky high. Right now. Standing in an aisle and watching price changes in front of your eyes just hits different Even though it's logically the same as refreshing a webpage and seeing a new price pop up, dynamic pricing is already normalized in a digital environment. Every time someone shops online, books a flight, orders an Uber, or buys concert tickets, they're being served up algorithmically determined prices that shift based on demand, time of day, browsing history, location and all kinds of other variables. So I see the acceptance gap closing really quickly as more retailers jump into the digital tag fray. It's already happening, but here again, everyone's on an honor system. Walmart said it'll only implement price updates outside of normal shopping hours. They're couching it as a way to maintain consistent prices throughout the day. But could it be that they don't want customers watching price changes right before their eyes like a slot machine? Probably so, but either way, let's be clear. This is a policy choice, not a technical limitation. The infrastructure could absolutely support real time dynamic pricing right now if Walmart chose to implement it. Looking at the big picture, digital shelf labels are uh, the latest and one of the most impactful examples of of one of my top retail trajectories, the digital rethinking of physical retail where stores will more closely mimic dynamic online experiences. And it also underscores the importance of physical retail and retailers overall platforms. The store is still the core when it comes to enabling digital commerce, but for now, Walmart's playing it safe and providing communications cover for everyone else. In the process, they're emphasizing operational efficiency benefits and explicitly rejecting surge pricing tactics. Let's pivot to something that's been generating breathless media coverage and frankly some overheated predictions. How GLP1 medications like Ozempic and Wegovy could transform retail assortments and pricing strategies for everyone. I've been fielding questions from reporters about whether these weight loss drugs will fundamentally reshape what's available to to all shoppers. Could some brands shift towards smaller portion sizes if they see ongoing demand from GLP1 users? Sure, it's possible in some categories where the demographic represents a really meaningful share of sales. But the idea that this becomes the norm across the board ignores how retail actually works. The initial impact definitely did catch plenty of retailers off guard. Most grocers were completely, completely freaking out behind the scenes, even if they weren't talking about it out in the Open, GLP1s did topple some traditional purchasing patterns and category assumptions early on and in categories that are real cash cows. But for GLP1 users to fundamentally reshape pricing and availability for everyone else, retailers would have to ditch their value based customers, competition would have to stop functioning and consumer preferences would have to stay stuck. None of these hold up under scrutiny. So the bottom line is GLP1s are not rewriting the rules of retail economics. In fact, over time, retailers have found that GLP1 usage follows a pretty predictable cycle. People go on the medications and dramatically change their shopping and consumption habits for a while, but then they either plateau, reach their weight goals and go off the medication or or just stop taking it all together because of cost, side effects, lifestyle changes and other factors. But they end up going right back to their usual purchasing and consumption patterns after that. So here's the thing. Retailers and suppliers have to be in the business of providing choice and serving diverse customers. Or as I like to say, optionality isn't optional. That means catering to customers who still want traditional portion sizes, indulgent snacks, value oriented family packs and comfort food options. So what we're really seeing is an expansion of assortments to accommodate GLP1 users alongside existing offerings. It's not a zero sum game. On um, the pricing question that I keep getting asked. Yes, it's true that health conscious, portion controlled or protein rich products can get really spendy. GLP1 usage has accelerated demand in categories that were already trending upward. It's basically just supply and demand. And don't underestimate the billions of dollars brands have invested in research and development to create snack recipes and formulations that are engineered for maximum craveability and repeat purchases. The food industry is incredibly adaptive and responsive to changing consumer preferences, and in many cases they're actually driving those preferences and creating the demand. So the real impact of GLP1 on retail is more sophisticated than the headlines suggest. Let's not assign more permanence and market dominance than the data actually supports. So what do these seemingly random stories tell us about retail's trajectory? As we head deeper into 2026, there's a cascading cost crisis afoot. Pain at the pump is a real problem that's percolating down to squeeze discretionary spending on everything else. And if that weren't enough, petroleum is literally embedded in every product journey. Against this backdrop, corporate behavior is uncovering uncomfortable truths about pricing power. Some businesses are truly struggling with cost increases and they're having to balance survival with customer retention. But others are using price instability as cover for opportunistic margin grabs. The digital rethinking of physical retail, and exemplified by Walmart's digital label rollout, is accelerating capabilities that will shake up traditional store pricing practices. But cultural and psychological barriers still linger. Looking ahead, this multifaceted cost crisis shows no sign of resolution. Tariffs may have popped off the headlines for now, but by no means is the situation solved. In the meantime, fuel prices are rising and along with them, housing, health care, transportation, food and other everyday essential. Retailers are facing increasingly impossible choices. Absorb cost increases and sacrifice margins that are already under pressure, or pass those increases along to customers who are already stretched thin. The winners will be transparent about cost pressures, while find creative ways to deliver value, even if it's not tied to price. They'll clearly communicate those value propositions, maintain some level of pricing predictability, and help customers navigate economic pressure. But clearly the days of mindless consumption and impulse purchases are over, and designing retail strategies around average consumers with predictable needs is a losing proposition. Purposeful spending, consolidated shopping trips, and conditional loyalty are the new norm. Retailers had better be ready for customers to expect ROI on every dollar they spend. All indications are it's going to be a long, hot summer of economic readjustment. Thanks for listening in today. I hope you enjoyed the episode and if you did, please like, share and subscribe. You can invite me to your organization or event to bring conversations like this to life in your spaces. That's what I do. B2B coaching training and executive consulting. If it has to do with retail thought leadership, B2B market positioning, and business development, it's probably something I can help you with. If you're interested in learning how we can work together, reach out to me@speakerman retail.com or email teampeakermanretail.com to book a discovery call. Until next time, keep speaking Retail Sam.