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Analysis: Gas prices siphon sales from restaurants

By Nivedita Bhattacharjee

(Reuters) - Genevieve Spinella sold her Lincoln Navigator in August and bought a more fuel efficient Kia Soul as gasoline prices began weighing on her mind.

She is also staying closer to home when she goes out and runs errands with her family to save on gas.

"We usually go out to dinner a few times per week and now we are only going out once a week if at all," the 32-year-old mother of two from Duarte, California said.

That concern is not good news for sit down restaurants and traditional grocers.

Typically, a rise in gasoline price is usually offset by a cutback on eating out and a trade down to more affordable grocery chains, said Ken Perkins, president of research firm Retail Metrics.

Some analysts think restaurants such as Brinker International Inc's Chili's Grill & Bar and Darden Restaurant Inc's Olive Garden and Red Lobster chains will be among the first to take a hit from high gasoline prices as Americans buy more affordable fast-food from chains such as McDonald's Corp's.

But even some fast food chains can get hit when their core users, aged 18-30, do not have a lot of extra cash, said restaurant consultant Malcolm Knapp, whose Knapp-Track monthly sales and guest count data is an industry benchmark.

"They either put fuel in their tank or fuel in their stomach," Knapp said, adding that McDonald's has a diversified customer base that insulates it more than others.

Drive-thru chains such as Sonic Corp have been hit by gas prices before.

Warehouse clubs such as Costco Wholesale Corp and Wal-Mart Stores Inc's Sam's Club, will also likely be winners because they sell gasoline to members at a discount and are also a good place to stock up on sundries in one trip.

U.S. gas prices have jumped 8.8 percent since the start of this year, according to the Energy Information Agency, topping an average of $3.65 a gallon in the week ended February 22. This was a record for this time of the year, when prices are usually on the low side because of slow seasonal demand.

"Discounters and drugstores are going to be helped by high fuel ... they will see business because you still have to eat and you still need your stuff from CVS Caremark Corp and Walgreen Co," said Craig Johnson, president of retail consulting firm Customer Growth Partners.

Aside from selling prescription drugs along with basics such as milk, food and toilet paper, CVS and Walgreen each have more than 7,300 stores, putting them within walking distance or a short drive of a majority of Americans.

People will also be shopping more at Walmart's discount stores rather than traditional grocers such as Kroger Co and Safeway Inc once gasoline hits $4, Johnson said.

"A challenging economy and rising gas prices will continue to drive customers to seek value," Bill Simon, chief executive of Walmart US, said last week. "In the past, significant increases in gas prices over short periods of time have led to trip consolidation and (more purchases each trip). We'll continue to help customers adapt to such trends,"

Supermarket operator Safeway blamed high fuel prices for a drop in quarterly profit last week, as did fruit and vegetable distributor Fresh Del Monte Produce Inc on Tuesday.

Safeway has nearly 1,700 stores in North America and has a big presence in its home state of California, where gas prices are often higher than in other states.

Costco on the other hand posted a bigger-than-expected increase in quarterly profit on Wednesday, with gasoline a big draw.

"When prices rise, we get more action," Costco finance chief

Richard Galanti said in a conference call with analysts. "We're driving people into the parking lot."

HIGH PRICES, HIGH THRESHOLD:

Yet, Americans have also become used to price fluctuations over the past year and are more willing to wait it out before hitting the panic button, experts said.

"Consumers cut back on discretionary spending like going out to eat, vacation and car trips when fuel goes up, but it is too early to decide on that now. Once $4 a gallon starts to stay in place, we'll probably have consumers making adjustments," said Jack Kleinhenz, chief economist at the National Retail Federation.

An improving economy and warm weather are also expected to help offset some of the impact, Retail Metrics' Ken Perkins said.

"Better labor market reports should translate into better consumer confidence readings and some modest increased spending. Retailers are also up against a much easier year-over-year growth comparison than they were in the fourth quarter," he added.

And high fuel prices are not sinking in yet in some parts of the country.

Chicago resident Ann Trepkowski said the $3.69 a gallon she was currently paying was not high enough to readjust her spending.

"When prices rise to over $4 per gallon and it costs me more than $50 to fill up my tank ... I think about cutting back on my budget for eating out and going out in order to compensate for the extra cash spent on gas," she said.

But it is only February and gasoline prices trend higher during the summer driving season.

John Compton, CEO of PepsiCo Americas Foods, said in an interview that prices have been high for a couple years now, so consumers are used to them.

"The bigger number is going to be if we have $5 gas," he added. "That we've not seen before."

(Nivedita Bhattacharjee in Chicago; additional reporting by Jessica Wohl in Chicago, Lisa Baertlein in Los Angeles and Martinne Geller in New York; editing by Andre Grenon)

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