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“If I have a surplus of grapes and I put them on sale, my apples and blueberries and oth- er things will suffer. ... Whereas in vegetables if I have an excess of let- tuce and I drop the price on lettuce, I may pick up more people eating salads, and they’re also going to buy tomatoes and cucumbers for example.”
— Ben Campbell, University of Georgia
have and consumption doesn’t change that much,” says Rickard.
“Eggs and dairy — and alcohol is another example — are commodities or food items that are more sensitive than fruits and vegetables to changes in price.”
Tatiana Andreyeva, director of economic initiatives at the Rudd Center for Food Policy and Obesity at the University of Connecticut, has conducted meta-analysis into the issue and concurs with Rickard’s summary.
However, she notes some studies suggest an elasticity of up to -1.4, implying a 10 percent drop in price would lead to a 14 percent increase in volume sold.
This ties in with how the academic conversation started to change with the 2010 paper “Demand elasticities for fresh fruit at the retail level”, co-authored by Cath- erine Durham of Oregon State University (OSU) and James Eales of Purdue University, published in the journal Applied Economics.
Instead of basing findings on surveys of what consumers recall buying, or disappear- ance data from the United States Depart- ment of Agriculture (USDA), the OSU-Purdue study drew on data from two stores of the same grocery chain in the Pacific North- west, both from areas with very different socio-economic and ethnic demographics.
After looking at what’s known as own-price elasticities for individual fruits – predominantly apples, pears, bananas, oranges and grapes – Durham and Eales found consumers were more responsive to price than economists previously thought.
While recognizing it would be “heroic” to generalize from a data set of just two stores, the authors found elasticities were similar in both areas and called for more studies in different regions with the same methodology. Grapes were the most elastic of the fruits analyzed at between -1.62 and -1.67, while it will probably
come as no surprise to produce executives that bananas were the most inelastic at -0.9-0.98.
“The No. 1 single SKU (stock keeping unit) in the produce department is bananas, and when on promotion at a huge price reduction it has one of the lower volume increases,” says Dick Spezzano of Spezzano Consulting Services in Monrovia, CA, who was formerly VP of produce and floral at the supermarket chain Vons.
“This is usually due to the fact bananas have a limited storage life of three to six days, so buying a three-week supply is not what happens. Many vegetables fall into this category for the same reason,” he says.
This finding is backed up by observa- tionsfromDionysiosChristou,vicepres- ident of marketing at Del Monte Fresh Produce in Coral Gables, FL, and he notes the dynamic is similar with tomatoes.
“With tomatoes you might see shifts in variety choices, but the total category
volume typically would remain relatively flat,” says Christou.
“Viewed by consumers as staples in their shopping basket, both items are often purchased on a regular basis,” he says. “Consumers who enjoy these prod- ucts week-in, week-out may find it hard to eat more, making it difficult to drive incre- mental sales even when the price promo- tion offered is compelling.”
SUBSTITUTES AND COMPLEMENTS
Cornell’s Rickard says that while the fresh produce category is “pretty sticky”, there can be shifts for individual fruits and vegetables with the price of one commodity affecting demand for another.
“If the price comes down on apples, consumers are likely to buy more apples and less bananas, but apples are just part of this greater fruit and vegetable cate- gory,” he says. “It’s really just a question of how substitutable an individual fruit is.”
This relates to cross-price elasticity, an area where Ben Campbell, assis- tant professor in agricultural and applied economics at the University of Georgia, points out as an insightful distinction between fruits and vegetables.
“Vegetables tend to be a bit more on the complement side of things, whereas fruits are generally on the substitute side,” says Campbell.
“If I have a surplus of grapes and I put them on sale, my apples and blueber- ries and other things will suffer,” he says, adding peaches, cantaloupes, water- melons and plums are other commodities adverselyimpactedbycutsintablegrape prices.
“Whereas in vegetables if I have an excess of lettuce and I drop the price on lettuce, I may pick up more people eating salads, and they’re also going to buy toma- toes and cucumbers for example.”
On that note, in the OSU-Purdue study oranges were found to have a signifi- cant complementary relationship with fruits designated as ‘other’ at one store, meaning everything except apples, pears, bananas and grapes.
The authors questioned whether there might be a fruit salad effect for oranges.
“All other significant cross-price elastici- ties show that fruits are substitutes at both stores,” Durham and Eales said.
On the other side of the Atlantic, a 2011 study from the University of Reading in the U.K. found all food groups had complemen-
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