The Consumption Choice of Organics: Store Formats, Prices, and Quality Perception –A Case of Dairy Products in the United States - Organic Food and Agriculture: New Trends and Developments in the Social Sciences - page 4

Three major store formats are considered: A) value-oriented retailers (e.g. supercenters and
price clubs) representing a super-cheap nontraditional shopping format characterized by
low-pricing, broad assortment overall and especially in nonfood categories and low service;
B) a format represented by traditional supermarkets and grocery stores, generally featuring
promotional (HiLo) pricing, broad assortment in food categories and some service; C) high-
end specialty stores (e.g. natural food supermarket chains) providing consumers with high-
priced upscale product offerings and a higher level of service. To address the choices over
all formats of retail outlets, we use a unique dataset collected by A.C. Nielsen, which covers
the household purchases at any retail outlets including the retailers, such as Wal-Mart Inc.
and Whole Foods Market Inc., that do not provide data to scanner data service firms. Our
study is for a single large metropolitan area in a non-coastal U.S. city for a pair of two-year
weekly samples, 2005-06 and 2007-08.
The remainder of the chapter is organized as follows. The next section contains an overview
of the market background and trends, including the data, the consumer and retailer profiles
and the consumption patterns of dairy products. Section 3 presents the model setup,
estimation procedure and regression results for the consumption choice of organics. The last
section contains a summary of our findings and their implications for marketing and
farming decisions.
2. The market: Background and trends
2.1 The U.S. organic food market
Organic market has been one of the fastest growing markets in recent years. Aggregate
organic food sales in the U.S. have maintained a 15-20% annual growth rate over the past
decade. The report by (Organic Trade Association, 2009) indicates that the US sales of
organic foods totaled nearly $23 billion in 2008, which marks a 15.8% increase compared to
sales in 2007 and is over 6 times of the sales in 1997. The organic penetration rates, defined
as organic food as a percent of total U.S. food sales, have increased from 0.97% in 1997 to
3.59% in 2009 (see figure 1). According to (The Hartman Group, 2008), over two-third of U.S.
consumers buy organic products at least occasionally and about 28 percent of these organic
consumers are weekly organic users.
Figure 1 also shows that the traditional supermarkets and value-oriented retailers have
become more important outlets where consumers shop for organic food as their market
shares combined have increased from 30% to 46% over the past decade. On the contrary,
sales of organic foods through natural food chains, such as Whole Foods Market and Wild
Oats, and other independent natural food stores peaked at 68% of total organic sales in 1995.
By 2005, the market share of natural food channels had however dropped to 47% of sales.
2.2 The data
We use a multi-outlet panel dataset (Homescan by A.C. Nielsen) for a non-coastal U.S. city
that covers a 208-week period between December 26, 2004 (hereafter January, 2005) and
December 27, 2008. The dataset contains detailed purchase information for 6 food product
departments (dry goods, frozen, dairy, deli, meat, and fresh produce) and over 600 product
categories of food and non-food items sold in grocery stores or other retail outlets. The
households report their purchases weekly by scanning either the Uniform Product Code
(UPC) or a designated code for random weight products of all their purchases from grocery