Pricing Strategies of Food Retailers

Abstract

Studies examining pricing outcomes in the food retail industry are complicated both by the multiproduct nature of transactions and by the presence of highly concentrated food processing and retailing industries that mediate between relatively competitive farm product markets and the consumer market. In this review, we examine theoretical and empirical evidence for retail pricing and the vertical relationships that have emerged among retailers, food manufacturers, and farmers. We first focus our analysis on consumer behavior in multiproduct retail markets, including consumer search, habit formation, and reference pricing, and then discuss retail market outcomes for price discrimination, price fairness, and price obfuscation. We then turn to relationships between retailers and food manufacturers through bargaining outcomes, market foreclosure, and slotting allowances, and discuss the resulting implications for retail-price pass-through. Expected final online publication date for the Annual Review of Resource Economics, Volume 12 is October 5, 2020. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

Factors Affecting Sugar-Containing-Product Prices

“…Previous literature has examined determinants of food prices (e.g., Richards and Hamilton, 2015;Volpe, Risch, and Boland, 2017;Hamilton, Liaukonyte, and Richards, 2020;Nakamura, 2008;Ghazaryan et al, 2018;Nakamura and Zerom, 2010). Factors theorized to affect food prices include input prices (Nakamura and Zerom, 2010;Volpe, Risch, and Boland, 2017;Richards and Hamilton, 2015;Hamilton, Liaukonyte, and Richards, 2020), product characteristics such as size and appearance (Ghazaryan et al, 2018), macroeconomic factors (Richards and Hamilton, 2015;Volpe, Risch, and Boland, 2017), and market power (Hamilton, Liaukonyte, and Richards, 2020;Richards, Hamilton, and Yonezawa, 2017). Similarly, it is hypothesized that input prices, product characteristics, macroeconomic factors, and firm size will have an impact on SCP prices.…”

“…Similarly, it is hypothesized that input prices, product characteristics, macroeconomic factors, and firm size will have an impact on SCP prices. While no located research has examined how firm financial performance affects food prices, this research postulates it will affect SCP prices since Trejo-Pech et al (2020) found a relationship between firm profitability measures and sugar prices, and because firms' market power throughout the food supply chain is an important consideration in explaining food prices (Hamilton, Liaukonyte, and Richards, 2020;Richards, Hamilton, and Yonezawa, 2017). Only SCP prices from publicly traded sugar-using firms were utilized so firm size and financial performance variables could be included as independent variables in the analysis.…”

“…Input prices (e.g., Volpe, Risch, and Boland, 2017;Richards and Hamilton, 2015;Hamilton, Liaukonyte, and Richards, 2020) and product characteristics (e.g., Ghazaryan et al, 2018) are primary determinants of food prices. It is expected that the SCP characteristics that will impact the SCP price per pound are sugar prices (SugarPrice), the percentage of sugar in the SCP (%Sugar), and SCP weight (Weight).…”

“…Hedonic pricing modeling improves when in addition to cost and demand considerations (i.e., package size, sugar content, and sugar price), aspects of the brand's marketing strategy, such as a firm's competitive positioning, are included as explanatory variables (Rao, 1993). Furthermore, the competitive structure and market power of a firm are an important determinant of food prices (Hamilton, Liaukonyte, and Richards, 2020;Richards, Hamilton, and Yonezawa, 2017). Thus, the firm's sales growth, past financial performance, and size proxies are considered in this study to control for a firm's competitive positioning.…”

A Line in Space: Pricing, Location, and Market Power in Agricultural Product Markets

“…We conclude in Section 5. 1 For a recent general review on pricing strategies in food retailing, see that by Hamilton et al (2020).…”