Market Trends: Rich Man, Poor Man
Low-income shoppers can stretch their food dollars in a number of ways: They may shop in discount food stores; they may purchase and consume less food than higher-income shoppers; they may purchase low-priced (and possibly lower quality) food products; or they may rely on some combination of all three. A better understanding of how the poor economize in food spending addresses important policy questions raised by researchers, nutrition educators, and food-assistance program managers.
Whether the poor face significantly different food prices due to where they shop for food remains an unresolved empirical question. Extensive research over the years has tried to answer the question: "Do the poor pay more for food?" The Economic Research Service (ERS) in 1997 reviewed the results of studies comparing prices differences in grocery stores across different income levels and combined these with current census data on the distribution of low-income households by urbanization type. The ERS study concluded that, in general, the poor face higher prices due to their greater representation in urban and rural locations (as opposed to suburban locations), where food prices tend to be higher.
Based on results from household surveys, ERS also found that despite facing higher prices, low-income shoppers spend less than higher-income shoppers for food purchased in food stores. Due to their level of aggregation and lack of in-store sales and promotion information, such surveys cannot shed much light on the economizing practices of households. To learn more about how low-income shoppers spend less for food despite facing higher prices, we obtained food-store purchase data that incorporate per-capita quantity and expenditure-measure equivalents (household measures adjusted for household size) across income levels.
The resulting comparisons describe how individuals with different levels of income vary in their food-spending patterns. By using actual transaction data, we obtained detailed information about the product purchased (for example, price, product description, package size, and brand name) as well as the condition of purchase (promotion, coupon, or sale item). From these, we calculated the average unit cost (per ounce, per pound) for each item.
We investigated possible explanations for food-spending differences across income levels using household food-purchase data for selected food categories from October 1997 to October 1998 (fiscal 1998) for a nationally representative sample of households. By comparing household behavior across income groups, we determined (a) how total spending differs for a specific food item, type and category, and (b) how income groups differ in the economizing practices that they utilize.
Economizing PracticesLow-income shoppers may use four primary economizing practices to reduce their food spending. First, they may purchase a greater proportion of discounted products. Second, they may purchase more private-label products (generic or store brand) versus brand products than higher-income shoppers buy. Third, they may take advantage of volume discounts by purchasing larger package sizes. Fourth, they may purchase a less-expensive food product within a product class. Although quality differences such as freshness, convenience and taste often contribute to prices differences, differences in nutritional quality, also are evident.
The use of promotions is measured by comparing the percentage of expenditures and quantities of each product purchased on promotion (manufacturers' coupons, store coupons, store sales, and other promotions). For random-weight cheese, fruit, vegetables and meat in 1998, low-income households (less than $25,000 per year) spent a greater share of expenditures for products on promotion than other households. (This also is true for quantities purchased on promotion.) For poultry, however, middle-income households spent about the same percentage on promotion as low-income households (36% versus 35%, respectively). For both groups, spending for promotion items was at least five percentage points more than spending by the high-income group.
Among fixed-weight products, promotion-spending patterns differed. Low-income shoppers purchased the lowest share of total ready-to-eat (RTE) cereal on promotion. This result may be explained by other economizing practices in this product category—such as purchasing a larger percentage of private-label products, which are on promotion less often but have lower non-sale prices than the brand-name alternatives. We found a similar but less extreme result for packaged cheese, so low-income shoppers may again be economizing in other ways.
Low-income households spent 11.5% of their RTE cereal expenditures on private-label cereals, while the higher-income households spent lower shares, with those shares decreasing with increasing income levels. A similar pattern is found for the quantities of private-label RTE cereal purchased.
A look at the purchasing levels of store-brand packaged cheese shows a similar pattern, but with smaller differences, for purchases of packaged cheese products. Low-income households spent 11.6% of their packaged cheese-product expenditures on private-label products, compared with 10.9% and 10.5% for the middle-income households and 9.6% for the high-income group. Again the pattern was similar for the quantities purchased. These measures indicate that low-income shoppers economize in buying fixed-weight cheese and RTE cereal by favoring private-label products. (Results relevant to purchasing more private-label products are explained briefly at http://www.ers.usda.gov/publications/aib747/aib74707.pdf.)
Choice of package size also enables those in low-income households to economize by purchasing larger packages, which often have lower per-unit prices than smaller packages. However, data on expenditure shares for RTE cereal and packaged cheese show that low-income households' purchases of large packages of RTE cereal were less than such purchases by other households in 1998. In 1998, households earning $50,000 or more spent 23.1% of cereal purchases on large packages, compared with 15.8% by the low-income group. A similar pattern was found for fixed-weight cheese products.
In addition to economizing strategies based on buying larger packages, private labels, and promotional items, low-income shoppers may also substitute lower-priced items (for example, lower-grade cuts of meat) within a product type. Using the quantity and expenditure data for specific product types within the random-weight product categories of meat, poultry, fruits, and vegetables, we compared the choices made by shoppers in the different income groups.
On a per-capita basis, low-income households purchased 7.6% more meat and poultry (combined) than middle-income households and 6.7% more than high-income households. The combined difference is mostly from the difference in quantities of meat that low-income households purchased. These differences show that middle-income households substituted some meat purchases with poultry purchases. Low-income households purchased more meat but spent less per pound for both meat and poultry. Comparing average prices per pound, low-income households paid 6.2% less for meat and 5.5% less for the poultry than did middle-income households. Those findings suggest that the poor may keep their food spending down, in part, by purchasing lower quality products.
Low-income shoppers may also be economizing by purchasing a less costly combination of fruit and vegetable product types. On average,low-income households paid 11.5% less per pound for vegetables than high-income households, and 9.6% less per pound for fruit. This price measurement is a function of the quantity and expenditures that each household type devotes to fruits and vegetables. Overall, low-income households purchased 3.3% less fruits and vegetables (by weight) per person than high-income households, but they paid 13% less. This implies that these households are choosing less expensive fruits and vegetables.
ConclusionComparisons across income groups found evidence that the poor economize on their food purchases to limit spending. They accomplish this by purchasing random-weight products on sale, purchasing a greater proportion of private-label (fixed-weight) products, and purchasing less expensive meats, fruits, and vegetables. By selecting less expensive meat, poultry, and fresh fruits and vegetables, low-income households are able to spend less for food, despite facing slightly higher prices.
The economizing practices observed of the poor may depend partly on the types of food stores from which they make their purchases. For example, the availability of store-brand precuts and volume-discounted large package sizes is likely less in sub-supermarket outlets, which may be the only food stores easily accessible to the poor. In addition, purchases constrained by restrictions in package size and product choice in the WIC nutrition program may affect outcomes for RTE cereal and cheese categories. Were it not for these constraints, differences in purchase patters between the low- and higher-income shoppers would likely have been even larger.
This article, with additional charts, footnotes and sidebars, was first published in the June 2003 issue of Current Issues in Economics Markets, Agriculture Information Bulletin No. 747-07, Economic Research Service, USDA. Visit www.ers.usda.gov/publications/aib747/aib74707.pdf —for the complete article with footnotes, references, charts and graphs, from which this article was drawn.