Determinants of Consumer Choices of Prepared Frozen Meals and Salted Snacks Over Time

We develop and estimate an integrated discrete choice model system of product choice and nutrition information for prepared frozen meals and salted snacks in the United States in the period from 1995 to 1999. The model links consumer observed and latent characteristics (e.g., income, knowledge about nutrition, nutrition label use) to product characteristics (e.g., prices, nutritional attributes) and allows us to obtain consumer preference parameters and demand elasticities with regard to product characteristics. We find that prices, advertising, price reductions, and consumer preferences for taste have a significant effect on the demand for prepared frozen meals, whereas nutrition information and nutrition label use do not. Using the estimated demand parameters we then evaluate the impact of the new mandatory labeling policy. The results show that consumer preferences and purchasing patterns within the prepared frozen meal and the salted snack categories did not change significantly after the implementation of mandatory labeling. [EconLit Q130, L110, L150]. *Eliza M. Mojduszka is an Assistant Professor and Rachel M. Everett is an Extension Specialist at Rutgers University, Department of Ag, Food, and Res. Economics, Cook Office Building, Room 102, 55 Dudley Road, New Brunswick, NJ 08901, USA. Introduction In the past decades, nutrition educators, researchers, and government agencies have highlighted scientific findings that an individual’s diet has a direct effect on their personal health. Programs and policies have been created specifically to increase consumer’s awareness and understanding of these conditions and to improve their ability to make good food purchasing decisions. Specifically, the United States government implemented mandatory national labeling policy requiring nutrient profiles on all packaged food products. Yet the number of Americans struggling with diet related health problems is rising at faster rate than ever before. During this time, the per capita income in the United States has increased at a greater rate than the cost of most food products making food more affordable to consumers. As a result of increased income, consumers place a greater value on time and demand convenient food items often at the expense of nutritional quality (Aldrich, 1999). Researchers have found that taste out ranks nutrition in choosing which frozen meal or frankfurter to consume (Mojduszka et al., 2001 and Harris, 1997). It appears as if taste, marketing, rising incomes and convenience are all taking precedence over nutrition and health concerns when consumers make food purchasing decisions. This paper investigates the determinants of consumers’ frozen meal and salted snack choices and develops an empirical understanding of the factors affecting actual product-level food demands. We have chosen to look specifically at prepared frozen meals as they represent a rapidly increasing segment of the home-meal replacement category. Research shows the average American consumes a frozen meal option about six times per month or approximately 74 times during a one year period, a 33% increase since 1992 (NDP, 2002). We have also chosen to study specifically the salted snack category which includes the following sub-categories: potato chips, tortilla chips, crackers, pretzels, popcorn, cheese snacks, breadsticks, and other salted snacks. 2 Salted snacks are a very important part of the American diet. In 1999, Americans purchased more than 1.1 billion pounds of potato chips, pretzels, and ready to eat popcorn from supermarkets, drug stores, and mass merchandising outlets. In 2000, the salted snacks category amounted to more than eight billion dollars in sales for the industry and grew more than 4.2 percent (Roberts Jr., 2001). The total sales of salted snacks increased six percent from 1995-1999, while sales of regular versions increased 11 percent, yet the sales of lower fat versions decreased 6 percent during the same years (Allshouse et al., 2002). Salted snacks remain consumers’ top choice for snacking and supply about 25 percent of our daily calories (Clyde, Vollmers, and Swenson, 2000). The American Diabetic Association in Chicago reported that approximately 75 percent of consumers had at least one snack per day in 2000 (Berry, 2002). The applicability of the findings of this project reaches far beyond the frozen meal and salted snack segments and will be helpful to policy makers, food processors, and nutrition educators across the food product spectrum. Consumer Information and the Food Choice Paradox Consumer information, can take many forms ranging from generic health information to product-specific nutrition profiles. A consumer’s ability or desire to utilize information may play an active role in their food purchasing decisions. In this section, we explore the relevant work on particular information issues including information acquisition and nutrition label use. The government plays a sizeable role in the dissemination of nutritional information, often using governmental studies and scientific panel recommendations as vehicles for release with the popular press casting a broader net with a second-round release. The consumers reached by news and print media absorb this nutrition information disproportionately to the rest of the population. More so, the government release of generic information requires that consumers have other 3 information sources and a greater understanding of the specific health issue in order to develop a behavioral change in response to new information (Ippolito and Mathios, 1990). Individual’s characteristics affect one’s acquisition of new information. For example, Shultz (1975) argued that education is an important determinant of an individual’s ability to process new information into changed behavior. Becker (1965, 1977) hypothesized that an individual’s opportunity value of time and the economies of the household play a significant role in an individual’s acquisition of information. More so, Grossman (1972) developed the idea that an individual’s valuation of health capital influences their reaction to new health information. Nutrition labeling is a valuable policy tool in that consumers have no way to evaluate the nutritional quality of their food products on their own. Uncertainty may be reduced through the information provided in nutrition labels (Zarkin and Anderson, 1992). In addition, credence attributes of food products may be transformed into search attributes as a result of the increased information (Caswell and Mojduszka, 1996). The NLEA was designed to provide significant improvements in diet quality by helping consumers make better or healthier food choices. Much like the acquisition of new information, nutrition label use is not homogenous. Males are reported to be less likely to make frequent use of nutritional labeling than their female counterparts (Guthrie et al., 1998; Bender and Derby, 1992; Nayga, 1996; and Godvindasamy and Italia, 1999). Although women have increased their presence in the work force, they continue to play the lead role in deciding and preparing what American families eat. Senaur (1990) reports that in most American households’ women not only remain the primary food purchaser but they also do approximately 90% of the family’s cooking. 1 Credence attributes do not allow a consumer to judge the quality of the product even after consumption. 4 2 Search attributes provide full quality certainty given careful pre-purchase inspection assuming the cost of the search is negligible. Scientific knowledge and public understanding of the linkages between diet and health has increased in recent years. During this time many researchers have tried to model and evaluate the determinants of consumer demand for food. Their findings and conclusions have not been uniform. Increased public awareness and concern about nutrition was thought to increase the demand for nutritionally superior products thus increasing the availability of such foods in both the at-home and away-from-home food markets (Canning et al., 2000; Lin and Frazao 1999; and Frazao and Allhouse, 1996). Yet other research (Mojduszka et al., 1999) concludes that the average nutritional quality of food products offered did not improve during this time period. Food industry analysts have highlighted sales failures among nutritionally improved food products (The Food Marketing Institute Report, 1999, 2000). Determinants of Consumer Demand for Brands This paper builds on and further extends existing work on the determinants of consumer demand for food products (Mojduszka et al., 2001) by expanding the understanding of the relationship between consumer’s knowledge of nutrition and demand for nutrient quality. The current literature is predominantly based on analysis at the aggregate product level data or at the disaggregate consumer level survey data. Relevant studies using data of this kind include Brown and Schrader (1990), Capps and Schmitz (1991), Gould and Lin (1994), Chern et al. (1995), Variyam et al. (1996), Adelaja et al. (1997), Chern and Zuo (1997), Kim and Chern (1999), and Chern (2000). Each of these studies have furthered the understanding of consumers knowledge and concern about nutrition and their food product choices; however, these studies are limited by methodology that employs only aggregate or disaggregate data sets. The methodology used in this paper utilizes both aggregate and disaggregate level data in order to overcome the limitations associated with working with data on either level alone. 5 To estimate our demand system for differentiated prepared frozen meals and salted snacks, a discrete choice model of individual consumer behavior is used (McFadden, 1978; Berry, 1994; Berry et al., 1995; Nevo, 1997; Shaked & Sutton, 1982; Perloff & Salop, 1985; Bresnahan, 1987). Estimated parameters of the demand system are then applied in order to assess the effectiveness of the mandatory labeling