FOOD RETAILING
• Food retailing is an important part of the
whole U.S. retail sector
Establishment numbers, value of sales, and paid employees of
retail trade, 2002
U.S. Retail trade
Food and beverage stores
Number of
Establishments
Sales
($ Billion)
Paid
Employees
(Million)
1,116,506
3,066.8
14.7
148,901
456.1
2.8
MARKETING CHANNEL
• Marketing Margin:
– Difference between price paid by final
consumer and price received by primary
producer
– Also called “farm-retail price spread”
– Must be measured in equivalent units:
• Example:
• For steers, 2.4 lbs of live weight yield 1 lb of retail
beef cuts
• 2000 retail beef price = $3.06/lb average all cuts
• 2000 steer price = $0.654/lb live weight
• 2000 farm-retail price spread = $1.57/lb retail cut
(= $3.06/lb – 2.4 x $0.654/lb)
MARKETING CHANNEL
• Marketing Bill:
– Difference between total consumer
expenditures and what farmers receive
for equivalent farm products
MARKETING CHANNEL
• Approaches to measure farmer’s share of
consumer’s food dollar:
1. Marketing Bill
• Farm value of all domestically produced farm foods
divided by consumers’ food expenditures
– Includes foods eaten at home and away from home
– Captures changes in price relationships and
consumption patterns
2. Market Basket
• Farm value of a “constant” basket of domestically
produced farm foods divided by its retail value
– Uses only grocery store prices
– Doesn’t allow substitution
MARKETING CHANNEL
800
Nominal or Current
Dollars
700
Consum er
Expenditures
600
500
400
300
Marketing
Bill
200
100
20% farm level
Marketing bill and farm value com ponents of consum er expenditures for
dom estically produced farm foods (Constant 2002 $ billion)
800
700
600
Consumer
Expenditures
500
400
300
Marketing Bill
200
100
Farm Value
0
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
Consumer Expenditures,
Marketing Bill, and Farm Value
(Constant 2002 $ billion)
Year
Real or Constant
Dollars
Approximately
80% marketing
Farm Value
0
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
Consumer Expenditures,
Marketing Bill, and Farm Value
(Current $ billion)
Marketing bill and farm value com ponents of consum er expenditures for
dom estically produced farm foods (Current $ billion)
MARKETING CHANNEL
Price
Demand
Supply
P
Consumer
Expenditures
=
Farm Value
Production
Quantity
Consumption
Farmers’ Market
MARKETING CHANNEL
Price
Price
Demand
Primary
Demand
Primary
Supply
Pretail
P
Consumer
Expenditures
=
Farm Value
Production
Marketing
Bill
Price
Spread
Supply
Pfarm
Cons.
Expend.
Farm Value
Quantity
Consumption
Farmers’ Market
Production
Derived
Demand
Quantity
Consumption
Typical Market Channel
MARKETING CHANNEL
Is a large farm-retail price spread necessarily “bad”?
Price
Price
Primary
Supply
Price
Spread
Primary
Supply
Pretail
Marketing
Bill
Price
Spread
Primary
Demand
Primary
Demand
Pfarm
Pretail
Pfarm
Derived
Demand
Production
Consumption
Small Spread
Farm Value
Quantity
Production
Derived
Demand
Quantity
Consumption
Large Spread
MARKETING CHANNEL
Is a large farm-retail price spread necessarily “bad”?
Price
Price
Consumer
Surplus
Primary
Supply
Primary
Supply
Pretail
Price
Spread
Primary
Demand
Price
Spread
Primary
Demand
Pfarm
Pretail
Pfarm
Producer
Surplus
Derived
Demand
Production
Consumption
Small Spread
Derived
Demand
Quantity
Production
Quantity
Consumption
Large Spread
MARKETING CHANNEL
Is a large farm-retail price spread necessarily “bad”?
Price
Price
Primary
Demand
Primary
Demand
Consumer
Surplus
Consumer
Surplus
Price
Spread
Primary
Supply
Pretail
Pfarm
Primary
Supply
Pretail
Price
Spread
Producer
Surplus
Pfarm
Producer
Surplus
Derived
Demand
Production
Consumption
Small Spread
Derived
Demand
Quantity
Production
Quantity
Consumption
Large Spread
MARKETING CHANNEL
• Is a large farm-retail price spread
necessarily “bad”?
Retail
Price
($/lb retail)
Marketing
Farm
Margin
Value
($/lb retail) ($/lb retail)
Farmer’
Share
(%)
Fresh Potatoes
0.37
0.31
0.06
16
Frozen French
Fried Potatoes
1.10
1.02
0.08
8
(Source: USDA, 2002)
MARKETING CHANNEL
• Price spreads increase with:
–Processing
–Perishability
–Seasonality
–Transportation
–“Bulkiness”