Economizing of the Poor
Comprehending Economizing of the Poor
Walking down the aisles of a supermarket, low-income shoppers must consider a number of factors including quantity, price, quality and nutritional differences when selecting food products. Food-purchase decisions by the poor often entail balances among taste, preference and quality factors— either real or perceived — to meet spending constraints. Within broad product categories such as cereal, cheese, meat and poultry, and fruits and vegetables, shoppers can choose among many substitutable products. Low-income shoppers can extend 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.
The Correlation between the Location and Price
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 less for food The Economic Research Service (ERS) in 1997 received the results of studies comparing price 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 areas (as opposed to suburban areas), where food prices tend to be higher.
Higher Prices but Less Spending
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 shed little 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 Main Economizing Practices
The resulting comparisons describe how individuals with different levels of income vary in their food-spending patterns. By using actual transaction data, 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) was obtained. From these, the average unit cost (per ounce, per pound) for each item was calculated. Low-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 are also evident.
More Spending on Promotional Items
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 is also 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. 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.
Choice of Package Size
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 fact, low-income households had the lowest proportion of large-package purchase of all income groups. This behavior has three possible explanations: Low-income shoppers do not have access to stores that sell large packages; they cannot afford to store staple products, and they perceive that the cost of storing large packages is higher than the savings from the volume discount. A combination of these constraints likely accounts for much of the observed difference in package size quantities purchased and expenditures on those packages by the different income groups.
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 quality 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, which saves a lot for them.
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Brand-name products are promoted more frequently.