Rich man, poor man: the Economic Research Service division of the USDA has issued a report comparing food purchases by U.S. households of different income levels. Despite facing generally higher prices, low-income shoppers spend less on food purchases. To accomplish this, these shoppers rely on a variety of economizing methods

Prepared Foods, Sept, 2003 by Ephraim S. Leibtag, Phil R. Kaujhzan

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 tradeoffs 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. This article investigates the food-purchase behavior of low-income households, contrasting it with that of higher-income households, in order to get a better understanding of the economizing practices of the poor.

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 Practices

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, 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.