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PROCEEDINGS PAPERS

Research Issues Facing The Food Distribution Sector:

A Look Ahead*

by

Oral Capps, Jr.Professor

Department of Agricultural EconomicsTexas A&M University

Introduction

Currently about 400,000 manufacturers,wholesalers, retailers, and food service firmsengage in food processing and food distribution.The food marketing system in the United Statesembodies a variety of functions, a variety ofdistribution systems, employs 17 percent of thework force and contributes 16 percent of the grossnational product (Manchester). This network ofprocessors, wholesalers, retailers, and restaura-teurs was responsible for purchases of roughly$100 billion in U.S. agricultural commodities and$19 billion in foreign agricultural commodities in1988, Food processing added about $88 billion tothe raw food supply, Retailers and wholesalersadded $114 billionq transportation firms $22 bil-lion, and food service firms $68 billion.

U.S. consumers spent nearly $550 billionfor food at home and away from home in 1990,

up 6.4 percent from 1989. This total includesspending at all retail outlets (e.g., food stores,restaurants), and at service establishments (e.g.,meals at lodging places, snacks at entertainmentfacilities), plus allowances for food served ininstitutes (e.g., schools, hospitals), in the travelindustry (e.g., airlines), and for military feeding.Spending for food at home (FH) in 1990amounted to almost $300 billion, up 5.7 percentfrom 1989. Expenditures for food away fromhome (FA) came to roughly $250 billion in 1990,7,2 percent above the level in 1989.

The importance of the food marketing anddistribution sector is obviously clear. This paperaddresses some key research issues facing thefood distribution industry in the 1990s and ontothe next century. These issues pertain to:(1) food away from home; (2) nutrition, health,and food safety; (3) value added in food process-

* Tednical Article No, 30688 of the Texas Agricultural Experiment Station

Journal of Food Distribution Research June 921page 49

ing and distribution; and (4) structure of the fooddistribution sector.

At-Home Versus Away-From-HomeFood Consumption

The food industry is consumer driven, notproducer driven. The basis of successful market-ing is understanding the consumer. A knowledgeof key factors affecting consumer food purchasingpatterns and an understanding of their marketingimplications are, therefore, crucial. The demo-graphic characteristics of the U.S. population areundergoing dramatic changes that have majorimplications for the food industry. Some keysocio-economic and demographic factors behindthe changes in retail food consumption include:(1) a growing number of women (married andsingle) in the work force; (2) increasing impor-tance of convenience in eating out; (3) more fami-lies living on two incomes; (4) smaller householdsizes; (5) decreased household culinary skills;(6) the impact of advertising and promotion bylarge food service chains; (7) and more people inthe age group of 25 to 44 who are inclined to eatout often (Putnam fid Van Dress).

One of the most noticeable changes inconsumers’ eating habits in recent years is theincreased incidence of meals eaten outside thehome. The change has been roughly from aboutone meal in four to about one in three, an increaseof about 33 percent during the last 25 years(Manchester). The share of food expenditures forfood away from home (FA) rose from 26.6 per-cent in 1960 to 45.3 percent in 1990 ~able 1).In contrast, the share of food expenditures forfood at home (FH) fell from 73.4 percent in 1960to 54.7 percent in 1990.

Food stores account for most of the FHexpenditures, almost 86 percent in 1989 (Table 2).Eating and drinking establishments have thenotable share of FA expenditures in 1989.Schools and colleges accounted for almost 8 per-cent and all other places (e.g., airlines) for nearly13 percent.

The Census Bureau divides eating anddrinhg establishment sales by broad format type.One group is restaurants, lunchrooms, and cafete-rias, referred to as “fill-menu restaurants. ” Theother includes what the Census Bureau terms“refreshment places, ” primarily fast food typeoperations or “limited-menu restaurants. ” Full-menu operations accounted for 50.4 percent ofeating and drinking establishment sales in 1989while limited-menu operations accounted for 41.8percent (Tables 4 and 5). The total volume ofeating and drinking establishment sales was almost$174 billion (Table 4).

In real terms (with adjustments for infla-tion), FA food expenditures per person havegrown far more than FH food expenditures perperson (Figure 1 and Table 6). Real FH expendi-tures per person in 1970 were about $962 (in1982-84 dollars) compared to $922 in 1989, adecline of 4 percent, an annual rate of decline of0.2 percent over the 20-year period. Annual realper capita FA expenditures in 1970 were $522compared to $734 in 1989, an increase of nearly41 percent, an annual rate of increase of 1.9percent over the same period.

Each year, food expenditures account for asmaller share of disposable income of consumers(Table 7). For example, 16.3 percent of con-sumer income went to food expenditures in 1970compared to 13.8 percent in 1989. The propor-tion of disposable income going to FH hasdeclined continually from 10.8 percent in i970 to7.6 percent in 1989. The percentage going to FA,in contrast, has increased. FA expendituresaccounted for 5.5 percent of consumer income in1970 and 6.3 percent a decade later. Since 1980,the proportion of disposable income allocated toFA spending has fluctuated within a narrow rangefrom 6.0 percent to 6.4 percent.

Previous studies of food away tlom homegenerally consider expenditures as a single cate-gory, with no disaggregation by type of facility orby the type of food consumed (LeBovit;Prochaska and Schrimper; Kinsey; Redman; andSexauer). The only exceptions to this claim are

June 921page 50 Journal of’Rod Distribution Research

Table 1. Nominal Expenditures for All Food, Food at Home, and Food

Away from Home 1960 to 1990.

Year All Food Food at Home Food Away From Home

$ Million $ Million % of all Food $ Million % of all Food

1960

1965

1970

1975

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

73,728

86,739

117,110

187,959

306,168

330,083

346,906

369,386

391,540

407,398

429,854

457,927

485,788

513,333

54,121

60,542

77,527

119,850

185,638

198,520

206,184

217,114

228,447

235,935

244,897

254,058

266,163

282,548

(73.4)

(69.8)

(66.2)

(63.8)

(60.6)

(60.1)

(59.4)

(58.8)

(58,3)

(57.9)

(57.0)

(55.5)

(54.8)

(55.0)

19,607

26,197

39,583

68,109

120,530

131,563

140,722

152,272

163,093

171,463

184,957

203,869

219,625

230,785

(26.6)

(30.2)

(33.8)

(36.2)

(39.4)

(39.9)

(40.6)

(41.2)

(41.7)

(42.1)

(43.0)

(44.5)

(45.2)

(45.0)

1990 545,000 298,000 (54.7) 247,000 (45.3)

Sources: U.S. Department of Agriculture and Food RetailingReview, 1991.

Journal of Food Distribution Reseamh June 92/page 51

Table 2. Nominal Expenditures for Food at Home by Type, 1960 to 1989

Food Sales for Home -~

FoodYear Food Stores” Otherb Total Produced at Total

Homec

1960

1%5

1970

1971

1972

1973

1974

1975

1976

.------------------------..----$ Millio~-------------------------------

42,088 7,336 49,424 4,697 54,121

49,076 7,526 56,602 3,940 60,542

65,480 7,961 73,441 4,086 77,527

69,161 8,205 77,366 4,080 81,446

75,520 8,116 83,636 7,297 87,933

83,200 8,869 92,069 5,217 97,286

94,529 9,609 104,138 6,114 110,252

103,624 10,251 113,875 5,975 119,850

110,793 10,893 121,686 6,149 127,835

1977 118,256 12,268 130,524 6,038 136,559

1978 130,568 13,311 143,879 6,476 150,355

1979 145,943 14,548 160,491 6,992 167,483

1980 161,439 15,924 177,363 8,275 185,638

1981 172,227 17,013 189,240 9,280 198,520

1982 179,144 17,605 196,749 9,435 206,184

1983 187,126 20,053 207,179 9,935 217,114

1984 196,673 22,450 219,123 9,324 228,447

1985 204,343 24,513 228,856 7,079 235,935

1986 209,572 27,615 237,187 7,710 244,897

1987 216,547 29,297 245,844 8,214 254,058

1988 227,110 30,741 257,851 8,312 266,163

1WI 741 N-)4 ’321 8’-+ 7,7q 987 8561 ?R7, 548

‘ Excludes estimated sales to restaurants and institutions.

b Includes sales through stores other than food stores, home delivery, mail

order, and direct sales through farmers, wholesalers, and manufacturers.

c Includes donations.

Source: USDA

June 92/page 52 Journal of Food Distribution Research

Table 3. Nominal Expenditures for Food Away From Home by Type, 1960 to 1989

RetailYear Eating & Hotels & Stores; Recrea- Schools All OtheP Totsl

Drinldng Motels’ Direct tional &Placw”- Sellingb Places’ Collegesd

------------------------------------$ Millions -----------------------------------

1960

1965

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

10,505

14,444

22,617

24,166

27,167

31,265

34,029

41,384

47,536

52,491

60,042

68,872

75,883

83,358

90,390

98,746

105,873

111,801

121,756

135,944

146,952

1,028

1,409

1,894

2,086

2,390

2,639

2,864

3,199

3,769

4,115

4,863

5,551

5,906

6,639

6,888

7,567

8,199

8,828

9,176

10,295

11,163

1,716

2,162

3,325

3,626

3,811

4,218

4,520

4,952

5,341

5,663

6,323

7,157

8,158

8,830

9,253

9,810

10,231

10,281

10,764

11,190

11,877

1989 154,643 11,473 12,617

421

522

721

762

832

963

1,167

1,369

1,511

2,606

2,810

2,921

3,040

2,979

2,887

3,145

3,351

3,519

3,743

4,092

4,439

4,849

2,082

3,062

4,775

4,990

5,370

5,605

6,287

7,060

7,854

8,413

9,034

9,942

11,180

11,816

12,415

13,152

13,791

14,518

15,599

16,812

18,048

18,129

3,855

4,598

6,551

6,621

7,017

7,960

9,178

10,145

10,822

11,661

13,109

14,864

16,363

17,941

18,889

19,852

21,648

22,516

23,919

25,536

27,146

19,607

26,197

39,583

42,251

46,587

52,650

85,045

68,109

76,833

84,949

96,181

109,307

120,530

131,563

140,722

152,272

163,093

171,463

184,957

203,869

219,625

29,074 230,785

a Includes tips.b Includes vending machine operators, but not vending machines operated by other organizations.c Motion picture theaters, bowling alleys, pool parlors, sports arenas, camps, amusement parks, golf

and country clubs. Includes concessions beginning in 1977.d Includes school food subsidies.0 Military exchanges and clubs, railroad dining cars, airlines, food service in manufacturing plants,institutions, hospitals, boarding houses, fraternities and sororities, and civic and social organizations, foodsupplied to military forces and civilian employees, and child day care.Source: U.S. Department of Agriculture.


Table 4. Food Sales by Eating and Drinking Establishments, 1985 to 1989.

1mm 1Wu/ 19R7 1Wi 19R5

--------------------$ Millions---------—----------

Eating & Drinking Places: 173,527 165,511 153,461 139,415 127,949

Eating Places: 161,587 154,092 142,627 128,563 117,646

Full-Menu Units 87,373 84,952 81,139 75,173 68,239

Limited-Menu Units 72,460 67,071 59,635 51,635 48,106

Drinking Places 11,940 11,419 10,834 10,852 10,303

--------------Segment Volume As a % of Total-------–——

Eating & Drinldng Places

Eating Places: 93.1 93.1 92.9 92.2 91.9

Full-Menu Units 50.4 51.3 52.9 53.9 53.3

Limited-Menu Units 41.8 40.5 38.9 37.0 37.6

Drinking Places 6.9 6.9 7.1 7.8 8.1

Source: Food RetailingReview, 1991.

Table 5. Food Sales by Full-Menu and Limited-Menu Restaurants, 1980 to 1989.

Vtwr Fllll-r&I)n 1~,.

----------------------$ Millions -----------------------

1980 49,562 29,919

1981 54,229 32,964

1982 57,568 36,755

1983 60,959 41,602

1984 65,979 44,364

1985 68,239 48,106

1986 75,173 51,635

1987 81,139 59,635

1988 84,952 67,071

1989 87,373 72,460


June 92Jpage 54 Jouxnal of Food Distribution Research

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Table 6. Real Per Capita Expenditures for Food at Home and Food Away From Home,1970 to 1989.

Year Food At_ F~

--------------------1982-84 Dollars—---------------

1970 962 522

1975 907 584

1980 930 640

1981 918 634

1982 913 637

1983 941 654

1984 946 666

1985 954 667

1986 953 686

1987 939 720

1988 935 738

1989 922 734

Source: Calculations by Authors.

Table 7. Proportion of D@osable Personal Income Spent for Food At Home and AwayFrom Home, Selected Years, 1970 to 1989.

------------% of Personal Disposable Income------------

1970 10.8 5.5

1975 10.5 6.0

1980 9.7 6.3

1982 9.1 6.2

1983 8.9 6.3

1984 8.6 6.1

1985 8.3 6.0

1986 8.1 6.1

1987 8,0 6.4

1988 7.7 6.3

1989 7.6 6.2


June 921page 56 Journal of Food Distribution Research

the works by McCracken and Brandt. McCrackenand Brandt examine FA expenditures by type offacility, namely, expenditures at restaurants, fast-food facilities, and other commercial facilities.Yet, no studies deal with FA expenditures on acommodity basis (e.g. beef, fish, poultry, vegeta-bles, fruit, etc.). As well, the data sets used inprevious studies do not reflect current marketconditions. The McCracken and Brandt study, forexample, employ data from the 1977-78 Nation-wide Food Consumption Survey. Simply put,scant information is available on demand parame-ters for FA expenditures by type of facility and/ortype of commodity. Research efforts are neces-sary to fill this void through the use of timely,current survey information on household foodexpenditure patterns in the away from home mar-ket. Identifying and measuring the influence offactors affecting away-from-home food consump-tion behavior by type of facility and by type ofcommoditycan lead to improved market planningfor the food distribution sector,

In essence, it is important: (1) to developtheoretical and empirical models of householdexpenditures on FA; (2) to determine factorsaffecting household FA expenditures by type offacility; (3) to determine factors affecting house-hold FA expenditures by type of commodity; and(4) where possible to make comparisons with theextant literature on aggregateFAFH expenditures.

As McCracken and Brandt point out (p.275), “the FA market is most appropriately ana-lyzed within the theoretical context of householdproduction economics” (l%ochaskaand Schrimper;Kinsey; Redman; and McCracken and Brandt).The theoretical framework (household productiontheory) and model specifications found in theliterature suggest the following:

REGION~, POPDENS~, RACE~,

HSh, EMP,, SEX~, PJ,

where EXPih is the FA expenditure for the ithcommodity in the jth facility for the hth house-hold; Y~ corresponds to income of the hth house-hold; W~refers to the opportunity cost of the timeof the household head responsible for food prepa-ration (household manager); ED~ and AG~ referto the education in years and age respectively ofthe household manager; DAY~ is the time of theweek (weekday versus weekend) the food wasconsumed by the household; REG~ONh corre-sponds to geographic region; POPDENS~ corre-sponds to population density; RAC~ refers to therace of the household manager; H% correspondsto household size and composition components;EMph refers to employment status of the house-hold manager; SEX~corresponds to the sex of thehousehold manager; and P~ refers to the set ofmarket prices faced by the hth household.

The next step in research efforts is theprocurement of survey data. The source of datafor such efforts may come, for example, from theNPD Group--CREST (Consumer Reports onEating Share Trends), The CREST data series,collected by the NPD Group since 1976, is gath-ered via a comprehensive and detailed diary inwhich 12,800 U.S. households record their restau-rant visits and purchase of meals, snacks, andbeverages. The household sample is dispersedamong the 48 contiguous United States, targetedagainst the reported geographic and demographicdistribution of the Census Bureau. Householdsare recruited by mail using a stratified randomquota sampling system, the base of which isreplenished quarterly. The composition of thesample is continuously monitored to maintaindemographic and geographic balance with thehousehold estimates of the Census Bureau.

A total of 985 households receive a diaryeach Monday throughout a 13 week period; thefull sample of 12,800 households is reached eachquarter, Each household maintains the diary overa two-week period. The CREST data base is bothdynamic and longitudinal in nature, generatingabout 50,000 raw observations/transactions ofconsumer restaurant behavior every quarter,


The CREST data series tracks over 140different food and beverage items. Major foodsinclude: (1) sandwich items; (2) meats; (3) poul-try (chicken, turkey); (4) fish/shellfish; (5) break-fast dishes; (6) pizza; (7) pasta dishes; (8) Mexi-can dishes; (9) salads; (10) potatoes; (11) bakedgoods; (12) sweets, snack foods; (13) ice treadyogurt; (14) hot drinks; (15) soft drinks; and(16) alcoholic beverages. Type of eating piacesinclude: (1) fast fooddkive in; (2) family type;(3) atmosphere/specialty; (4) cafeteria; (5) coffeeshops; and (6) take out. Information pertains to:(1) expenditures on food and beverage items in theaway-from-home market; (2) demographic infor-mation (e.g., age/sex composition of the house-hold; household size; region (9 census regions);income); (3) date of month purchase was made;(4) meal/snack occasion; and (5) foods eaten.

In short, this research concept relies on arepresentative national sample of approximately13,000 households. This sample is the mostcomprehensive data set available on householdpurchase patterns of food in the away-from-homemarket. The data series is also timely--a keyaspect of research in this area.

The CREST data series will permit theestimation of econometric models to determinefactors affecting household FA expenditures notonly by type of facility but also by type of com-modity. In addition, where possible, to makecomparisons with the extant literature, time-seriesdata on eating and drinkhg place sales, full-menuand limited menu restaurant sales, and eating anddrinking place price indexes are available from theFood Institute on a monthly and quarterly basis.

Nutrition, Health, and Food Safety

Nutrition and Health

A variety of activities and programs are athand to improve, regulate, and change consump-tion patterns of the population, including:(1) direct government intervention programs (foodstamps, school lunch, school breakfast), (2) foodadvertising, food labeling, nutrition education and

research programs, (3) nutrition surveys, and(4) health care programs, Numerous assessmentsof the impacts of these various programs/activitieson the dietary and nutritional status of either anindividual or household have been done (seeCapps and Schmitz for a literature review of thesestudies).

The vast majority (83 %) of consumersrecognize that what they eat may affect theirfuture health, according to a 1990 Gallup survey.Consumers today are interested in, and concernedabout, nutrition in the foods they cmsume. Some96 percent of consumers value nutrition as afactor when shopping for food, according to aFood Marketing Institute (FMI) survey of con-sumer attitudes (Borra). Health and nutritionalinformation available at supermarkets were consid-ered “very or somewhat important” by 84 percentof shoppers.

Concerns about calories, fitness, and healthhave also led consumers to change their eatinghabits. Medical researchers, for example, warnthat consumption of too much red meat may haveled many consumers to cut back on their con-sumption of red meat and to increase their con-sumption of fish and poultry products. Because ofthe emphasis on the reduction of animal fats, thedemand for red meats will likely continue todecline while the demand for poultry and fisheryproducts will continue to increase, barring unfore-seen events.

Some 48 million Americans (25% of alladults) spent a total of $32 billion last year on dietproducts and programs (Food Retailing Review,1991). This trend is expected to increase at anannual rate of 10.6 percent through 1995. Jn theoutlook for food service operations as well as foroperations in the grocery industry, nutrition andhealth concerns will be critical to menu and prod-uct development.

This scenario suggests that there is greatmarket potential for food products with alterednutritional characteristics but with sensory attrib-utes (Le., taste) similar to traditional products

June 92/page 58 Journal of Food DistributionResearch

consumed. Many people want a healthier diet butwithout a fimdamental change in the compositionof their diets. For this reason, consumer demandfor animal product options, such as leaner redmeats, should be substantial (National ResearchCouncil). As well, food manufacturers shouldrespond to this signal by increasing the emphasison nutrition and health issues in their promotionalcampaigns.

Health and nutrition issues are not about tofade away. Almost every new product makessome sort of health or nutritional claim. Recentchanges in domestic food use have given rise toquestions by those involved in food production,processing, and marketing, For example, areconcerns about nutrition and health behind thedecline in dairy consumption and beef consump-tion and behind the rise of poultry and seafoodconsumption?

Designing foods to make them attractive toconsumers is essentially a technological develop-ment. To be fully successful, this developmentmust be guided by information that indicates howthe resulting products will fare in the marketplace.

Yet, relatively little is known about the rolethat nutrition and health information plays indetermining the demand for food. The linkage ofnutritional awareness and food demand has beenaddressed in recent works by Brown and Schraderand Capps and Schmitz who investigate the effectsof cholesterol information on consumption of eggsand meat products, respectively. Additionalefforts in this area are worthwhile.

Research is needed to identify and assessnon-economic variables (e.g., attitudinal variables)that may be important in explaining variations inthe consumption of food products. Also, consum-ers receive information about nutrition and healthfrom several sources: (a) doctors, nurses, otherhealth professionals; nutritionists, dietitians, orhome economists (people source); (b) radio, tele-vision, newspapers, magazines, books, govern-ment health organization publications, food com-pany publications (media source); and (c) food

packages or labels (package source). Research toassess the impacts of the source of nutrition andhealth information on food consumption, ceterisparibus, merits attention. This factor constitutesin essence a measure of the role of influencers onfood consumption behavior. With the exceptionof the work by Ippolito and Mathios, studies toassess the impacts of sources of nutrition informa-tion on food expenditure or consumption patternsare lacking.

In conjunction with the issue of the role ofinfluencers on food consumption behavior, newlabeling proposals are under consideration by thefederal government (Bacon). Few policy changeshave been initiated since 1975 when nutritionallabeling was originally implemented. Research inthe food distribution area can play a pivotal rolein addressing this issue. For instance, it is possi-ble to update the work of Lenahan et al. to:(a) discover the labeling formation most accept-able to the consumer for presenting nutritioninformation; (b) discover the outlet most used bythe consumer for receiving nutrition information;(c) identify the rate of perception, understanding,and use of nutrition information on labels; and(d) determine the nature and importance of nonusebenefits (Padberg) of nutrition information asperceived by consumers.

Food Safety

Consumer concerns about food safety in-clude pesticide and herbicide residues on agricul-tural products; additives and prwervatives used infood processing; antibiotics and hormona used inlivestock feed. The levels of apprehension aboutfood safety are seemingly on the rise (Lane andBruhn). Yet, information currently provided toconsumers is typically lacking in order to assesspotential risks. Proposition 65, the Californiainitiative passed in November 1986 which requireslabeling of food that contains toxic chemicals, ishowever, one example to ameliorate this situation.

The nature of food labels may have beendriven by concerns about food safety of years, butwe generally have done a poor job in representing


food safety information to consumers. At thistime, consumers are unable to translate the pres-ence of a hazardous substance in foods to itsactual risk. To quote Robert J. Scheuplein, Act-ing Director, OffIce of Toxicological Sciences inthe Food and Drug Administration (p. 353), “Oneof the major sources of confusion about the risksfrom environmental and food-borne exposures tocarcinogens comes from a general lack of perspec-tive concerning the magnitudes of the risks fromvarious contributing sources. ”

Policy relating to most hazards hasaddressed abatement. Since the enactment of theDelaney Amendment in the 1950s, the hazard hasbeen eliminated or controlled rather than labeled.The Delaney approach to policy seemed right inthe 1950s partly because we knew of only a fewtoxins and were not able to detect these toxins invery low levels. Today, the list of carcinogens islong, and our growing ability to detect them intrace amounts means that carcinogens are seem-ingly ubiquitous in the environment. There is agrowing consensus that outlawing them is not asatisfactory policy regime. The concept of dealingwith risk in an open way and labeling hazards ishardly developed. We have little precedent.Most policy makers, producers, and food manu-facturers are very uncomfortable with offering orrequiring information about hazards on food prod-ucts. It is almost a taboo.

Cost-benefit assessment, a concept familiarto economists, provides a reasonable way to estab-lish policy. If the benefits of a policy choiceoutweigh the costs, an acceptable basis for inter-vention is provided. Where significant perceivedrisk is involved, however, the cost-benefitapproach to policy making may break down. Forexample, although the use of nuclear energy togenerate electricity and sterilize food is appropri-ate from a cost-benefit perspective, some segmentsof the public are uneasy about it. Because per-ceived risks may vary dramatically across individ-uals, the cost-benefit approach to policy making,although necessary, is not suftlcient. Where riskis ubiquitous, it is not surprising that policy set atthe top by scientists and bureaucrats, which aver-

ages across potentially vastly different individualpreferences, tlequently proves unsatisfactory.Aggregate cost-aggregate benefit assessment there-fore may not bean effective instrument in dealingwith these differences in individual preferences.

The Post-Delaney policy approach to foodsafety must relate to both cost-benefit and riskassessments. We do not have a well articulated,extensively tested and revised set of values ormoral/ethical imperatives for dealing with risk.With so little information, it will be difllcult todevelop policy concerning risk which serveseveryone’s needs. Again to quote Robert J.Scheuplein (p. 351), “It is diftlcult to reassure thepublic about risks that concern them even whenthose risks are small, particularly where reassur-ance is taken to be a substitute for regulation. ”

Perhaps a more constructive approachwould be to design options for choice and partici-pation, Analyses of perception and response torisk indicate that consumers are comfortable withhigher risk levels if choice and participation (voli-tion) are a part of the process. As much as 100or 1000 times as much risk is acceptable, if achoice process is involved (Litai; Rowe; Slovic etal.; Starr; Rasmussen).

We need better information on the identityof carcinogenic substances in food, the amountspresent in food and finally this information unitedwith patterns of food consumption. Informationon risks from food additives and chemical contam-ination reported by the news media have beenfound to affect food demand (Brown; Johnson;Shulstad and Stoevener; Smith et al.; Swartz andStrand; van Ravenswaay and Hoehn). The waywe currently relate to food safety is inadequate.Consumer information about carcinogens--the areaof greatest consumer anxiety--is particularlypoorly handled. It is possible to translate infor-mation available to the science community to aform which is accessible and understandable toconsumers. Policy arrangements are needed inwhich both consumers and industry can participatein hazard management. Alternative labeling sys-tems will be a major undertaking, but it may be

June 92/page 60 Journal of Food Distribution Research

very useful to beleaguered consumers and the foodindustry (Harris, Padberg, and Capps).

Value Added in Food ProcessingAnd Distribution

Value added represents the creation ofwealth distributed to continuing factors of produc-tion including capital, management, and labor.This perspective of value added allows the mea-surement of relative contributions of each of theparts of the food and fiber system to providingfinal products to consumers. In particular, thecontribution of labor as a component of valueadded provides the link to the generation ofemployment opportunities and, consequently,either in direct or indirect fashion, taxableincome. The contribution of capital provides thelink to the development and adoption of technol-ogy in production, processing, and marketing.

Attention was directed to the issue of valueadded at a 1987 symposium sponsored by theAmerican Agricultural Economics Association andat a 1987 conference sponsored by the Food Dis-tribution Research Society. Many states havebecome increasingly interested in developingvalue-added industries in the agricultural arena asa means of fostering economic development. Theindustries of primary concern are those engaged inthe processing and distribution of food and fiberproducts. From 1967 to 1985, in real terms,value added in food manufacturing grew almost 40percent, roughly one and a half times that of allmanufacturing industries collectively. Valueadded per dollar of shipments in food manufactur-ing ranged from 29.OC to 34.5Q over the period1967 to 1985, Almost uniformly, a salient growthin value added per employee in terms of 1967dollars was evident for all categories. Valueadded per employee in food manufacturing rosefrom roughly $16,000 in 1967 to slightly morethan $26,000 in 1985 in real terms (1967 dollars)(Capps, Fuller, and Nichols).

The bulk of the food dollar in 1989 (76Q)paid for the marketing costs involved int he pro-cessing transportation, wholesaling, and retailing

of food (Figure 2). The farmer’s share of thefood dollar in 1989 was 24C, down from around40C in 1950. There are differences, however, inwhat the FH and the FA food dollar pays for. Inthe FA market in 1989, 60c of the food dollarwas attributable to food service, the preparationand serving of meals and snacks with the farmer’sshare amounting to only 16Q. In the FH market,the marketing bill was responsible for 70c of thefood dollar in 1989, but the farmer’s share was30C.

Research is needed to implement empiricalmodels to evaluate alternative value-added scenar-ios, including mathematical programming, input-output, and simulation models. In agreement withFerris, solutions to the mathematical programmingmodels could be used as standards by which tojudge alternative value-added opportunities. How-ever, because the food processing and distributionsector is characterized by many outputs and manyinputs (see Heien for a complete set of cost andrevenue accounts), it may be almost impossible toretrieve relevant data to support the analysis inparticular cases.

The Leontief input-output (I-O) systemprovides another useful tool to evaluate the eco-nomic impacts of alternative value-added enter-prises. The I-O technique has advantages overpartial industry models and over aggregate macro-models in terms of comprehensiveness of theapproach and the detail of information provided.The interdependence of economic activities isstressed via the transactions table. The sectors areusually broad industrial groupings but couldinclude specific food and fiber groupings as grainmilling, meat processing, or cotton milling. Theanalysis allows for the construction of multiplierswhich measure associated changes in output,income, and employment. Importantly, the use ofthe I-O technique is conditional upon the availabil-ity of the transactions table, with the level ofdetail necessary for the problem at hand. How-ever, problems may occur in updating the trans-actions table to capture structural changes in foodand fiber processing and distribution.

Journal of Food Distribution Research June 92/page 61

.—.—

r~gure 2

Food at Home

Where the Food Dollar Goes

Farm value30%

Farm Value24%

June 92/page 62

Labor

Fuel :,~%ergy

~,, .ther~ ‘ra”yp:’y’n15.5% Packag Ing

8.5 %

tetlon

~ ““’%””’Retelling

23%

Food Service

Source: USDA

Advert Ising4.5%

predation4.5%

Food AwayFrom Home

Treneportatlon3%

Vholessling6%

Farm Value16%

15%

Journal of Food Distribution Research

Archibald, McCalla, and McCorkle arguethat the food-processing industry has ties to farmand consumer sectors, nonagricultural industries,international markets, and micro- and macropolic-iea. To capture the various interactions and toevaluate alternative value-added activities for aregion or state, it may be fruitful to specify a setof structural (econometric) relationships in lieu ofinput-output models or mathematical programmingmodels.

At a minimum, the construction and appli-cation of such multi-equation models permits thefocus on retail-to-farm linkages (farm production,food processing, and food consumption) in aspecific region or state. To illustrate, Dum andHeien consider demand interrelationships amongfive retail outputs and corresponding farm outputsas well as four processing and distribution inputsfor the United States.

Although simulation models require histori-cal time-series observations on a number of vari-ables, the models are useful in the determinationof dynamic responses (impact, interim, and total-long run-multipliers) of the regional or state econ-omy due to changes in particular variates. Simu-lation models allow normative experiments to

forecast the effects of alternative value-addedopportunities based on structural econometricmodels. The use of simulation models is, how-ever, subject to data availability at disaggregatelevels (both state level and commodity level).

Creation of value-added opportunities servesdual purposes to improve the competitive positionof agribusiness in individual states or regions andto contribute directly to the economic health ofstatea or regions. However, the assessment ofopportunities in food and fiber processing anddistribution is not a trivial task. Aspects of loca-tion analysis are inherently involved in the consid-eration of value-added activities. Several factorswarrant consideration, namely, resource availabil-ity; markets (consumer and industrial, domesticand foreign); availability of processing, handling,and related technologies; and institutional (legal,organizational, and regulatory) or policy con-

straints, Attention directed toward these factorswill lay the basis for appropriate private andpublic actions. Through coordinated action,opportunities may become reality.

We, as research analysts are in position toexamine market potential and marketing strategies,underlying comparative advantages, and distribu-tion channels; to conduct feasibility studies todemonstrate profitability; and to conduct benefit/cost analysea of alternative value-added oppor-tunities. We also are in position to analyze keypolicy issues as well as the distribution of welfaregains and losses from the consumer level, theprocessing level, and the farm level. Theseefforts will assist those developing an agenda thatmaximizes returns to investments for value-addedactivities in food and fiber processing and distri-bution.

Structure of the Food Dhtribution Sector

In the 1980s, the food system was charac-terized by increasea in leveraged buyouts, merg-ers, and aggregate concentration. Between 1982and 1988, nearly 3,400 mergers, divestitures, orleveraged buyouts took place in the food market-ing system. Of those 3,400 transactions, about2,000 were in food processing; 400 were in foodwholesaling; and food retailing and food serviceeach had nearly 500 (Food Marketing Rew”ew).The four largest leveraged buyouts in history wereall in the food marketing system. These transac-tions included the nearly $25 billion buyout ofRJR Nabisco, Inc. by Kohlberg, Kravis, Robertsand Company @KR); the $6.2$ billion buyout ofBeatrice Companies, Inc. by KKR; the $5.34billion buyout of Safeway Stores, Inc. by KKR;and the $4.00 billion buyout of Southland Corpo-ration by the Thompson Company. In the foodprocessing sector, Philip Morris Companiea, Inc.merged with Kraft, Inc. at a cost of roughly $13billion. The most notable merger in food whole-saling was the acquisition of Malone and Hyde,Inc. by Fleming Companies, Inc.

Aggregate concentration rose in food pro-cessing, wholesaling, and food service largely

Journal of Food Distribution Research June 92/page 63

because of merger and acquisition transactions inthe latter part of the 1980s. Of the 49 food pro-cessing firms in the United States in 1989, the topthree firms accounted for almost 15 percent ofindustry shipments and the top ten firms accountedfor roughly 30 percent of industry shipments. Ofthe 25,000 food wholesaling firms, the top fourhad combined market shares of 26 percent in1989. About 15 percent of the firms owned 88percent of all assets. Despite unprecedented levelsof mergers, acquisitions, and financial restmctur-ing, only modest changes in the sales shares of thelargest 4, 8, and 20 grocery story retailers wereevident during the 1980s. The combined sharesof the 4, 8, and 20 largest firms accounted for15.8, 24.5, and 35.8 percent of all U.S. grocerystore sales in 1988. The number of grocery storesover the period 1939 to 1989 has dropped mono-tonically from 387,000 (1939) to about 161,000(1989). In 1989, the number of supermarkets was23,000, the number of convenience stores was55,000, and the number of superettes was 83,600.Finally, the nation’s 4 and 50 largest firms heldmarket shares of 11 and 27 percent in 1987according to the Census of Retail Trade.

From a research standpoint, despite the

increases in aggregate concentration, the effect on

consumers, farmers, and the food marketing

system is unclear. The relevant market focus formost firms is local or regional, so national marketconcentration data do not necessarily provide veryuseful information on market power in specificgeographic subsectors. Research is needed todetermine the effect of concentration in the foodmarketing system on profits, consumer expendi-tures, prices received by farmers, capital expendi-tures, productivity, and research and development.In this light, perhaps empirical applications ofgame theoretic models may pay dividends in thisregard. An excellent illustration is given byAzzam and Pagoulatos in testing for oligopolisticand oligopolistic behavior in the U.S. meat-pack-ing industry. The overwhelming limitation ofsuch empirical analyses, however, is the lack ofdata available to researchers.

Concluding Remarks

Key research issues pertinent to the fooddistribution industry include food away fromhome; nutrition, health, and food safety; valueadded in food processing and distribution; andstructure of the food marketing system, Analysesof these issues will benefit all segments of thefood distribution sector.

The issues discussed in this paper, however,are certainly not exhaustive. For example, thefood marketing system introduced 12,000 newgrocery products in 1989 alone, and 62,000 newproducts since 1983. Given that non-price compe-tition has traditionally been the mainstay of thefood system, new products have played a vitalrole in the competitive nature and dynamics of thegrocery industry. Research is needed to examinesupermarket buyer decisions or reactions to newproducts (McLaughlin and Rae). Grocery productmarketers currently are forced to make resourceallocation decisions with little information regard-ing the probabilities of outcomes. With attentiondirected to this issue, food manufacturers maymake improved decisions regarding the allocationof new product development resources.

Yet another area of research is information-scanning technology. Although electronic scan-ning technology has been established since 1972,applications of the information byproduct fromscanning are in the embryonic stage of develop-ment. New applications include:

(1) Electronic shelf labeling;(2) Computer-assisted inventory reordering;(3) Direct store delivery management;(4) Checkout operations monitoring;(5) Self-service checkouts;(6) Shelf-space allocation; and(7) Merchandise evaluation.

A number of supermarket retailers are a9sodevel-oping databases consisting of scanner-generatedsales data combined with demographic characteris-tics of individual customers. The d~tabases hnvepromise for improving marketing and merchandis-

June 921page 64 Journal of Food Distribution Resmrd

ing programs that focus on individual consumersor households (FoodMarketingReview).

Several notable research topics in fooddistribution are evident. As attention is directedto these topics, we expect to see increases in thesystem-wide efllciency of the food marketingsystem which may ultimately translate intoincreases in profits for food manufacturers anddistributors and/or lower food prices for consum-ers.

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