Consumer Preferences for Coffee: Hot and Wet, or Quality and Flavor?

ABSTRACT

An econometric model is developed and estimated for all brands of coffee sold at the retail level in four supermarkets in Columbus, Ohio. These brands are segmented into 24 categories, and the four stores are classified into two groups, inner-city and suburban, based on 2010 census tract data. Using estimated measures of price-sensitivity, these 24 categories are further segmented into four groups to help guide and clarify the discussion. Estimated results show different purchasing patterns and different levels of price-sensitivity for inner-city and suburban shoppers. Further, these purchasing patterns and levels of price-sensitivity suggest alternative marketing strategies for retailers. Private-label coffee brands are shown to be quite competitive with many national brands, and indeed private-label brands command a market share among inner-city shoppers that is more than double that for the nation (21.95% vs. 9%).

KEYWORDS:

• own-price elasticity
• cross-price elasticity
• expenditure elasticity
• temporary price reductions
• coffee
• national brands
• private-label brands

Notes

¹ Identity of retailer cannot be revealed because of a confidential agreement.

² Cranfield et al. (2010) noted that blends account for the majority of coffee products in supermarkets.

³ All results not shown in Table 6 can be found in Appendices A and B.

⁴ Note that the first number in parentheses is for inner-city shoppers, and it is taken from column 6 of Table 7.