Income and Wealth Effects on Consumer Packaged Goods Purchases
49 Pages Posted: 7 Jan 2020 Last revised: 3 Mar 2020
Date Written: December 16, 2019
When economic cycles cause changes in household income and wealth, consumers change their budget allocations across store formats, product categories, and brands. Using Nielsen Homescan data for the years 2004 to 2014, we investigate the impact of income and wealth changes on households' budget allocations to (i) alternative store formats; (ii) food and non-food categories; and (iii) private labels and national brands. Since budgets can be reallocated across formats, categories and brands simultaneously, we measure the causal effects on the "joint'' (e.g., grocery store - food - national brand budget shares) budget allocations of households. This allows us to decompose income and wealth effects on the "marginal'' (e.g., grocery store) shares, which previous literature has focused on, into those on its joint components (e.g., grocery - food - national brand, grocery - food - private label, etc.). This joint analysis reveals situations in which managers of a specific brand-type in a particular store format may be misled by relying on the marginal (instead of joint) effects of income and wealth changes. For example, the wealth effect on the joint warehouse club-food-private label share is positive whereas the wealth effect on private labels overall, is negative.
Keywords: Income and wealth effects; business cycles and consumer expenditures; store, category and brand expenditure shares; consumer packaged goods
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