Store Format Choice in Organic Food Consumption

Abstract

In recent years, organic food has emerged as an important segment in food retailing. The potential for sale expansion supported by the rapidly growing demand and positive image of organics has prompted U.S. food retailers to campaign around this relatively small segment, which represents less than 4% of total food expenses (specifically, 0.97% in 1997 rising to 3.59% in 2009, Organic Trade Association 2009). The retail giant Wal-Mart launched a “going green and organic” campaign to greatly increase the availability of organic products with a goal of low prices starting the summer of 2006.1 Conventional food retailers, including traditional supermarkets and newly established value-oriented retail chains, have increased their organic market share from 33% in 1995 to 47% in 2005. Facing competition and losing market share, the retail giants at the opposite end, Whole Foods Market and Wild Oats Market, merged in 2007 with a plan to obtain greater efficiencies and possibly market power from an expanded retail footprint. In the present paper, we investigate empirically three issues on the linkages between organic food and store format choice (SFC). First, we evaluate the impacts of consumer preference heterogeneity in appreciation for organic products on SFC. Second, we investigate whether the increased availability of