Abstract
<p>This paper estimates substitution in consumer demand for coffee product categories in Japan using the linear approximate quadratic almost ideal demand system model (LA/QUAIDS). Three expenditure shares and demand equations for coffee beans and powder (beans/powder), canned and bottled coffee (canned/bottled) and coffee drunk at coffee shops (coffee shops) are estimated for two or more person households in forty-nine cities for the period January 2000 through February 2015. The expenditure elasticity estimates indicate that coffee shops are luxury goods while beans/powder and canned/bottled coffee are necessities in the Japanese household. The demographic effects show that persons over the age of 65 and people who earn more consume coffee at coffee shops. Moreover, seasonal effects show demand for canned and bottled coffee as mostly positive while it is mostly negative for coffee drunk at coffee shops in most of the months. The findings of this study indicate that coffee product categories in the Japanese market are substitutes for one another, which is consistent with the reality of coffee consumption in Japan.<strong></strong></p>
Highlights
Coffee is one of the most demanded agricultural commodities in the world, with a worlwide market share of $84.5 billion (Euromonitor, 2014)
This study applying the LA/quadratic almost ideal demand system (QUAIDS) model analyzed substitution among three coffee product categories in Japan using monthly data obtained from Family Income and Expenditure Survey (FIES)
As for the compensated cross-price elasticity, it reveals that all coffee product categories: beans/powder, canned/bottled and coffee shops are substitutes for one another, which is consistent with reality of coffee demand in Japan
Summary
Coffee is one of the most demanded agricultural commodities in the world, with a worlwide market share of $84.5 billion (Euromonitor, 2014). Only few of these studies have analyzed substitution among various coffee product categories. These studies used different estimation techniques and data sets. As a popular demand commodity in the Japanese market, understanding the substitution pattern among coffee product categories is significant for coffee beverage manufacturers. Canned and bottled coffee (canned/bottled) is a ready-to-drink roasted coffee beverages packaged in plastic bottles and canned as hot or cold beverages They are usually consumed from vending machine or at convenience store. We incorporate expenditure and prices for the three coffee product categories in a comprehensive demand system model taking into account the effects of demographic and temperature by evaluating the monthly data by city.
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