Consumer and Strategic Firm Response to Nutrition Shelf Labels

Abstract

The display of nutrition facts is mandatory on virtually all packaged foods sold in the United States. Yet manufacturers and retailers add their own claims to differentiate their products and capture consumers' attention at point of sale. We implement experimental nutrition claims on shelf labels in a retail setting and test how consumers react to the display of these labels that express information reported on the Nutrition Facts Panel in a different format. We hypothesize that our labels either shift demand for the highlighted healthier products uniformly or trigger more complex demand rotations. Our estimated heterogeneous labeling effects suggest that consumers process nutrition information differently depending on which and how many claims are displayed and prefer products labeled with a single claim overall. When we simultaneously consider demand and supply responses under three price setting behaviors (competitive pricing, Bertrand‐Nash pricing, and monopoly pricing), we find that consumer surplus and overall welfare is highest when our labels display multiple nutrient claims and retailers are able to adjust prices across the entire product category. Firms' profits are highest when single nutrient claims are displayed, however. We conclude that firms with market power have little incentive to voluntarily display nutrition claims that maximize welfare.

Intended and unintended consequences of salient nutrition labels

“…We further show that suppliers are not price takers and respond to the information disclosure in predictable ways. Results from our estimations are consistent with the simulations presented by Allais, Etilé, and Lecocq (2015), Villas-Boas et al (2020), andVillas-Boas, Bonnet, andHilger (2021). Although we cannot determine whether the price changes are from the retailer or the food manufacturer, 8 we show that 42% of the direct effect of the NuVal score change is offset by price responses.…”

“…They did not look at price effects but found that firms responded to the NLEA by reducing the nutritional quality of their products. Allais, Etilé, and Lecocq (2015) and Villas-Boas et al (2020) simulated firm responses to effective labeling policies and in both cases show that firms raised (lowered) prices on healthier (less healthy) products, thus offsetting some of the positive effects of the information. Finally, although not a study of nutrition labels, Villas-Boas, Bonnet, and Hilger ( 2021) estimated a structural model of retail wine demand using data from the field experiment conducted by Hilger, Rafert, and Villas-Boas (2011) on the influence of wine quality labels.…”

Are multiple labels on food products beneficial or simply ignored?

“…However, it is unclear how consumers value combinations of certain claims and whether they are helpful in the decision process or simply ignored. For example, Villas-Boas, Kiesel, Berning, Chouinard, and McCluskey (2020) examined consumer preferences for shelf labels highlighting caloric and fat-related attributes of popcorn, used either alone or in combination. They found that consumers preferred single attribute claims over multiple claims.…”

Personal and Psychological Traits Influencing the Willingness to Pay for Food with Nutritional Claims: A Comparison between Vice and Virtue Food Products

“…In this regard, contrary to its main purpose, NCs appear to act as a marketing strategy that provides more benefits to manufacturers and retailers than to the health of consumers. This argument is supported by Villas-Boas et al [71], who showed that while product manufacturers increase their profits when they display only one nutritional claim in their reformulated food products, consumers do not always benefit.…”