Ag Marketing Test 2
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What is the doctrine of consumer sovereignty?
- The ultimate task of the food marketing system is to deliver the food utilities that consumers desire
- match right form of a product at the right place and time to a particular buyer
Food consumption patterns are influenced by what three things?
- Physiological needs
- Social conditions
- Economic factors
- the way each society develops common patterns of dealing with food
- govern how food is acquired, prepared and eaten
What are the four behavioral characteristics of foodways most relevant to marketers?
- 1. No two societies have identical foodways
- 2. Standardized foodways result in similar and stable food preferences and eating paterns within a society
- 3. Foodways defining "how to eat" add social significance to the diet and are taught to succeeding generations
- 4. Foodways adapt to socioeconomic changes such as urbanization, education, income, technology and changing lifestyles
One influence on American foodways is the functional, physiological values of foods. In other words...
The nutritional contributions to health and survival
One influence on American foodways is the sociopsychological values of foods. In other words -
Status, religion, aesthetics and lifestyles
Name three influences on American foodways
- economic values of foods
- availability of foods
- consumers knowledge and information about foods
- physiological values of foods
- sociopsychological values of foods
The modern food consumer purchases a bundle of attributes. What does that include
- Farm products, but also time, form space and possesion utilities
- even the store where the food is purchased is considered part of the product bundle
Between 1930 and 1999, total food spending and per capita food expenditures rose significantly. What declined during that same time period?
- Share of consumers income spent on food, from 24 percent to 10 percent
- That's because income increased even more than food expenditures
What three things contribute to the rise in consumer food expenditures?
- 1. increased population and quantities of food eaten
- 2. rising food prices
- 3. consumer preferences for more expensive foods and marketing services
From 1970 to 1994, food expenditures grew less than one half of one percent per year. They've held steady since 94. What are some ways that influences the food system?
- limits profit prospects for farmers and food marketing firms
- intensifies competition among commodities and firms
- encourages food firms to diversify into more rapidly growing products
- provides an incentive for food firms to attempt to increase their sales overseas
- the study of populations
- how many people, where they live, how they live
Give an example of a food system product that was created because of population migration patterns
the supermarket (it's a suburban product)
Why does the geographic distribution of the population influence the efficiency of food marketing?
It's usally more economical to service highly concentrated populations than scattered consumers
As the number of children in a family increases, what tends to happen to food spending per capita and what is this an example of?
- food spending per capita decreases, it's an example of economies of scale
- smaller families typically spend more per capita for food, eat away from home more often and purchase more food marketing services than larger families
Historically, what were the two major sources of growth in food consumption?
Population and income growth
What does effective food demand consist of?
Needs, along with the ability and willingness to satisfy those needs with income
The responsiveness of food consumption to an increase in income
- quantity rises with income
- livestock goods
- quantity falls as income rises
- Ramen noodles
How does the income elasticity of food compare to other consumer goods?
- It's generally lower
- income elasticity of farm products are generally lower than the income elasticity of the utilities added in the marketing process
Whic grows faster, the demand for food marketing services or the demand for farm products?
Food marketing services
food expenditures do not normally increase as rapidly as income, so the ratio of food spending to income falls with rising income
What are some consequences of rising income?
- consumers don't buy more pounds of food, they upgrade
- consumers share of income spent on food declines
- broadened product bundle of attributes most valued by consumers (quality, variety, convenience, service)
- increase the value of consumers' time and expand the demand for convenience foods with built-in maid service
a product that reduces the amount of time, effort or additional ingredients required of the consumers in preparing food
What percentage of all farm commodities are marketed in fresh or low-convenience forms?
- About 40 percent
- these are things like fresh meats, produce, milk, eggs
What percentage of grain products are processed?
- More than 90 percent
- less than 40 percent of milk, fruits and vegetables are processed
- foods which are believed to provide medical or health benefits, beyond the general health benefits of any foods
- sometimes called farmaceuticals
- vitamin-fortified, low-fat, diet, low-cholesterol
What are some responses of the food marketing industry towards healthy eating trends
- adding vitamins
- altering products - low-fat, low-cholesterol, low-sodium, sugar-free, leaner meats
- changed ingredients - turkey dogs
- organic food production
What marketing problems can arise from a new food category (like functional foods)?
- Consumers need to be educated about the product and benefits
- New quality standards may be needed
- Consumer deception and fraud are possibilities
Food eaten away from home accounted for what percentage of food expenditures in 1999?
- 48 percent
- increased income, working spouses and changed lifestyles all contributed to the rise in away from home demand
Food service sector includes
- school, factor and hospital cafeterias
- hotel and motel eating places
- government foodservice operations and military feeding establishments
How does the away from home food market differ from the home food market?
- Prices tend to be more stable and there is a higher ratio of marketing-services-to-food in the foodservice industry
- Restaurants, 45-65 percent of consumers prices represent nonfood costs of service and profits
- Supermarkets, about 80 percent of prices represent food costs
the low-income elasticity of demand for farm products means that a 10 percent increase in food benefits will result in what percentage increase in food spending?
About 2 percent
What represents the final stages of the food marketing channel?
food wholesaling and retailing
The task of food wholesalers and retailers?
Provide consumers with the right foods, at the right time and at the right place, at a profit
Because of their close contact with consumers, food wholesaling and rtailing firms are prime examples of what?
How marketing agencies change in response to new demands and competitive conditions
Where are wholesale assembly markets generally located?
- food production areas
- they assemble large lots of product from diverse producers and prep the products for shipment on to processors or wholesalers (located in cities)
What percentage of the consumers food bill does food wholesaling account for?
About 10 percent
These firms specialize in adding spatial and possession utility to food products
- Food wholesalers
- Market success is largely determined by how efficiently they provide products and services to their suppliers and retail customers
What is the job of the food wholesaler?
To efficiently assemble various products in reasonable quantities from the shipping point firms and processors and sell themin smaller quantities to retailers
- buy, sell and store grocery products and perform numerous marketing functions
- about 75 percent of food wholesalers are merchant - they account for 69 percent of wholesale food sales
Types of services merchant wholesalers provide to their retail clients?
inventory control, pricing, financial management and analysis, merchandising and advertising support, private brand label programs, credit and financing of new stores and store site selection
How did wholesalers respond to the retail chain operators setting up their own warehousing facilities and buying directly from producers, shipping points and processors?
- Independent wholesalers aligned with independent retailers (voluntary or cooperative groups)
- many responded by concentrating sales efforts on restaurant and institutional foodservice operations
do not sell to foodstores but specialize in supplying products and services to restaurants, fast-food outlets, airlines and foodservice institutions
wholesale buying clubs
- retailers today, but they orginally sold in large lots to other businesses
- require membership, sell in multipacks or large containers
Manufacturers sales branches and sales offices
- extensions of food processing firms' marketing activities to the wholesale level
- owned and operated by the food manufacturers, they perform the storage, selling, transport and intelligence marketing functions
wholesale agents and brokers
- perform a wide variety of sales-related marketing activities for their clients
- they handle a number of noncompetitive lines and increasingly provide more merchandising services for their clients
- smaller food manufacturers usually use these
The number of food wholesalers has been stable in recent times, but something's changed significantly. What is it?
- Average size is increasing.
- Emphasizes the importance of volume for efficient wholesaling
- Lots of mergers in the 1980s
The increased size of food wholesalers have increased concentration in national and local wholesale markets. What does this mean in terms of wholesale food sales?
It's doubled between 1977 and 1992 (22 percent to 44 percent)
what type of food marketing firm has seen greater increases in profits (compared to other types of firms)?
- food wholesalers
- computerization, mechanization, electronic ordering and billing and stable energy and labor costs are all contributors to rising productivity, lower costs and generally satisfactory profits in food wholesaling
T/F Wholesaling is experiencing a globalization of trade
- There are Dutch, Canadian, German and Japanese food wholesalers operating in the US
- The US is investing in Canada, Mexico and Latin America
The largest retail sector of the US economy
- food retailing
- it's the most expensive segment of the food marketing system
- food expenditures account for about 1/4 of total retail sales
T/F Food retailing firms employ about 20 percent of all workers in the food marketing system
- they employ more than 80 percent
where does the retailer fall on the food marketing chain?
on the end - they directly service the final customer
How many items can a modern supermarket offer?
More than 18,000
How do food retailers furnish information to customers about prices and qualities of goods available?
advertising and point of purchase material
What are the two food retailing sectors?
- Foodstore (supermarkets, superettes, convenience stores, specialized foodstores)
- Foodservice sales (commercial, such as fast food, restaurants, cafeterias, caterers and noncommercial, such as education, hospitals, day care)
A grocery chain is generally defined as having how many stores?
- 11 or more related grocery stores
- don't need to be supermarkets
How are supermarkets defined?
- best defined as full-line, departmentalized, cash and carry, self-service foodstore
- $2 to $3 million in annual sales (1980s $) and 10 to 40,000 square feet of space
- emphasizes self-serice and features dairy, meat, produce and dry grocery departments
- supermarkets accounted for 72 percent of total grocery store sales in 1996
T/F In recent years, foodservice sales have grown twice as fast as foodstore sales
- fast-food firms have experienced the most dramatic growth
The modern chainstore operation has a horizontal affiliation of retail stores but also a vertical affiliation. What would fall under the vertical affiliations?
- food retailing, wholesaling and often processing activities
- chainstores grew out of a quest for operational efficiences through large-scale buying and selling (as well as a drive for competitive market advantage among food retailers)
When did chainstores really start to experience growth?
The 1920s - by 1929ish, many chains peaked, number of stores-wise
What two foodstore trends were developed as an effort to secure low-price benefits of the corporate chain's buying and selling power (while retaining any advantages from owner-operation of independent stores)?
- retailer-owned cooperative wholesalers
- wholesaler-sponsored voluntary retail chains
- national and regional grocery wholesaling and retailing operations that are centrally managed
- A&P, Kroger, American Stores, Winn-Dixie, Safeway
Affiliated independent chainstores
- independently owned grocery stores affiliated with food wholesaling operations
- SuperValu Red Owl IGA
Independent, unaffiliated foodstores
not related in any formal way to a wholesaling operation
The chainstore was economy-minded. What drove the supermarket movement?
market-oriented and consumer-driven
what socioeconomic changes in the 1940s and 1950s helped spur the evolution of the supermarket?
- shopping centers
- rising consumer incomes
- greater mobility thanks to cars
- home freezer facilities
- mass-media advertising
- increase in new product development
foodstores and drugstores under one roof
- range up to 60,000 square feet, handle a wide range of general merchandise
- service departments such as bakeries, delicatessans, cheese shops
- emphasize low prices
limited assortment store
smaller foodstore, handling only about 500 nonperishable grocery products at deep price discounts
- eliminate services and frills and make a strong low-price appeal
- products often displayed in their shipping cartons
- shoppers may mark their own prices, bag their own purchases and even supply their own grocery bags
super warehouse store ranging up to 200,000 square feet and providing one-stope purchases of groceries, sporting goods, auto supplies, housewares
- customers are members
- deep discounts on large volume purchases
premium-quality, exotic foods and brands
small, neighborhood foodstore featuring long hours, quick service and a narrow assortment of fast-moving staple and impulse items
retail gross margin
- difference between what retailers pay for food and what they sell it for
- the "cost" of performing the food retail marketing functions
- includes operating costs and net profits
the cyclical trend in food retail gross margins follows what familiar pattern?
- the wheel of retailing
- retailers alternate between an emphasis on low service/low prices and high service/high prices in attracting customers
the wheel of retailing
retailers alternate between an emphasis on low-service/low-prices and high-service/high-prices
why are food retail pricing and merchandising practices of special concern to farmers and consumers?
through pricing and promotional policies, food retailers can influence consumer demand, farm prices and the movement of farm products
why wouldn't retail foodstore prices be primarily influenced by farm prices?
- retail food prices are a form of promotion
- food retailers are multiproduct sellers with discretion on how they price each item and they set prices to differentiate their stores from those of competitors
- they're influenced more by consumer demand and competitive objectives of grocers
Market basket pricing
- each food product is priced as a component of a total mix of foods (and nonfoods) offered by the store
- this gives the retailer considerable latitude in pricing any one food
variable price merchandising
- retailers use temporary, selective price cuts to differentiate their stores and attract customers
- loss leader and weekend specials
- another retail pricing strategy that reduce dependence of retail prices on farm or wholesale prices
everyday low pricing
a strategy of many newer foodstores such as warehouse clubs, discount stores and superstores
Two criteria of pricing efficiency are that selling prices are related to purchase prices and farm and retail prices should move together to coordinate food supplies and demand. How can everyday low pricing affect that?
it may place downward price pressures on all suppliers in the food chain, from wholesalers to farmers
why are food retailers referred to as the gatekeepers and channel captains of the food industry?
- size, power and strategic position
- they're making many of the major market decisions about quantity, quality and services provided by the entire food industry
How do foodservice firms differentiate themselves?
menus, store design
what competitive strategies do foodservice companies use?
- convenient locations
- quality of food and presentation
- menu specialization or diversity
- differentiated image
- promotions - games, coupons
- drive through windows
T/F The U.S. is the world's largest exporter of agricultural commodities. It's also a major food importer.
What is one test of whether America should be an exporter or an importer of a commodity?
- The ability to comptet in world markets
- competition in world markets stimulates American farmers to increase their efficiency and output
Balance of trade
- the difference between the value of exports and imports
- it's a measure of the country's ability to pay for its imports with exports and can influence the value of the dollar in world markets
In the 1970s, the U.S. nonagricultural and total balance of trade turned negative How does agricultural fit into this?
- The U.S. has an agricultural trade surplus, which helps to offset the total trade deficit to some extent.
- The ag surplus averaged $19 billion in the 1990-1999 period.
What is the incentive for specialization and trade?
- It lies in the economies of producing commodities that are (relatively speaking) best suited to a country's resource endowment
- resources include land, labor, climate, management skills and other factors affecting the cost of production
how does trade improve the efficiency of resource use throughout the world?
by encouraging the shift of resources to their most efficient uses
principle of comparative advantage
there are economic gains when, under free trade, nations produce and export those commodities that they can produce relatively most efficiently by virtue of their resource endowment and import those commodities that other nations can produce more efficiently
trading comparative advantage products for comparative disadvantage products
high value export products
- they have a smaller share of natural resource cost and a larger share of marketing costs in their final value than traditional crops.
- unprocessed foods (eggs, fresh fruits, veg, nuts); semi-processed foods (meat, flours, oils) and processed foods (processed meat, dairy, bakery products and prepared foods)
low value per unit
bulk commodities - grain, oilseeds
- these are imports that aren't directly competitive with domestic production
- bananas, cocoa beans, tea, coffee, spices
- compete directly with domestically produced food products and are increasing relative to complementary ag products
- meat products, furits and veg, wool, dairy products, oilseed products
Largest exporters to the US
Canada and Mexico
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