Effects of Income Distribution Changes on Assortment Size in the Mainstream Grocery Channel

Abstract

The authors study the effect of changes in the U.S. income distribution on assortment size in the mainstream grocery channel. Census demographics for 1,711 counties are matched to local assortment data from Nielsen in 944 grocery product categories from 2007 to 2013. The authors show that – holding other demographics constant – assortment size increases with higher average income but decreases with greater income dispersion. This pattern holds for several specifications of assortment at the local level: the number of category UPCs, the number of brands, the number of products per brand, as well as both horizontal and vertical dimensions of assortment. The results suggest that increased income dispersion (holding other factors constant) reduces both horizontal and vertical differentiation. The effect sizes are similar for private labels and branded products, but large brands lose proportionally more UPCs than small brands when income dispersion rises. Potential mechanisms underlying the results are also explored, with evidence that a hollowing out of the middle class along with Engel’s law of expenditure explain a significant portion of this effect. The findings also offer insights for CPG manufacturers that might help them allocate resources to expand shelf presence or defend current positions.

Keywords: Income Distribution, Census Data, Consumer Packaged Goods, Retailing, Assortment Decisions

JEL Classification: D31, M3, L81, L11