The Infant Formula Market: Consequences of a Change in the WIC Contract Brand

44 Pages Posted: 24 Jul 2012  

Victor Oliveira

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS)

Elizabeth Frazao

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS)

David M. Smallwood

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS)

Date Written: August 1, 2011

Abstract

The Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) is the major purchaser of infant formula in the United States. To reduce cost to the WIC program, each State awards a sole-source contract to a formula manufacturer to provide its product to WIC participants in the State. As part of the contract, the WIC State agency receives rebates from the manufacturers. In this study, we use 2004-09 Nielsen scanner-based retail sales data from over 7,000 stores in 30 States to examine the effect of winning a WIC sole-source contract on infant formula manufacturers’ market share in supermarkets. We find that the manufacturer holding the WIC contract brand accounted for the vast majority — 84 percent — of all formula sold by the top three manufacturers. The impact of a switch in the manufacturer that holds the WIC contract was considerable. The market share of the manufacturer of the new WIC contract brand increased by an average 74 percentage points after winning the contract. Most of this increase was a direct effect of WIC recipients switching to the new WIC contract brand. However, manufacturers also realized a spillover effect from winning the WIC contract whereby sales of formula purchased outside of the program also increased.

Keywords: WIC, Special Supplemental Nutrition Program for Women, Infants, and Children, infant formula, rebate, sole-source contracts, contract brand, spillover effect, ERS, USDA

Suggested Citation

Oliveira, Victor and Frazao, Elizabeth and Smallwood, David M., The Infant Formula Market: Consequences of a Change in the WIC Contract Brand (August 1, 2011). USDA-ERS Economic Research Report No. 124. Available at SSRN: https://ssrn.com/abstract=2116605 or http://dx.doi.org/10.2139/ssrn.2116605

Victor Oliveira (Contact Author)

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS) ( email )

355 E Street, SW
Washington, DC 20024-3221
United States
202-694-5434 (Phone)

Elizabeth Frazao

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS) ( email )

355 E Street, SW
Washington, DC 20024-3221
United States
202-694-5455 (Phone)

David M. Smallwood

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS) ( email )

355 E Street, SW
Washington, DC 20024-3221
United States

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