• TABLE OF CONTENTS
HIDE
 Copyright
 Front Cover
 Title Page
 Acknowledgement
 Table of Contents
 List of Tables
 List of Figures
 Introduction
 Method of research
 Setting of the study
 Customer response to induced...
 Nature of consumption shifts
 Summary
 Conclusion






Group Title: Mimeo report - Department of Agricultural Economics, University of Florida - EC 66-11
Title: Demand and substitution relationship for Florida orange juice in drugstores
CITATION PAGE IMAGE ZOOMABLE PAGE TEXT
Full Citation
STANDARD VIEW MARC VIEW
Permanent Link: http://ufdc.ufl.edu/UF00071969/00001
 Material Information
Title: Demand and substitution relationship for Florida orange juice in drugstores
Series Title: Agricultural economics mimeo report
Physical Description: 31 p. : ; .. cm.
Language: English
Creator: Rice, T.G
Williams, F.W
Godwin, M.R
Publisher: s.n.
Place of Publication: Gainesville
Publication Date: 1966
 Subjects
Genre: non-fiction   ( marcgt )
 Notes
Statement of Responsibility: by T.G. Rice, F.W. Williams and M.R. Godwin.
Funding: Florida Historical Agriculture and Rural Life
 Record Information
Bibliographic ID: UF00071969
Volume ID: VID00001
Source Institution: Marston Science Library, George A. Smathers Libraries, University of Florida
Holding Location: Florida Agricultural Experiment Station, Florida Cooperative Extension Service, Florida Department of Agriculture and Consumer Services, and the Engineering and Industrial Experiment Station; Institute for Food and Agricultural Services (IFAS), University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: oclc - 67709011
clc - 000458246

Table of Contents
    Copyright
        Copyright
    Front Cover
        Front Cover
    Title Page
        Title Page
    Acknowledgement
        Acknowledgement
    Table of Contents
        Table of Contents
    List of Tables
        List of Tables
    List of Figures
        List of Figures
    Introduction
        Page 1
    Method of research
        Page 2
        Description of price treatments
            Page 2
        The experimental design
            Page 3
            Page 4
        Implementation of price changes
            Page 5
        Method of data collection
            Page 6
    Setting of the study
        Page 7
        The test site
            Page 7
        Fountain characteristics
            Page 7
        Beverage sales
            Page 8
            Page 9
            Page 10
    Customer response to induced prices
        Page 11
        Page 12
        Page 13
        Characteristics of the demand for orange juice
            Page 14
            Page 15
            Page 16
        Substitution relationships between orange juice and other beverages
            Page 17
    Nature of consumption shifts
        Page 18
        Changes in the patterns of orange juice consumption
            Page 18
            Page 19
            Page 20
            Page 21
        Relationship of orange juice prices to changes in food and beverage consumption patterns
            Page 22
            Page 23
            Page 24
            Page 25
            Page 26
            Page 27
            Page 28
    Summary
        Page 29
        Page 30
    Conclusion
        Page 31
Full Text





HISTORIC NOTE


The publications in this collection do
not reflect current scientific knowledge
or recommendations. These texts
represent the historic publishing
record of the Institute for Food and
Agricultural Sciences and should be
used only to trace the historic work of
the Institute and its staff. Current IFAS
research may be found on the
Electronic Data Information Source
(EDIS)

site maintained by the Florida
Cooperative Extension Service.






Copyright 2005, Board of Trustees, University
of Florida





Agricultural Economics Mimeo
.-:'- 1966


Relationship ps


For Florida





Agricultural Economics Mimeo Report EC 66-11
May 1966
















DEMAND AND SUBSTITUTION RELATIONSHIPS FOR FLORIDA
ORANGE JUICE IN DRUGSTORES








T. G. Rice, F. W. Williams and M. R. Godwin
















Department of Agricultural Economics
Agricultural Experiment Stations
University of Florida
Gainesville, Florida

in cooperation with

Florida Citrus Commission
Lakeland, Florida











ACKNOWLEDGMENTS


The people making substantial contributions to the success of

this work are too numerous to list. The authors would be remiss,

however, if a few outstanding contributors were not cited.

Mr. Paul Grey, Minute Maid Company, assisted in making formal

arrangements for conducting the study.

The project was financed by the Economic Research Department,

Florida Citrus Commission, under the direction of Dr. W. E. Black.

Messrs. Don Rudser and Bruce McLaughlin assisted with collection

and tabulation of the primary data, and Dr. Max R. Langham, Depart-

ment of Agricultural Economics, University of Florida, served as

consultant on the statistical analysis of the data. To these people

and others whose contributions were invaluable, the authors are

grateful.

The drugstore chain in which the study was conducted requested

that it remain anonymous.










TABLE OF CONTENTS

Page

INTRODUCTION.......... .................. .................... ...

Purpose of the Research....................................... 2

METHOD OF RESEARCH........ ....................................... 2

Description of Price Treatments ........ ....... ............ 2
The Experimental Design............................... ..... 3
Implementation of Price Changes.............................. 5
Method of Data Collection................................. 6

SETTING OF THE STUDY............................................. 7

The Test Site..................... .......................... 7
Fountain Characteristics........................... .... .... 7
Beverage Sales................................................ 8

CUSTOMER RESPONSE TO INDUCED PRICES............................. 11

Characteristics of the Demand for Orange Juice................ 14
Substitution Relationships Between Orange Juice and
Other Beverages. ........................... .......... ... ... 17

NATURE OF CONSUMPTION SHIFTS............................ ........ 18

Changes in the Patterns of Orange Juice Consumption........... 18
Relationship of Orange Juice Prices to Changes in Food
and Beverage Consumption Patterns........................... 22

SUMMARY.. ............. .... ....... ........... ..................... 29

CONCLUSIONS............................................. ......... 31







LIST OF TABLES


Table Page

1 Test price treatments by size of serving and per ounce, six
test fountains, New York City, New York, November-December
1964................. ... .................. ................ 3

2 Allocation of the six test price treatments to fountains and
weeks, six test fountains, New York City, New York,
November-December 1964............................ .......... 4

3 Average sale per customer by fountains, six test fountains,
New York City, New York, November-December 1964............. 8

4 Total and average fountain sales by fountains and weeks,
six test fountains, New York City, New York, November-
December 1964........................................... 9

5 Total and average customer count by fountains and weeks, six
test fountains, New York City, New York, November-December
1964 .................... ...................... ........... 0

6 Number of servings purchased and value of sales by type of
beverage sold, six test fountains, New York City, New York,
November-December 1964..................................... 12

7 Number of ounces of orange juice consumed by size of serving
and price, six test fountains, New York City, New York,
November-December 1964................................... 14

8 Percentage of servings sold by size of serving at the test
prices, six test fountains, New York City, New York,
November-December 1964..................................... 19

9 Percentage of total ounces consumed at the test prices by
time of day, six test fountains, New York City, New York,
November-December 1964 ..................................... 20

10 Consumption of orange juice by time of day at the test
prices, six test fountains, New York City, New York,
November-December 1964..................................... 21

11 Relationship of orange juice prices to changes associated
with breakfast consumption, six test fountains, New York
City, New York, November-December 1964...................... 24

12 Relationship of orange juice prices to changes associated
with snack consumption, six test fountains, New York City,
New York, November-December 1964......................... 26

13 Relationship of orange juice prices to changes associated
with beverage consumption, six test fountains, New York
City, New York, November-December 1964....................... 28







LIST OF FIGURES

Figure Page

1 Total number of orange juice servings purchased at each test
price level, six test fountains, New York City, New York,
November-December 1964....................................... 13

2 Percentage of total ounces of orange juice purchased at each
test price level by size of serving, six test fountains, New
York City, New York, November-December 1964.................. 15









DEMAND AND SUBSTITUTION RELATIONSHIPS FOR FLORIDA
ORANGE JUICE IN DRUGSTORES


T. G. Rice, F. W. Williams and M. R. Godwin*


INTRODUCTION


Institutional food markets have expanded rapidly in recent

years. The trend has been toward greater meal consumption outside

the home, and the growth rate of institutional markets has exceeded

that of retail grocery markets. Between 1950 and 1961 the retail

value of institutional food sales increased 67 percent and retail

grocery store sales increased 40 percent.l

Citrus and citrus products will undoubtedly share in this

expanding market. The extent to which the institutional market

provides an expanded outlet for citrus will depend on how well the

Florida citrus industry understands and exploits the opportunities it

affords. The research discussed in this report was conducted to

provide information on one important segment of the frozen concen-

trated orange juice market--food service counters, or fountains.

*Mr. Rice is a former Graduate Research Assistant, Florida Citrus
Commission, Department of Agricultural Economics, University of
Florida. This report is based on a thesis which he submitted to the
University of Florida Graduate School in partial fulfillment of the
degree Master of Science in Agriculture. Dr. Williams is a Research
Economist, Florida Citrus Commission, and Associate Agricultural
Economist, Florida Agricultural Experiment Stations. Dr. Godwin is
Professor of Marketing, Department of Agricultural Economics,
University of Florida, Gainesville, Florida.

An Analysis of the Institutional Food Field. Its Size. Products.
and Markets, special report by the National Restaurant Association,
July 1962.








Purpose of the Research


This study was an investigation of one segment of the institu-

tional food market with the objective of determining the characteristics

of demand for orange juice at fountains located in drugstores.

The specific objectives were to:

(1) estimate the price elasticity of demand for orange juice
in fountains.

(2) estimate the substitution relationships between orange
juice and other beverages in fountains.

(3) examine beverage consumption patterns in fountains.


METHOD OF RESEARCH


Controlled pricing was the basic research procedure used to

obtain data for the analysis. The price of orange juice was varied

in six test fountains over a period of six weeks. Customer sales

slips were obtained in each fountain as a record of customer purchases

at each level.


Description of Price Treatments


The prices charged for orange juice were controlled by the project

personnel and conformed to a predetermined experimental design. Six

individual price levels for orange juice were used. One price level

was at the market price prevailing before the project was initiated,

and five price levels which were lower than the prevailing price were

introduced.

The normal practice of the cooperating fountains was to offer

customers a choice of a small 5-ounce or a large 10-ounce container








Purpose of the Research


This study was an investigation of one segment of the institu-

tional food market with the objective of determining the characteristics

of demand for orange juice at fountains located in drugstores.

The specific objectives were to:

(1) estimate the price elasticity of demand for orange juice
in fountains.

(2) estimate the substitution relationships between orange
juice and other beverages in fountains.

(3) examine beverage consumption patterns in fountains.


METHOD OF RESEARCH


Controlled pricing was the basic research procedure used to

obtain data for the analysis. The price of orange juice was varied

in six test fountains over a period of six weeks. Customer sales

slips were obtained in each fountain as a record of customer purchases

at each level.


Description of Price Treatments


The prices charged for orange juice were controlled by the project

personnel and conformed to a predetermined experimental design. Six

individual price levels for orange juice were used. One price level

was at the market price prevailing before the project was initiated,

and five price levels which were lower than the prevailing price were

introduced.

The normal practice of the cooperating fountains was to offer

customers a choice of a small 5-ounce or a large 10-ounce container









of orange juice. The test price treatments were designed to accomo-

date these two sizes rather than deviate from normal practices.

The lowest test prices were 14 and 21 cents per serving below

the prevailing market price for the small and large size respectively.

This constituted a reduction in price of 70 percent from the pre-

vailing market level for both size servings. The prices selected

maintained a constant two-thirds ratio between the two sizes of orange

juice in keeping with the normal pricing policy of the cooperating

fountains. The price range was from 0.9 to 4.0 cents per ounce for

the two sizes of servings (Table 1). The price of the small serving

ranged from 1.2 to 4.0 cents per ounce, while the price of the large

serving varied from 0.9 to 3.0 cents per ounce.


Table l.--Test price treatments by size of serving and per ounce,
six test fountains, New York City, New York,
November-December 1964


Price
Treatment
number Per Per
5-ounce 10-ounce
ounce ounce
serving serving

Cents
1 6 1.2 9 0.9
2 8 1.6 12 1.2
3 10 2.0 15 1.5
4 16 3.2 24 2.4
5 18 3.6 27 2.7
6 20 4.0 30 3.0



The Experimental Design


Prior to initiation of the study in the test fountains, consider-

able attention was devoted to planning the study so that the effect of








the price treatments could be isolated from the host of variables

encountered in the fountains. For this purpose, the latin square

design was selected.2 Since six test fountains were used for six

weeks, a total of 36 experimental units resulted. Price treatments

were assigned to fountains and weeks according to the specifications

of the design so that each price appeared once and only once in each

fountain during one week of the study (Table 2).


Table 2.--Allocation of the six test price treatments to fountains and


weeks, six test fountains,


New York City, New York,
December 1964


November-


Fountain Size Week number
number serving 1 2 3 4 5 6
1 2 3 4 5 6

Cents per glass

1 5-ounce 6 8 10 16 18 20
10-ounce 9 12 15 24 27 30

2 5-ounce 8 20 16 10 6 18
10-ounce 12 30 24 15 9 27

3 5-ounce 10 16 18 20 8 6
10-ounce 15 24 27 30 12 9

4 5-ounce 16 6 20 18 10 8
10-ounce 24 9 30 27 15 12

5 5-ounce 18 10 6 8 20 16
10-ounce 27 15 9 12 30 24

6 5-ounce 20 18 8 6 16 10
10-ounce 30 27 12 9 24 15


2William G. Cochran and
(Second printing; New York:


Gertrude M. Cox, Experimental Designs
John Wiley & Sons, Inc., 1950), p. 119.









Conducting the experiment in this manner allowed isolation of the

effects of the price treatments from variations in the sales data

arising from differences between the test fountains and weeks selected

for study.


Implementation of Price Changes


Normally, the test fountains offered a series of breakfast

combinations to their customers which included a choice of either

orange or tomato juice with the meal. This practice necessitated

printing special breakfast menus which did not include a choice

between the two juices. On the menus used in the study, juice was

excluded from the breakfast combinations so that all juices were

ordered a la carte. This allowed separation of juice sales from

breakfast sales, allowing customers to react to the various price

treatments for orange juice independent of other food or beverage

choices. Six separate sets of menus were printed corresponding to

the six price levels. These menus, therefore, served the dual purpose

of separating the juice from the various breakfast combinations and

also informing the customer of the price of orange juice.

The breakfast menus were removed from the fountains at 11:30

a.m. and replaced with a standard menu for the remainder of the day.

In this latter menu, juices were listed as appetizers and were ordered

a la carte. To avoid printing another set of menus, clip-on tabs were

printed with prices corresponding to the price treatments and attached

to the front of the menus.









It was observed prior to the study that many customers did not

order from the menus but from prior knowledge of the menus or from

merchandising strips placed along the backboards of the fountains.

These strips contained the standard items and prices listed on the

menus. Therefore, six sets of backboard strips were printed with the

appropriate price levels for orange juice. These strips were

designed so that they were no more conspicuous than the other back-

board strips in use.

These menus, clip-on tabs and backboard strips were placed in

the fountains each Monday morning by the project personnel before

the fountains opened for business. Prices shown on these materials

corresponded to the price treatment in effect in the respective

fountains during the week.


Method of Data Collection


The basic sales data were derived from the customer order forms

which were individually written by each waitress for each customer.

These forms contained an itemized listing of individual customer

purchases and were collected daily from the fountains by the project

personnel. The beverage purchases were then tabulated from the

individual forms by classification of beverage, size of serving, and

approximate time of purchase. Also, total fountain sales and number

of customers were derived from the forms. A total of 115,829 customer

order forms were collected during the six weeks of the study.









SETTING OF THE STUDY


The Test Site


The six test fountains were operated by the same drugstore chain

and were located in New York City. This location and the fountains

selected for the test met the most important test criteria: (1) high

density population; (2) population comprised of people having diverse

social, economic and ethnic characteristics; (3) a relatively large

market for Florida orange juice.


Fountain Characteristics


All of the test fountains were similar and consisted of a lunch

counter with seating for customers. The fountains specialized in

fast-service food items, primarily sandwiches and beverages, which

accounted for relatively small average sales per customer. During

the study 115,829 customers patronized the six fountains. Total

sales were $48,839, an average sale per customer of 42 cents. The

average sale per customer varied among the test fountains from a high

of 44 cents to a low of 39 cents (Table 3).

Total sales varied among the six fountains and the six weeks of

the study. Individual fountain sales varied from a high of $10,923.51

to a low of $4,764.71, and total weekly sales for the six fountains

fluctuated from a high of $8,900.17 to a low of $7,345.16. The

average weekly total sales per fountain was $1,356.64 during the

study (Table 4).









SETTING OF THE STUDY


The Test Site


The six test fountains were operated by the same drugstore chain

and were located in New York City. This location and the fountains

selected for the test met the most important test criteria: (1) high

density population; (2) population comprised of people having diverse

social, economic and ethnic characteristics; (3) a relatively large

market for Florida orange juice.


Fountain Characteristics


All of the test fountains were similar and consisted of a lunch

counter with seating for customers. The fountains specialized in

fast-service food items, primarily sandwiches and beverages, which

accounted for relatively small average sales per customer. During

the study 115,829 customers patronized the six fountains. Total

sales were $48,839, an average sale per customer of 42 cents. The

average sale per customer varied among the test fountains from a high

of 44 cents to a low of 39 cents (Table 3).

Total sales varied among the six fountains and the six weeks of

the study. Individual fountain sales varied from a high of $10,923.51

to a low of $4,764.71, and total weekly sales for the six fountains

fluctuated from a high of $8,900.17 to a low of $7,345.16. The

average weekly total sales per fountain was $1,356.64 during the

study (Table 4).









SETTING OF THE STUDY


The Test Site


The six test fountains were operated by the same drugstore chain

and were located in New York City. This location and the fountains

selected for the test met the most important test criteria: (1) high

density population; (2) population comprised of people having diverse

social, economic and ethnic characteristics; (3) a relatively large

market for Florida orange juice.


Fountain Characteristics


All of the test fountains were similar and consisted of a lunch

counter with seating for customers. The fountains specialized in

fast-service food items, primarily sandwiches and beverages, which

accounted for relatively small average sales per customer. During

the study 115,829 customers patronized the six fountains. Total

sales were $48,839, an average sale per customer of 42 cents. The

average sale per customer varied among the test fountains from a high

of 44 cents to a low of 39 cents (Table 3).

Total sales varied among the six fountains and the six weeks of

the study. Individual fountain sales varied from a high of $10,923.51

to a low of $4,764.71, and total weekly sales for the six fountains

fluctuated from a high of $8,900.17 to a low of $7,345.16. The

average weekly total sales per fountain was $1,356.64 during the

study (Table 4).








Table 3.--Average sale per customer by fountains, six test fountains,
New York City, New York, November-December 1964


Fountain Total Total Average
numr fountain fountain sale per
number
sales customers customer

Dollars Number Cents
1 9,038.33 22,824 40
2 9,026.90 20,583 44
3 6,654.64 17,011 39
4 10,923.51 25,097 44
5 4,764.71 11,356 42
6 8,430.92 18,958 44
Total or
average 48,839.01 115,829 42


The number of customers patronizing the fountain also differed

among fountains and weeks. The total number of customers patronizing

the individual fountains varied from a high of 25,097 to a low of

11,356 while the number of customers per week in the six fountains

varied from 21,427 to 17,353. The average weekly number of customers

per fountain was 3,217 during the study (Table 5).


Beverage Sales


Although this project was concerned primarily with the sales of

orange juice, it was desirable to determine the relationship of

orange juice sales to the sales of all other beverages sold at the

fountains. Therefore, all beverage sales were obtained daily from

the individual customer order forms by type of beverage sold.

Customers purchased a total of 120,336 beverage servings in the

six fountains during the study--an average of 1.04 per customer.








Table 4.--Total and average fountain sales by fountains and weeks, six test fountains, New York City,
New York, November-December 1964


Fountain Week number Total Average
number
number 1 2 3 4 5 6

Dollars

1 1,575.75 1,690.51 1,527.52 1,251.43 1,504.91 1,488.21 9,038.33 1,506.39
2 1,405.41 1,591.55 1,406.12 1,523.61 1,443.16 1,657.05 9,026.90 1,504.48
3 901.19 1,263.54 1,190.98 919.11 1,152.61 1,227.21 6,654.64 1,109.11
4 1,860.46 2,018.21 1,867.33 1,558.80 1,765.72 1,852.99 10,923.51 1,820.59
5 864.16 880.25 776.23 741.17 724.71 778.19 4,764.71 794.12
6 1,429.10 1,456.11 1,387.38 1,351.04 1,426.93 1,380.36 8,430.92 1,405.15

Total 8,036.07 8,900.17 8,155.56 7,345.16 8,018.04 8,384.01 48,839.01 8,139.84

Average 1,339.34 1,483.36 1,359.26 1,224.19 1,336.34 1,397.34 8,139.84 1,356.64








Table 5.--Total and average customer count by fountains and weeks, six test fountains,
New York, November-December 1964


New York City,


Week number
Fountain Total Average
number
number 3 4 5 6

Number

1 4,091 4,291 3,881 3,182 3,680 3,699 22,824 3,804
2 3,366 3,738 3,182 3,422 3,237 3,638 20,583 3,430
3 2,320 3,238 3,025 2,292 2,987 3,149 17,011 2,835
4 4,309 4,699 4,211 3,663 4,017 4,198 25,097 4,183
5 2,087 2,174 1,886 1,722 1,710 1,777 11,356 1,893
6 3,310 3,287 3,122 3,072 3,160 3,007 18,958 3,160

Total 19,483 21,427 19,307 17,353 18,791 19,468 115,829 19,305

Average 3,247 3,571 3,218 2,892 3,132 3,245 19,305 3,218








These servings sold for $16,995.21, an average of 14.7 cents per

customer.

Beverage sales were ranked in terms of sales volume for each

type of beverage (Table 6). Total beverage sales constituted 34.8

percent of gross fountain sales during the study. Coffee was sold in

the largest volume and accounted for 15 percent of gross fountain

sales.

Orange juice ranked fourth in sales with $840.21. This was 4.9

percent of total beverage sales and 1.7 percent of gross fountain

sales. Approximately 5.3 percent of the total fountain customers

purchased orange juice. The total value of orange juice sales was

computed at the test prices.


CUSTOMER RESPONSE TO INDUCED PRICES


Customers purchased 6,192 servings, or 44,745 ounces, of orange

juice. Consumption of orange juice increased significantly as the

price was reduced. Purchase response to the induced prices varied

not only in terms of additional servings, but also in increased size

of serving.

The number of orange juice servings purchased more than doubled

over the entire test price range (Fig. 1). The six price treatments

constituted absolute decreases in the price of orange juice of 10,

20, 50, 60 and 70 percent from the price level existing at the

beginning of the study. The respective percentage changes in number

of servings purchased at the reduced prices were -5.6, +24.3, +59.4,

+85.9 and +120.6 percent.









Table 6.--Number of servings


purchased and value of sales by type of beverage sold, six test fountains,
New York City, New York, November-December 1964


Beverage Total Total Average Gross
price per Beverage sales
type Se serving customers r B sales
serving

Number Percent Percent Cents Dollars Percent Percent

Coffee a 67,832 56.4 58.6 11 7,347.25 43.2 15.0
Ice cream 10,353 8.6 8.9 35 3,623.55 21.3 7.4
Soft drinks 19,341 16.1 16.7 15 2,881.95 17.0 5.9
Orange juiceb 6,192 5.2 5.3 14 840.21 4.9 1.7
Tea 5,860 4.9 5.1 11 642.85 3.8 1.3
Hot chocolate 4,144 3.4 3.6 15 621.60 3.7 1.3
Milk 3,583 3.0 3.1 15 537.45 3.2 1.1
Egg cream 1,575 1.3 1.4 15 236.25 1.4 0.5
Tomato juice 542 0.4 0.5 15 81.30 0.5 0.2
Adesc 371 0.3 0.3 20 74.20 0.4 0.2
Chocolate milk 279 0.2 0.2 20 55.80 0.3 0.1
Other juices 264 0.2 0.2 20 52.80 0.3 0.1

Totals 120,336 100.0 103.9 -- 16,995.21 100.0 34.8

aIncludes malts, shakes and sodas.
cComputed at test prices for orange juice.
dIncludes lemonade and orangeade.
Includes prune, apple, grapefruit and pineapple juice.
In some cases, more than one serving was purchased by the customer.







Number of Servings


0
5-ounce
10-ounce


6 8
9 12


Price levels--cents per serving
Fig. l.--Total number of orange juice servings purchased at each test price six test fountains,
New York City, New York, November-December 1964









Consumption increased from 4,330 ounces at the highest price

level to 12,380 ounces at the lowest price level. Of the total

ounces purchased, 27,570 ounces were consumed in the large size serving

and 17,175 ounces in the small size serving (Table 7). Of the total


Table 7.--Number of ounces of orange juice consumed by size of serving
and price, six test fountains, New York City, New York,
November-December 1964


Price Size serving
Total
5-ounce 10-ounce 5-ounce 10-ounce

Cents Cents Number Number Number
6 9 3,060 9,320 12,380
8 12 2,875 7,260 10,135
10 15 2,875 5,410 8,285
16 24 3,240 2,220 5,460
18 27 2,455 1,700 4,155
20 30 2,670 1,660 4,330

Totals 17,175 27,570 44,745


ounces consumed, 9.7 percent was purchased at the price level pre-

vailing prior to the study. This percentage increased to 27.7 percent

at the lowest price level with the three lowest price levels accounting

for 68.8 percent of the total ounces served (Fig. 2).

As the price level was reduced, not only did the volume of orange

juice sold increase, but also the number of orange juice purchases. The

volume of juice purchased in the large size serving increased substan-

tially relative to the volume purchased in the small size serving.


Characteristics of the Demand for Oranae Juice


Price elasticity of demand is defined as the ratio of the





Percentage of total
ounces served
30-1


5.
~,


r
.


...


D Large serving


SSmall serving


..* ..


6 8 10 16 18 20
9 12 15 24 27 30


Price level--Cents per serving

Fig. 2.--Percentage of total ounces of orange juice purchased at each test price level by size of
serving, six test fountains, New York City, New York, November-December 1964


0 1
5-ounce
10-ounce


4ii








percentage change in volume purchased to the associated percentage

change in price. Normally, it is used as a means of determining the

percentage change in consumption associated with a one percent change

in price.

Statistical analysis of the sales data indicated that the elas-

ticity of demand for orange juice in the test fountains was -0.89.3

This simply means that within the price range of 6 and 9 cents to 20

and 30 cents, a one percent decrease in price brought about an average

0.89 percent increase in the amount of juice sold. The demand was

inelastic since the relative change in quantity was less than the

relative change in price.

The importance of this relationship is its influence on total

revenue derived from orange juice. A weighted average price of 2.5

cents per ounce maximized orange juice revenue to the fountains. This

would mean 15 cents for a small serving and 25 cents for a large

serving. But when the ratio of large to small servings is considered,

fountains could gross the greatest revenue and sell the largest volume

of juice if they charged 15 cents for the small serving and 20 cents for

the large. They were charging 20 and 30 cents, or 4 and 3 cents per

ounce, for small and large servings, respectively, before the study

began.

Prices which would maximize net revenue to the fountains were

estimated based on the cost of frozen concentrated orange juice to

the fountains at the time the study was conducted. The delivered

price of concentrate per case of 24 12-ounce cans was $13.92. Other

3The "Student's" t statistical test indicated that the elasticity
estimate was significant at the .01 level; i.e., the probability that
this value occurred by chance alone would be .01 if the true value of
the elasticity was zero.









costs, including overhead and serving costs were not included. These

costs per serving are believed to be quite small relative to the per

serving cost of concentrate.

The estimated net revenue maximizing prices were 17.6 cents for

the 5-ounce serving and 23.5 cents for the 10-ounce serving. These,

of course, are estimates of the theoretically optimum prices and are

not practical pricing units. They may best be interpreted as suggesting

a range of 15 to 20 cents for the small serving and 20 to 25 cents for

the large serving. The difference in these estimated prices is 5.9

cents and suggests that the difference in prices of the two sizes of

servingsshould not exceed 6 cents if revenue is to be maximized.


Substitution Relationships Between Orange Juice
and Other Beverages


Business managers in the institutional trade have indicated

reluctance to reduce the price of orange juice because they feel that

customers might purchase orange juice rather than more profitable

beverages. Thus, even though the total revenue from orange juice

might be increased by reducing price, total revenue from the sale of

other beverages could be commensurately reduced. In view of this

argument, it appeared desirable to investigate the substitution

relationships between orange juice and the other beverages served

in the fountains.

The substitution relationships between two products are usually

described in terms of the effect of price changes of one product on

the sales of another, or the cross elasticity of demand. Sales of









each beverage offered in the fountains were analyzed with respect to

the various prices at which orange juice was offered. It was con-

cluded that no significant substitution of orange juice for other

beverages existed at any of the prices at which orange juice was

offered. The quantities of other beverages consumed appeared to

bear little relationship to the price of orange juice.


NATURE OF CONSUMPTION SHIFTS


Changes in the patterns of food and beverage consumption appar-

ently resulted from the induced price situations. One of the objec-

tives of this study was to determine how changes in consumption of

orange juice fitted into the normal purchase patterns of customers at

the fountains. These changes could take place with respect to the

consumption patterns of orange juice per se and to the patterns of

consumption for foods and other beverages.


Changes in the Patterns of Orange Juice Consumption


Customers could alter their purchases of orange juice with

respect to (1) the size of serving purchased at the various price

levels and (2) the time of day purchases were made.

A primary concern was whether customers would alter the size

serving purchased with the changing price levels or whether they vould

tend to purchase the two sizes in relatively constant proportions

regardless of price.


Tests for statistical significance were conducted at the a levels
of .01 and .05. None of the cross elasticity coefficients were found
to be significant at either level of probability.









each beverage offered in the fountains were analyzed with respect to

the various prices at which orange juice was offered. It was con-

cluded that no significant substitution of orange juice for other

beverages existed at any of the prices at which orange juice was

offered. The quantities of other beverages consumed appeared to

bear little relationship to the price of orange juice.


NATURE OF CONSUMPTION SHIFTS


Changes in the patterns of food and beverage consumption appar-

ently resulted from the induced price situations. One of the objec-

tives of this study was to determine how changes in consumption of

orange juice fitted into the normal purchase patterns of customers at

the fountains. These changes could take place with respect to the

consumption patterns of orange juice per se and to the patterns of

consumption for foods and other beverages.


Changes in the Patterns of Orange Juice Consumption


Customers could alter their purchases of orange juice with

respect to (1) the size of serving purchased at the various price

levels and (2) the time of day purchases were made.

A primary concern was whether customers would alter the size

serving purchased with the changing price levels or whether they vould

tend to purchase the two sizes in relatively constant proportions

regardless of price.


Tests for statistical significance were conducted at the a levels
of .01 and .05. None of the cross elasticity coefficients were found
to be significant at either level of probability.








It was observed that at the lowest test price level of 6 and 9

cents for the small and large serving respectively, 60.4 percent of

the servings purchased was in the large size serving and 39.6 percent

was purchased in the small serving (Table 8). As the price of orange


Table 8.--Percentage of servings sold by size of serving at the test
prices, six test fountains, New York City, New York,
November-December 1964


Price Size serving

5-ounce 10-ounce 5-ounce 10-ounce

Cents Cents Percent Percent

6 9 39.6 60.4
8 12 44.2 55.8
10 15 51.5 48.5
16 24 74.5 25.5
18 27 74.3 25.7
20 30 76.3 23.7

Average 55.5 44.5


juice increased, the relative percentage of small to large size

servings increased through the third price treatment. However, for the

fourth, fifth and sixth price treatments the two sizes were purchased

in relatively constant proportions of 75 percent small and 25 percent

large.

Changes in the patterns of orange juice consumption could also

occur with respect to the time of day the purchases were made. Tra-

ditionally, orange juice has been thought of as primarily a breakfast

beverage. However, it was conceivable that consumers might increase

their purchases during later periods of the day in response to the

reduced prices.









To determine whether these shifts occurred, the data were

analyzed for three daily time periods. The first period was from

the morning opening until 11:30 a.m. The second period was 11:30 a.m.

to 4:00 p.m., and the third period was from 4:30 p.m. to closing,

which was normally 8:30 or 9:00 p.m. Sales of orange juice were then

examined for the three daily time periods at each price level.

At both the lowest and highest price levels approximately 46

percent of the orange juice was consumed in the morning, 32 percent

in the afternoon, and 22 percent in the evening (Table 9). The


Table 9.--Percentage of total ounces consumed at the test prices by
time of day, six test fountains, New York City, New York,
November-December 1964


Price Time of day

5-ounce 10-ounce Morning Afternoon Evening Total
Cents Cents Percent Percent Percent Percent
6 9 45.9 31.7 22.4 100.0
8 12 46.0 30.4 23.6 100.0
10 15 50.5 29.9 19.6 100.0
16 24 55.0 25.7 19.3 100.0
18 27 50.4 26.4 23.2 100.0
20 30 46.0 32.1 21.9 100.0

Average 48.3 29.9 21.8 100.0


largest amount of variation from this pattern occurred at prices of

16 and 24 cents. At this price level, approximately 55 percent of the

orange juice was purchased in the morning, 26 percent in the afternoon,

and 19 percent during the evening.

From these results, it appears that the varying price treatments

did not have a consistent effect on the time of day that orange juice









was consumed. On the average for all six price levels, the purchase

pattern was about the same as for the highest and lowest prices. It

was concluded that a significant portion of orange juice consumption

occurs in fountains during the afternoon and evening periods regardless

of the price at which it is offered.

Since the volume of business and number of customers were not

uniform throughout the three time periods, orange juice sales were

transformed to ounces per 100 customers for each of the periods.

Normally, the afternoon period, which included lunch, had the

greatest number of customers, followed by the morning and evening

periods.

The consumption of orange juice during the morning period on an

ounces per 100 customer base was almost twice as large as the other

two periods of the day combined for each of the price levels tested.

Consumption was greatest during the morning, followed by the evening,

and the afternoon period at all prices (Table 10). Consumption per

100 customers was greater during the evening than in the afternoon.


Table 10.--Consumption of orange juice by time of day at the test prices,
six test fountains, New York City, New York,
November-December 1964


Price Time of day

5-ounce 10-ounce Morning Afternoon Evening

Cents Cents Ounces per 100 customers
6 9 91.9 44.2 54.7
8 12 77.1 35.3 48.7
10 15 74.4 27.9 37.5
16 24 52.4 16.7 22.2
18 27 35.8 12.8 19.4
20 30 34.3 16.8 19.5









Relationship of Orange Juice Prices to Changes in Food
and Beverage Consumption Patterns


Introduction of reduced prices increased the consumption of orange

juice. A question of interest was the extent to which this increased

consumption of orange juice affected the consumption patterns of

customers with respect to other items served at the fountains. To

provide an insight into this question, all customer order forms for

the morning period only were divided into three categories based

upon the type of customer purchases. These were customers who (1)

ordered breakfast, (2) ordered a snack,or (3) purchased beverage only.

The main reason for examining the morning period only was that

during this period approximately 48 percent of the total orange juice

sales were made over all price levels. Also, it was extremely diffi-

cult to obtain accurate consumption data other than for beverages

during later periods of the day because of the large number of items

served. Therefore, consumption of all items during the morning

period was investigated according to the categories noted above.


Changes associated with breakfast consumption

During the study, 8,288 customers ordered some type of breakfast

at the test fountains. These customers represented 23.8 percent of

the customers served during the morning period, or 7.2 percent of the

total customers served throughout the study. For purposes of this

analysis, a breakfast consisted of either of the following: (1)

eggs or omelettes, (2) meat, either bacon or ham, (3) hot cakes, or

(4) cereal.









The customer order forms containing these items were separated

into four further classifications on the basis of beverage selection:

(1) breakfast without any beverage

(2) breakfast with orange juice only

(3) breakfast with orange juice and another beverage

(4) breakfast with beverage other than orange juice

Stratification of customers in this manner allowed identification of

changes in breakfast consumption patterns corresponding to the induced

prices for orange juice.

The greatest change occurred when orange juice was purchased with

breakfast and another beverage. At the highest price level, the price

level prevailing before the study, 9.3 percent of breakfast consumers

purchased orange juice and another beverage (Table 11). The percentage

of customers in this classification increased to 21.4 percent as the

prices of orange juice were reduced to the lowest price levels, a net

increase of 12.1 percent throughout the price range. The percentage

of customers purchasing breakfast with orange juice only increased from

1.8 percent to 3.9 percent as the price of orange juice declined.

This represented a net increase of 2.2 percent over the test price

range.

Conversely, as the price of orange juice was reduced, the number

of customers purchasing some other beverage only with their breakfast

decreased from 84.4 percent to 70.2 percent, or a net reduction of

14.2 percent.

The primary effect on breakfast consumers of the reduced prices

for orange juice was an increase in the percent of customers purchasing









Table lI.--Relationship of orange juice prices to changes associated with breakfast consumption, six test
fountains, New York City, New York, November-December 1964


Breakfast Price treatment
12 3 4 5 6

Percent

Without beverage 4.5 3.9 4.4 4.6 5.6 4.5

With orange juice only 3.9 3.0 3.5 2.0 1.1 1.8

With other beverage and
orange juice 21.4 19.6 15.0 14.8 10.4 9.3

With other beverage
only 70.2 73.5 77.1 78.6 82.9 84.4

Totals 100.0 100.0 100.0 100.0 100.0 100.0








orange juice in conjunction with another beverage. It appears that

when orange juice was purchased with a breakfast, another beverage

was also consumed so that, in effect, orange juice was complementary

to the other beverages.


Changes associated with snacks

Snacks were purchased by 38 percent of the morning customers

and 11.4 percent of the total fountain customers during the study.

This represented a total of 13,211 customer purchases. The following

types of food comprised the snack category: (1) toast, (2) muffins,

(3) pastries,and (4) doughnuts. All snack purchases were divided

into one of the following classifications:

(1) snack without a beverage

(2) snack with orange juice only

(3) snack with orange juice and another beverage

(4) snack with beverage other than orange juice

The changes in customer purchase patterns were not as great in

the snack category as in the breakfast category. The percentage of

customers purchasing a snack with orange juice and another beverage

increased from 3.4 percent at the highest price level to 7.3 percent

at the lowest price (Table 12). This change represented a net

increase of 3.9 percent over the test price range. Also, the percent-

age of customers purchasing a snack with orange juice only increased

1.4 percent as the price of orange juice was reduced. Therefore,

the percentage of customers ordering a beverage other than orange

juice with a snack decreased from 92.8 percent to 87.3 percent as the

orange juice price declined.










Table 12.--Relationship of orange juice prices to changes associated with snack consumption, six test
fountains, New York City, New York, November-December 1964


Price treatment
Snack
1 2 3 4 5 6

Percent

Without beverage 3.4 3.4 3.5 2.9 2.8 3.2

With orange juice only 2.0 1.8 1.9 .8 1.4 .6

With other beverage and
orange juice 7.3 5.6 5.7 5.3 3.6 3.4

With other beverage
only 87.3 89.2 88.9 91.0 92.2 92.8


Totals 100.0 100.0 100.0 100.0 100.0 100.0







The tendency was for snack purchasers to increase their consump-

tion of orange juice with another beverage as the price of orange

juice was lowered. Therefore, when orange juice was consumed with a

snack, it appeared to be an additional purchase rather than a sub-

stitute for another beverage.


Changes associated with purchases of beverages only

The last category of morning customers included those who

purchased a beverage without food. This category is apparently

characterized by people taking "coffee breaks" and accounted for 38.1

percent of the customers patronizing the fountains during the morning

period and 11.4 percent of the total fountain customers during the

study. A total of 13,253 purchasers were in this category. All

consumers in this group were divided into one of the following

classifications:

(1) customers purchasing orange juice only

(2) customers purchasing orange juice and another beverage

(3) customers purchasing beverages other than orange juice

The percentage of customers buying orange juice only increased

from 2.8 to 5.4 as orange juice prices were reduced, a net increase

of 2.6 percent (Table 13). The percentage of customers purchasing

orange juice with another beverage increased from 1.5 to 3.1 for a

net change of 1.6 percent. Conversely, the number of purchasers of

a beverage other than orange juice decreased from 95.7 percent to

91.5 percent as orange juice prices were reduced, a decrease of 4.2

percent.








Table 13.--Relationship of orange juice prices to changes associated with beverage consumption, six test
fountains, New York City, New York, November-December 1964

Price treatment
Beverage
1 2 3 4 5 6

Percent

Other beverage only 91.5 92.9 91.3 93.2 95.7 95.7

Orange juice only 5.4 4.2 4.6 3.9 2.8 2.8

Other beverages and
orange juice 3.1 2.9 4.1 2.9 1.5 1.5


Totals 100.0 100.0 100.0 100.0 100.0 100.0









SUMMARY


This research project was conducted in six test fountains in

the New York City metropolitan area from November 2 to December 13,

1964. The over-all objective of the study was to determine the

characteristics of demand for Florida orange juice at drugstore

fountains. This involved:

(1) estimating the price elasticity of demand for orange
juice in fountains.

(2) estimating the substitution relationships between orange
juice and other beverages in fountains.

(3) examining beverage consumption patterns in fountains.

Controlled pricing was the research procedure used to obtain

data necessary in the demand analysis. This procedure entailed

varying the price of orange juice in six test fountains over a

period of six weeks in accordance with a predetermined experimental

design. Customer purchase responses were derived from the individual

customer order forms on which fountain waitresses itemized customer

purchases. The price range accommodated the two sizes of orange

juice which were normally offered in the fountains, a small 5-ounce

and a large 10-ounce serving. The price per serving ranged from

6 cents to 20 cents for the 5-ounce serving and from 9 cents to 30

cents for the 10-ounce serving.

At the lowest test price level, customers purchased 1,544

servings of orange juice which amounted to 27.7 percent of the total

ounces consumed. Correspondingly, at the highest price level, which

was the prevailing level prior to the study, 700 servings were










bought and accounted for 9.7 percent of the total ounces purchased.

Thus, as the price of orange juice was reduced throughout the price

range, the number of purchasers of orange juice more than doubled.

As the price of orange juice was reduced the number of ounces

consumed in the large serving increased significantly at each reduced

price level, while the amount consumed in the small serving remained

relatively constant over the price range.

The results suggest that a one percent reduction in the weighted

average price of orange juice resulted in a 0.89 percent increase in

orange juice sales. Maximum revenue was obtained from orange juice

at a weighted average price of 2.5 cents per ounce.

Sales of each beverage offered in the fountains were analyzed

with respect to the various prices at which orange juice was offered.

No significant substitution of orange juice for other beverages

existed at any of the prices at which orange juice was offered.

A significant shift occurred with respect to the size of serving

purchased at the various price levels. At the three highest price

levels both size servings were purchased in relatively constant

proportions while at the lower three price levels, the percentage

of large size servings purchased increased relative to purchases of

the small serving. Consumption at different times throughout the

day appeared to change very little as the price of orange juice

changed.

Sales during the morning period were analyzed in three categories

based on customer purchases. These categories were purchases of

breakfasts, snacks and beverages.








The reductions in the price of orange juice caused a greater

percentage of customers to purchase orange juice and another beverage

with breakfast. Snack purchasers also tended to increase their

purchases of orange juice with another beverage as the price of orange

juice declined. The number of customers buying orange juice only

increased as the price levels declined with no significant reduction

in sales of other beverages.


CONCLUSIONS


The conclusions drawn from this study are as follows:

(1) Customers reacted to lower orange juice prices by purchasing

a larger number of juice servings and by purchasing the

larger size serving.

(2) The demand for orange juice in the fountains was inelastic,

i.e., a one percent change in price produced an average 0.89

percent change in quantity purchased.

The amount of juice consumed and gross revenue to

fountains could be increased if orange juice prices were

lowered to 15 and 20 cents, respectively, for a small and

large serving.

(3) No significant substitution relationships were found to

exist between other beverages and orange juice at the range

of prices at which orange juice was offered.

(4) A high proportion of orange juice was consumed at times of

the day other than breakfast and the price level of orange

juice had no consistent effect on this consumption pattern.




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