Agricultural Economics Report 59-6
February 1959

COMPETITORS

IN THE

by
Marshall R. Godwin
Agricultural Marketing Economist

Department of Agricultural Economics
Florida Agricultural Experiment Stations
Gainesville, Florida

__

COMPETITORS IN THE CELERY MARKET: CALIFORNIA AND FLORIDA

by

Marshall R. Godwin
Agricultural Marketing Economist

Agricultural Economics Report No. 59 6
Department of Agricultural Economics
Florida Agricultural Experiment Stations
Gainesville, Florida

CONTENTS

Page

I WHAT THIS REPORT IS ABOUT .................................... 1

II THE MAJOR FINDINGS ........................................ 2

III HOW THE STUDY WAS CONDUCTED ............................. 3

IV HOW CUSTOMERS REACTED TO VARIOUS PRICE SITUATIONS........ 6

V A FURTHER EXAMINATION OF CUSTOMER REACTION TO VARIOUS
PRICE SITUATIONS ....................................... 8

VI HOW VARIOUS SUPPLY SITUATIONS AFFECT PRICES OF EACH
PRODUCT ....... ... ..................... ..... 15

VII ANOTHER ASPECT OF COMPETITION: DIFFERENCES IN CONTAINER
AND STALK WEIGHTS .................................. 23

I. WHAT THIS REPORT IS ABOUT

In the market centers of the eastern United States, Florida celery must compete

directly with that grown in California. In order for Florida growers and marketing agen-

cies to improve their economic position, they must first understand the character of this

competition.

The purpose of this report is to examine the competitive relationship between these

two products. It is based on the results of marketing research conducted in the Chicago

metropolitan area during the spring of 1958.

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II. THE MAJOR FINDINGS

A. The preference of customers for California celery over Florida celery is not strong
enough tocause them to pay a very large premium to obtain the California product.

cQ
B. Customers are somewhat more sensitive to changes in the price of California celery
than they are to changes in the price of Florida celery.

F(Q
C. Customers are quite willing to make substitutions between the two products, but
they are somewhat more willing to substitute California celery for Florida celery
than they are to substitute Florida celery for California celery.

D. Changes in the supply of either of the two types of celery will materially affect
the market conditions under which the other type is sold.

E. As measured by weight, the quantity of celery shipped in a crate from California
is larger than the quantity contained in a crate shipped from Florida.

F. For both Florida and California celery, there is considerable variation in the size
of stalks within a wholesale container.

-2-

III. HOW THE STUDY WAS CONDUCTED

The nation's retail food stores provide a competitive arena in which the consumer

acts as both judge and jury in the continuing joust between food products. This setting

was regarded as the appropriate environment in which to examine the nature of the com-

petition between Florida and California celery.

The study on which this report is based was conducted in nine large supermarkets

in the Chicago metropolitan area during May and June of 1958. Customers of these

stores were afforded an opportunity to buy either Florida or California celery. The two

products were sold side-by-side in displays containing equal quantities. The display

technique employed is shown in Figure 1.

Fig. 1.--Display technique employed in marketing tests.

-3-

The California celery used in the test situations was the Utah 52-70 variety. For

Florida, the 259-19 variety was selected because it was typical of the summer pascal

types grown during the spring months. All of the celery used in the marketing tests was

size 2-1/2 and U. S. No. 1 grade. Thus, the basic test situation consisted of one in which

the customer could choose between two products differing only in varietal characteristics

and in where they were grown.

To learn that customers prefer celery from one area over that from the other is not

enough. The really important point is theeconomic value which they attach to their pref-

erences. The basic test situations created in the nine retail stores provided a setting ap-

propriate for measuring the strength of customer preference for celery grown in the two

areas. Into these basic test situations, a series of prices was deliberately and systemat-

ically introduced to create varying differentials between the two products. Nine combi-

nations of prices were used. They were the following:

Price Price per stalk (cents)
Combination r
Combination Florida California Difference

1 29 39 10
2 25 39 14
3 21 39 18

4 29 35 6
5 25 35 10
6 21 35 14

7 29 31 2
8 25 31 6
9 21 31 10

-4-

To the observant reader, the prices on the displays in Figure 1 should now be more

understandable. The photograph was taken in a test store while price combination Num-

ber 6 was being used. The various price combinations were rotated among the test stores

in such a fashion as to obtain information from a good cross section of customers.

On a per crate basis, the price differentials amounted to the following retail value

differences between Florida and California celery:

2 cents = $ .60 per crate
6 cents = 1.80 per crate
10 cents = 3.00 per crate
14 cents = 4.20 per crate
18 cents = 5.40 per crate

In all cases, Florida celery was sold at lower prices than California celery. This

procedure was followed because at the outset it was felt that the competitive advantage

lay with the California product, and that the fundamental problem wasone of determin-

ing the extent of this advantage.

The reaction of customers to the several price situations was measured in terms of

the quantity of celery which they purchased from each display.

With this explanation of the nature of the grist that was fed into the statistical

mill, the remainder of this report is devoted to the findings.

-5-

IV. HOW CUSTOMERS REACTED TO THE VARIOUS PRICE SITUATIONS

The results of introducing price differentials between the two products indicate

that the preference of consumers for California celery may be less-pronounced than many

suspect. Apparently, the preference of most customers for the California celery is not

strong enough to cause them to pay a very large premium in order to obtain this product.

As seen in Figure 2, Florida celery outsold California celery under all of the price

combinations tested. When Florida celery was priced 2 cents per stalk less than California

celery, 57 percent of the total celery sold consisted of the Florida product. As the price

differential between the two products was widened in the other price combinations em-

ployed, Florida celery accounted for a correspondingly larger share of the total quantity

of celery that customers bought. At the maximum price difference of 18 cents per stalk

between the two products (Price Combination 3), Florida sales accounted for 83 percent

of the total while California celery accounted for 17 percent.

While California celery was unable to command a substantial premium over Florida

celery without suffering considerably from a sales standpoint, it is evident that there are

a few consumers who do prefer California celery and are willing to pay substantial pre-

miums for it. Even though the amount was relatively small in relation to Florida sales,

some customers continued to buy California celery when its price was 10 cents or more

per stalk above the price of Florida celery.

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Total Sales

20 30 40 50

60 70 80 90 100
29

.. 25

21

-n
29 &
a-

25
-" -
(D

21

29

Percent of Total Sales
Florida

Fig. 2.--Comparative sales of Florida and California celery at
various prices.

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Percent of
California
0 10

35

391
100

I

Illr L~r~3~ ~rlB

V. A FURTHER EXAMINATION OF CUSTOMER REACTION
TO THE VARIOUS PRICE SITUATIONS

The pricing scheme employed in the study compelled customers to make two types

of adjustments in their buying behavior. First, it was necessary for them to adjust their

purchase rates to conform with the varying levels of price at which celery was sold. Sec-

ond, adjustments were made in the type of celery purchased as a result of the varying

price differences between the two products. In combination, the nature of these two ad-

justments determines the competitive relationship between Florida and California celery.

For this reason, each must be examined carefully.

A. The Effect of Price on Purchase Rates

If California celery had not been present in the stores, what would have been the

effect on sales as a result of selling Florida celery at prices ranging from 21 to 29 cents

per stalk? If Florida celery had not been present, what would have been the effect on

sales as a result of selling California celery at prices ranging from 31 to 39 cents? The

study was designed in such a fashion as to provide answers to these two questions. The

manner in which customers respond to price changes for each of the two products is high-

ly important in establishing the competitive relationship between them.

The relationship between price changes and changes in purchase rates for the two

products is shown graphically in Figure 3. A comparison of the two lines indicates clear-

ly that the customer response to price changes for the two products was materially differ-

ent.

For Florida celery, a price change brought about a change in customer purchase

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rates of almost equal size. Increasing the price of Florida celery by 1 percent resulted

in a decline in the customer purchase rate of 1.02 percent. Conversely, decreasing

the Florida price by 1 percent caused customers to increase their purchase rates by 1.02

percent.

Percent Change
in Price

+2-

+10 "

0-

Fl orida
-2 -- California

-4 -3 -2 -1 0 +1 +2 +3 +4
Percent Change in Quantity

Fig. 3.--Response of customers to price changes for Florida and
California celery.

Customers were somewhat more sensitive to changes in the price of California

celery than they were to changes in the price of Florida celery. A 1 percent change

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in the California price resulted in a 2.55 percent change in the rate at which customers

purchased this product. As prices were increased, customers adjusted their purchases

downward byan amount2.55 times as great as the proportion by which the price rose. As

prices fell, purchases increased 2.55 times as much as the percentage of the price reduc-

tion.

The greater sensitivity of customers to price changes for California celery tends to

give this product an advantage under certain market conditions. Specifically, the price

reduction required to clear a market under any given condition of short-term oversupply

would be considerably less for California celery than for Florida celery. This would be

true because customers increased their purchases much faster when the California price

was lowered than they did when the Florida price was lowered.

B. The Extent to Which Customers Will Substitute One Product for the Other

At the outset of this discussion, it is important that the reader understand precisely

the concept of substitution in the context in which it will be used. The concern here is

with how a change in the price of one type of celery will affect the sales of the other if

its price remains the same. For example, how will an increase in the price of Florida

celery affect the sales of California celery if the price of the California product does not

change? Or, how will an increase in California prices affect Florida celery sales if the

Florida price does not change? This is the kind of substitution that is under considera-

tion here.

Customers were compelled to reconsider the relative values of the two products

each time a new price combination was introduced. Considerable shifting on the part of

10-

customers from the purchase of one to the other resulted from the use of prices represent-

ing a wide range of differences between the two products. Through a statistical analy-

sis of these shifts, it was possible to establish the extent to which a price change for one

of the two products affected the sales of the other.

Changes in the price of Florida celery had a material effect on the sales volume

of California celery. As the price of Florida celery increased, customers decreased their

purchases of this product and increased their purchasesof California celery. Conversely,

a decline in the Florida price resulted in higher Florida celery sales and smaller pur-

chases of California celery. The analysis indicates that a 1 percent change in Florida

prices, under conditions where the California price did not change, could be expected

to bring about a corresponding change of 0.66 percent in California celery sales. In-

creasing the Florida price by 1 percent resulted in increases of 0.66 percent in Califor-

nia sales. Decreasing the Florida price by 1 percent brought about a corresponding de-

crease of 0.66 percent in purchases of the California product. The nature of the rela-

tionship between Florida price changes and California celery sales is shown in Figure 4.

Upward or downward movements in the price of California celery likewise affect-

ed the sales of Florida celery. However, the effect of a California price change on the

amount of Florida celery which customers purchased was somewhat less than the effect

of Florida price changes on sales of the California product. Changing the price of

California celery by 1 percent resulted in a change of 0.59 percent in the purchase

rates for Florida celery. Raising the California price by 1 percent increased the sales

of Florida celery in the amount of 0.59 percent. Lowering the California price by 1

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percent reduced the sales of Florida celery by 0.59 percent. The relationship between

California price changes and the sales of Florida celery is shown in Figure 5. Again,

this relationship is based on the assumption that the Florida price remains unchanged as

the California price increases or decreases.

Percent Change
in Florida
Price

31-

-2 -1 0 1 2
Percent Change in California Sales

Fig. 4.--The effect of Florida price changes on California
celery sales.

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Percent Change
in California
Price

37

I I I I I
-2 -1 0 1 2

Percent Change in Florida Sales

Fig. 5.--The effect of California price changes on Florida
celery sales.

Customers appear quite willing to make substitutions between Florida and Cali-

fornia celery. A price increase or decrease for either of the two products brought about

substantial corresponding increases or decreases in the sales of the other. Customers did

not, however, regard the two products as equally good substitutes for one another. They

13-

were somewhat more willing to substitute California celery for Florida celery than they

were to substitute Florida celery for the California product. This means that rising Cali-

fornia prices will have less effect on Florida celery sales than rising Florida prices would

have on California sales.

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VI. HOW VARIOUS SUPPLY SITUATIONS AFFECT PRICES OF EACH PRODUCT

Since customers are quite willing to substitute celery from either producing area

for that grown in the other, these two products are linked together in the market place.

Actions of producers or marketing agencies in one area inevitably affect the market con-

ditions for the other. The effect of each product upon market conditions confronting

the other is determined not only by the degree to which the two types of celery are sub-

stitutable, but also by how customers respond, in a purchase sense, to price changes for

each. These are the relationships that were examined in the previous section.

The final effects of the demand and substitution relationships between Florida and

California celery can be illustrated by examining the results of two basic situations.

First, it is possible to estimate the effects of a change in the supply of one of the prod-

ucts only upon the prices of both. Second, it is possible to examine how supply changes

of equal size in both producing areas will affect the price of each product. The fol-

lowing discussion is based upon a rather involved analysis of the statistical relationships

previously discussed. Naturally, the specific results are limited somewhat because of

the smallness of the market area in which the research was conducted in relation to the

national market for celery. However, they do provide a good idea of how the prices

of the two products are linked together, and how the prices for each product might be

expected to respond to various types of changes in supply conditions.

A. Effects of Supply Changes in One Product Only

Estimates of the effect of increasing the supply of either of the two types of celery

under conditions where the other remains unchanged are shown graphically in Figure 6.

15-

Fig. 6.--The effect of increases in supply of celery from one producing area
on the prices of both products.

16-

The study results indicate that a 10 percent increase in the supply of Florida celery un-

der circumstances where there is no change in the California supply will bring about a

10.4 percent decline in Florida prices and a 2.8 percent decline in California prices.

If the California supply were to remain the same and the Florida supply were to increase

by 20 percent, then the Florida price could be expected to decline by 19.0 percent

and the California price could be expected to decline by 5.3 percent.

Increasing the supply of California celery under conditions where the Florida sup-

ply remains unchanged will result in the major price effects being felt by California

producers, but the Florida price will also undergo a downward adjustment. A 10 per-

cent increase in California celery supplies alone would reduce the price of this product

by 4.3 percent. The secondary effect of the California price decline upon the price of

Florida celerywould be a reduction of 2.5 percent. Increasing the California supply by

20 percent would bring about a reduction of 8.1 percent in California prices and a de-

cline of 4.7 percent in Florida prices. The price decline required to move a given sup-

ply increase for California is less than that required to move a comparable supply of

Florida celery. Consequently, the price adjustments experienced by California pro-

ducers would be somewhat less than those experienced by Florida producers in the same

situation.

Conditions of short supply for either Florida or California celery would result in

higher prices for both products (Fig. 7). A 10 percent decrease in the supply of Florida

celerywith no change in the California supplywould bring about a 13.0 percent increase

in Florida prices and an increase of 3.2 percent in the California price. A one-fifth

17-

Fig. 7.--The effect of decreases in supply of
on the prices of both products.

celery from one producing area

- 18-

reduction in Florida celery supplies would bring about 29.5 percent price increase for

this product. In conjunction with this increase in Florida prices, California celery

prices would rise by 6.9 percent, even though the supply remained unchanged.

Decreases in supply affect the price of California celery much less than compara-

ble supply decreases affect Florida celery prices. However, short supplies of Califor-

nia celery will influence Florida prices by about the same amount as short Florida sup-

plies influence California prices. A 10 percent decline in California celery supplies

could be expected to raise the price of this product by 5.0 percent. As a result of this

California supply decrease, Florida celery prices would, in turn, increase by about 2.8

percent. A reduction of 20 percent in California supplies would bring about a 10.8 per-

cent increase in California prices. In addition to the increase in California prices re-

sulting from a 20 percent decrease in the supplies of this product, Florida celery prices

would also rise by 6.1 percent.

B. Effects of Changes in the Supply of Both Products

The net effect on prices of Florida and California celery that could be expected

as a result of 10 and 20 percent changes in the supply of both is shown in Figure 8. If,

from a given market situation, the supply of both Florida and California celery is in-

creased by 10 percent, the study findings indicate that the net effect would be a fall

of 12.7 percent in Florida celery prices and a fall of 7.0 percent in the price of Cal-

ifornia celery. A net increase in supply of 20 percent in both areas would result in a

decline in Florida prices of 22.9 percent and a decline in the California price of 12.9

percent. It is apparent that large supplies from both areas would have a material effect

19-

I. Effects of Supply Increases

Percent
Increase
in Quantity
Florida 10
California 10

Percent Decrease in Price

112.7

Florida
California

22.9

II. Effects of Supply Decreases

Percent
Decrease
in Quantity
Florida 10
California 10

Florida 20
California 20

Percent Increase in Price

M 16.2

37.4

0 10 20 30 40
Percent

Fig. 8.--The effects of increases
areas on prices.

and decreases in supplies from both producing

- 20-

on the prices which the products would command in the market. More important, how-

ever, is the fact that the price decline which Florida celery would experience under

conditions where the supply from both areas increased by the same relative amount would

be about twice as large in a relative sense as the price decline that California celery

would experience.

Under conditions of relative short supply, the comparative positions of the two

areas would be reversed. Short-term downward changes in supply would bring about up-

ward adjustments in the price of Florida celery that would be substantially greater than

the price increases that would occur for California celery. If supplies from both areas

were reduced by 10 percent, Florida prices could be expected to rise by 16.2 percent

while California prices would increase by 8.3 percent.

Larger supply reductions would result in even larger upward price adjustments for

both Florida and California celery, and the price advantage gained by the Florida prod-

uct would become progressively greater. Under conditions where the supply of both

products was reduced by 20 percent, California prices could be expected to increase by

18.5 percent, and Florida prices by 37.4 percent.

A peculiarity of the competitive relationship between the two products is that it

works in such a fashion that increasing the supply of both products by a given relative

amount does not have the same effect on prices as that resulting from a decrease in sup-

ply of the same magnitude. It can be seen from Figure 8 that the price reductions re-

sulting from supply increases, in each instance, are less than the price increases that

may be expected under conditions where the supply of celery available becomes smaller

21 -

by the same relative amount. This condition becomes especially conspicuous when rela-

tively large supply changes are involved. An increase of 20 percent in the supply of both

Florida and California celery would be expected to bring about retail price declines for

the two products of 22.9 and 12.9 percent, respectively. On the other hand, a decrease

of 20 percent in the supplyof both could beexpected to result in an increase of 37.4 per-

cent in the Florida price, and to bring about an increase of 18.5 percent in the Califor-

nia price.

- 22 -

VII. ANOTHER ASPECT OF COMPETITION: DIFFERENCES
IN CONTAINER AND STALK WEIGHTS

Throughout the study, records were kept on the net weights of wholesale con-

tainers of Florida and California celery received at the test stores, and sample weights

were recorded for individual stalks in these containers. These weights were analyzed

to determine if there were differences in the physical volume of celery shipped to the

market from each area, and to find out if customers actually obtained a larger quantity

of celery when they bought one product than when they bought the other.

The quantity of celery contained in a crate shipped from California was substan-

tially larger than the quantity contained in a crate shipped from Florida (Fig. 9). The

net weight of crates of Florida celery averaged 52 pounds while the net weight of Cal-

ifornia crates averaged 61 pounds. Only 2 percent of the Florida crates contained as

much or more celery than that found in the average crate of celery from California.

Crates of California celery were somewhat more variable in weight than crates of

Florida celery. The lightest California crate encountered contained 50 pounds of celery

while the heaviest contained 73 pounds. The difference between these two crates a-

mounts to 23 pounds. Florida crates varied in net weight from 48 to 65 pounds--a dif-

ference of 17 pounds.

Individual stalks of California celery weighed an average of 29.6 ounces (Fig. 10).

The average weight for stalks of Florida celery was 25.7 ounces. California celery out-

weighed Florida celery by an average of 3.9 ounces per stalk, or almost 1/4 pound.

From the standpoint of uniformity, the individual stalks of the two products were

23 -

Pounds

47.50- 49.49

49.50 51.49

51.50- 53.49

53.50- 55.49

57.50 59.49

59.50 61.49

61.50 63.49

63.50 65.49

65.50 67.49 Florida

Percent
ig. 9.-The variation in crate weights for Florida and California celery.

67.50 69.49
69.50 71.49

71.50 73.49
I I 1 I
0 10 20 30 40
Percent

Fig. 9.--The variation in crate weights for Florida and California celery.

24 -

about equal. Stalks of California celery varied in weight from 15 to 50 ounces, while

stalks of Florida celery were found that weighed as little as 16 ounces and as much as 48

ounces.

A~tl i

~Jt6t "
/ti~

Fig. 11.--Variation in the size of Florida and Cali-
fornia celery. The two stalks on the left came from a
crate of Florida celery, and the two on the right from a
crate of California celery.

For both products, it is apparent that there was a very considerable variation in

the size of stalks within a wholesale container. The extent of this variation indicates

that size designations are only generally descriptive of the individual stalks within a

wholesale container. In actuality, a container from either producing area is likely to

contain stalks of celery that differ materially in appearance.

-26-

Florida
California

15-16 17-18 19-20

-22 23-24 25-26 27-28 29-30 31-32 33-34 35-36 37-38 39-40 41-42 43-44 45-46 47-48 49-50
Ounces

Fig. 10.--The variation in stalk weights for Florida and California celery.

Percent

304

20-

I
10-
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ACKNOWLEDGMENTS

The assistance and cooperation provided by the following individuals and firms made it

possible to conduct this study:

In the Chicago Market Area

The National Tea Company
Mr. Harold Wilkins
Mr. Harry Van Tuyle

N. Roth and Sons
Mr. Martin Roth
Mr. Samuel Senn

Caruso Fruit Distributors
Mr. Anthony J. Arrigo
Mr. Daniel Arrigo

Central Cold Storage Company
Mr. Joseph Podgorski

Others

Messrs. M. L. Cullum and L. R. Johnson of Chase and Company, Sanford, Florida

Mr. George Wedgeworth of Wedgeworth Farms, Belle Glade, Florida

From the University of Florida:

Mr. L. A. Powell, Sr. gave valuable assistance in connection with the statistical
analysis of the data.

Dr. H. W. Burdine and Mr. E. A. Wolf made many helpful suggestions during the
formative phases of the work, and assisted in procuring the necessary supplies
of celery.

During the field work, A. H. Spurlock, Gordon R. Powell, and Floyd W. Williams
gave unstintingly of their efforts, and contributed greatly to its successful
completion.

Mrs. Billie S. Lloyd performed the statistical computations.

'9