Supermarket milk price study nets Bonanno Roy C. Buck Faculty Award

Supermarket milk price study nets Bonanno Roy C. Buck Faculty Award

Alessandro Bonanno

Alessandro Bonanno, assistant professor of agricultural economics in Penn State's College of Agricultural Sciences, has received the 2009 Roy C. Buck Faculty Award in the Agricultural Sciences for his article "Competition Effects of Supermarket Services."

The award recognizes an untenured faculty member in the college for the best article in the social or human sciences to be published in a refereed scholarly journal in the past two years. Bonanno's article was co-authored by Rigoberto A. Lopez, professor of agricultural economics at the University of Connecticut, and appeared in the August 2009 issue of the American Journal of Agricultural Economics.

The award presentation is scheduled for 3:30 p.m. Thursday, April 1, in 109 Osmond at the University Park campus of Penn State, to be followed by a brief presentation of the research article.

Bonanno studied differences in milk prices across 15 supermarket chains in different areas of the United States to determine how effectively supermarkets differentiate themselves from one another. The authors chose milk because its characteristics vary little from one store to the next, providing a good benchmark for the analysis. They analyzed milk prices and the demand for milk while examining two factors: the physical size of the store in square footage and the range of services the store provides, such as a bakery, pharmacy, restaurant, seafood department, and other amenities.

The authors found that as a result of service competition, rather than price competition, supermarkets differentiated themselves from competitors and also could successfully attract consumers who were less "price sensitive." As consumers follow a one-stop-shopping model and bundle their purchases, supermarkets compete with one another to attract and keep consumers in their stores via increasing the level of services they provide, Bonanno explained.

"This is one of the first papers looking at the effects of retailers competing for consumers' attention, not through prices, but through other features, and how that eventually impacts the prices that consumers pay and the retail chains' performances," he said. "If a consumer prefers to shop in a store with certain features that facilitate the one-stop shopping -- for example a pharmacy, a restaurant and salad bar, or a bank -- he or she will be more likely to spend more time and more money in that store, and worry less if certain "staple" products such as milk are more expensive than in another store."

Bonanno said that some consumers are willing to pay more for getting additional services at a supermarket and that they may do so consciously. He warned, however, that consumers may be charged more for items that have nothing to do with the additional services provided to them. "If, for example, you go to a store with a pharmacy, you may be charged higher prices for products, such as milk, that have very little to do with this service," he said. "Consumers simply end up paying for the entire bundle of features that the store offers, which is likely to result in retailers gaining higher margins."

Before joining the Penn State faculty in 2008, Bonanno served as assistant professor in residence at the University Connecticut Department of Agricultural and Resource Economics, where he obtained master's and doctoral degrees in agricultural and resource economics. He also holds a bachelor's degree in food science and technology and a doctorate from Università di Catania; Italy.