Inequality is known to have a wide range of consequences.  New research from Washington University in St. Louis highlights how it can impact the kind of food we eat.  The researchers highlight how COVID-19 caused concern about supplies of food, but that even before the pandemic, there was a divergence in demand for food that was being caused by inequality.

The study suggests that the variety of supply in the market is typically driven by the income shares of the middle and upper-middle classes.  The middle class has been somewhat hollowed out, however, which has impacted the range of food on our shelves too.

“We find that as we become a more unequal society, the total set of products we have to choose from is reduced, holding average level of income constant,” the researchers say.  “This happens largely because as income inequality grows, the people whose income is growing do not spend much more at supermarkets. But people whose incomes are cut reduce their spending quite a bit, leaving less total spending and, thus, less support for niche products.”

Income distribution

The researchers examined the disparities in income distribution across over 1,700 counties in the United States from 2007 to 2013.  They used the Gini coefficient to measure inequality, with zero representing absolute equality and 1 maximum inequality.

They then compared the rating for each county with the product range available in grocery stores across 950 or so categories of non-perishable goods.

The researchers highlight that consumer packaged goods companies released a wide range of new products during the study, while over two-thirds of the counties also suffered from worsening inequality.

The analysis revealed that the range of products grew 18% slower in counties where income inequality widened compared to counties where it narrowed, where more products were on the shelves.

Why inequality matters

This phenomenon was largely caused by changes in the income of those in the middle class.  When middle-class share of income rose, the variety of goods in store rose, but when it fell, so too did the range of goods for sale.

“The conventional wisdom is that greater inequality means that we have greater diversity of desires, and that this should increase the number of product offerings in the store. Finding the opposite effect made us think harder about how assortment is driven by income inequality,” the researchers explain.

“A large factor is that consumers spend a smaller percentage of their income at supermarkets as their income rises, since they fulfill their needs at some point, or even move to consumption at restaurants or other options. However, we also see that greater inequality comes from the hollowing out of the middle class, so greater income inequality does not necessarily lead to greater heterogeneity—it leads to a large group of consumers with lower incomes that become more similar to each other.”

These issues can be exacerbated by policy interventions that have unintended consequences on the welfare of consumers.

“For example, the U.S. government recently increased the minimum number of offerings per category required for retailers to participate in the food stamp program,” the authors explain. “A long-term implication of our results is that consumers’ ability to use food stamps may decline in areas where falling average income and rising income dispersion leads retailers to reduce their assortments and possibly stop participating in the food stamp program.”

Similarly, the changes that arise in the range of goods derived from the changes in income distribution can also impact the welfare of consumers, especially those whose preferred items are no longer available.

The researchers also believe that their findings shed some light on manufacturing, and can help companies to understand how income inequality can impact the marketing efforts of a company.

“Our results show that markets with rising income inequality experience assortment pruning by the grocery channel and markets with falling inequality see expansion,” the researchers conclude. “With data on local changes in the Gini index, managers may be better able to guide either defensive actions to retain shelf space or offensive actions to acquire it.”