Retail Premiums for Honey Characteristics

Laurian J. Unnevehr
Fatoumata C. Gouzou

The retail demand for characteristics of honey is estimat-
ed using retail scanner data. The results show that con-
sumers pay substantial premiums for honey based on
form, container, brand, and floral source. The highest
price premiums are associated with unique monofloral
sources, followed by other unusual, but less pure, floral
sources. The results demonstrate that consumers will pay
for unique characteristics of honeys associated with par-
ticular floral sources. Thus, honey producers may be able
to further promote honey products or develop new prod-
ucts on the basis of floral source differentiation. 1998
John Wiley & Sons, Inc.
Recent changes in U.S. agricultural policy will
bring greater market orientation in many commodi-
ty markets. Honey is one agricultural product that
Requests for reprints should be sent to L. Unnevehr, Dept. of Agricul-
tural Economics, 305 Mumford Hall, MC-710, University of Illinois,
1301 W. Gregory Dr., Urbana, IL 61801.
has experienced a sharp reduction in federal sup-
port.1 With the loss of federal programs, honey
producers must rely on payment for pollination ser-
vices, which are likely to be small,2 or on the con-
sumer market. For the latter market, honey pro-
ducers may want to consider product differen-
tiation to increase the total value of sales. To do
this, producers will need information about current
consumer demand for product characteristics. New
products are frequently combinations of character-
istics in existing products; thus, an understanding
of current demand for characteristics may give in-
sights into the potential demand for new combina-
tions.3
This article demonstrates how retail scanner data
can be used to estimate demand for product charac-
teristics. Scanner data can provide a new source of
information about market demand for characteris-
tics. In the case of honey, an important question is
whether consumers are already attuned to differ-
ences among honeys and willing to pay premiums

L.J. Unnevehr is an Associate Professor in the Department of Agricultural and Consumer Economics, University
of Illinois at UrbanaChampaign.
F.C. Gouzou is a graduate student in the Department of Agricultural and Consumer Economics, University
of Illinois at UrbanaChampaign.
Support for this research was provided by the Value-Added Program of the Illinois State Experiment Station. The authors thank Profs. May
Berenbaum and Gene Robinson, Department of Entomology, UIUC, for their collaboration and insights, and Mary Humann of the National
Honey Board for sharing information.

Agribusiness, Vol. 14, No. 1, 4954 (1998)

1998 John Wiley & Sons, Inc. CCC 0742-4477/98/010049-06

49
 Unnevehr and Gouzou
for specialty characteristics, such as unique floral
sources. The retail scanner data used here provide
new and interesting insights into consumer demand
for specialty characteristics of honey that may be
useful to the honey industry for informing product
development and promotion efforts.
Consumer Demand for Quality Characteristics
Several authors have proposed an alternative view
of consumer demand in which consumers derive
utility or satisfaction from the characteristics that
goods possess, rather than the goods themselves.47
Applications of this hedonic price model include
measurement of the value of food nutrients to con-
sumers,8 evaluation of grading systems,9 and mea-
suring the value of fat characteristics in beef cuts.10
Ladd and Suvannunt,8 drawing on Lucas,7 devel-
oped a hedonic price model that has assumptions
suited to analyzing food demands. In their model,
the amount of each characteristic obtained from
each good is fixed to the consumer (and variable to
the producer), and the consumer determines the
quantities of goods consumed. Hedonic prices are
not required to be nonnegative as they are in Lan-
casters earlier model.5
Ladd and Suvannunt (p. 505)8 show that
M dX oj dU/dX oj
Pi = , (1)
j = 1 dq i dU/dE
where Pi is the market price of product I; Xoj is the
total amount of the mth product characteristic pro-
vided by consumption of all goods; qi is the amount
consumed of product I; U is consumer utility, which
is a function of goods characteristics and the quan-
tity of characteristics consumed; and E is total ex-
penditure. The marginal yield of the jth product
characteristic by the ith product is dXoj /dqi. The
marginal utility of the jth product characteristic is
dU/dXoj, and dU/dE is the marginal utility of in-
come. Therefore, their ratio is the marginal implicit
price of the jth characteristic. Equation (1) states
that the product price paid by the consumer equals
the sum of the marginal values of the products
characteristics. Each value is equal to the quantity
of the characteristic obtained from a marginal unit
of the product multiplied by the marginal implicit
price of the characteristic.
Because the yield of most product characteristics
is constant for each unit of product, dXoj /dqi 5 Xij
5 constant is assumed. Furthermore, the marginal
implicit price is also assumed to be constant and is
represented by Pij. Therefore, Eq. (1) for a partic-
ular product, F, becomes
M
PF = XFj PFj . (2)
j =1
The addition of a random error term to Eq. (2) pro-
vides the familiar equation used to estimate hedonic
prices, PFj , from observations of characteristics,
XFj , and market prices, PF, of different qualities of
good F.a
Retail Scanner Data
The data for this analysis are from A.C. Nielsen.
This firm samples scanner transactions at US su-
permarket chains selling over $2 million annually,
which account for 83% of US food sales at retail.
The results reported below represent the first appli-
cation of hedonic price analysis using scanner data.
(See Cotterill11 for a review of scanner data appli-
cations to measurement of market demand and
market power.)
The honey data obtained from A.C. Nielsen12 con-
sists of US average sales for a year ending Septem-
ber 9, 1995, for an item sold at retail (e.g., Sue Bee
Clover Honey in 12-oz. squeeze bottles). The data
report information about the item such as size, con-
aAn important issue is whether supply or demand for characteristics
are identified in any particular estimation of Eq. (2). Rosen6 demon-
strated that any estimated hedonic price represents both the marginal
utility of characteristics to consumers (demand) and the marginal cost
of producing goods with a certain characteristic (supply). Rosen sug-
gested that the demand curve is identified when all consumers are iden-
tical but producers have different costs of production.6 Hanneman17
further suggests that the identification problem is the same as that aris-
ing in the neoclassical model and that if the consumer faces perfectly
inelastic supply curves for commodities, there is no identification prob-
lem. Honey quantities supplied (and hence honey characteristics) are
predetermined at the retail level for short time periods. Therefore,
these estimated hedonic prices identify consumer demand for quality
characteristics.
50
 Honey Characteristics

Table I. Honey Product Characteristics in Nielsen Retail Scanner Data.

No. Items in Dollar Volume

Dummy Variable Definition Items Sample (%) in Sample (%)

Squeeze Bottle 112 8.6 19.1

Plastic Bear 201 15.5 15.5
Other Plastic Container 219 16.9 11.2
Comb Honey 26 2.0 0.7
Creamed or Spun 95 7.3 8.9
Generic or Store Brand 406 31.4 27.6
Clovera 604 46.6 47.0
Orange Blossoma 75 5.8 3.4
Unique Monoflorala 115 8.9 1.1
Other Florala 96 7.4 2.7

Note: The total sample contains 1295 items. Number of items and percent of sample refer to obser-
vations from which the dummy variable 5 1.
a
The flavor dummy variables contain the following flavors identified in the data:
DFLAVB1: Clover includes all flavor names with clover as one of the words: alfalfa and clover,
Canadian clover, clover, clover blossom, clover wildflower, Dakota clover, Dakota sweet clover,
gold clover, Montana clover, mountain clover, New England clover, Pennsylvania clover, Texas
clover, and white clover.
DFLAVB2: Orange blossom includes all flavor names with orange as one of the words: CA orange,
orange, orange blossom, and Santa Barbara orange.
DFLAVB3: Other monofloral includes all flavors that appear to be pure monoflorals but are not
clover or orange: acacia, alfalfa, apple, avocado, basswood, blackberry, blueberry, blueberry
blossom, buckwheat, CA safflower, cranberry, eucalyptus, fireweed, gallberry, HA passion fruit,
huckleberry, lemon, mesquite, MI thistle, mint, raspberry, safflower, sage, strawberry, sunflower,
thistle, tupelo, tupelo blossom, and vetch blossom.
DFLAVB4: Other floral includes any flavor not in the above categories: apple and cranberry, as-
sorted, cactus, desert blossom, desert valley flower, fireweed wildflower, forest haujillo, multi-
flower, ozark wildflower, Texas wildflower, tupelo wildflower, western wildflower, wildberry, wild
huckleberry, and wildflower.

tainer type, flavor, and form, as well as total unit
sales, dollar sales, and average unit price (e.g.,
$1.61 for the item above). There are a total of 1295
observations or individual honey items sold in these
data.b Table I reports the distribution of product
characteristics in the data by percent of items and
percent of dollar volume.
b
Retail scanner data are costly to obtain, because they are collected
and marketed by private firms. In purchasing our data, we chose to fo-
cus on product characteristics rather than on seasonal or regional vari-
ation in demand. While such variation may exist, we wanted to estimate
average demand for characteristics. Therefore, we requested data that
are summarized on an annual national basis but provide the most de-
tail possible regarding product characteristics.
The total retail market for honey reflected in these
data was worth $127.9 million in 1994 to 1995.
Honey is marketed under a large number of brands.
About 28% of total dollar volume is sold with gener-
ic or store-controlled labels. The remaining 72% of
dollar volume is marketed by 253 name brands.
However, there are a large number of brands with
very small market shares. Forty-eight brands ac-
count for 64% of total dollar volume; the remaining
205 brands account for only 8% of dollar volume.
This indicates that the market for honey is charac-
terized by a high degree of brand competition.
Honey products are often differentiated by fla-
vor, which generally indicates floral source. The

51
 Unnevehr and Gouzou
market is dominated by regular or unspecified
flavor (45.4% of dollar volume) and clover flavor
(47%). The market for specialty flavors is a small
proportion of the total dollar volume (7.1%) and is
worth $9.7 million in retail sales. This market is
highly differentiated, and 78 individual flavors are
sold (Table I).
For the analysis of price premiums below, honey
flavors are organized into five groups: regular,
clover, orange blossom, unique monofloral sources,
and other floral sources. Unique monoflorals are
honeys from unusual monofloral sources (e.g., the
acacia tree) other than the relatively common
clover or orange blossom sources. The category of
other floral sources includes flavors whose names
indicate less purity than those in the unique mono-
florals (e.g., western wildflower). Sorting of the fla-
vor data was carried out in consultation with ento-
mologists familiar with potential floral sources.
Other market characteristics noted in the data are
the container type and form. About 40% of the
honey items are sold in plastic containers, including
honey bears and squeeze bottles, and the remainder
in glass (Table I). About 2% of the items are sold
with the comb in; 7.3% are creamed or spun honeys
in which the sugar has been crystallized.
Honey color is classified by the USDA from white
to dark amber.13 (See Hoff and Willett14 for a de-
scription of wholesale honey grades.) In the whole-
sale market, darker honeys are discounted
(USDA)13; thus, the designation of light color
should carry a price premium. Although the whole-
sale price differences vary widely across years,
darker honeys consistently have lower prices than
lighter honeys. Darker honeys are often sold for use
in processed products, and many honeys sold at re-
tail are blended to achieve a uniform amber color.
Unfortunately, color is mentioned very infrequently
on the label data reported to A.C. Nielsen12, so it
was difficult to include this important characteristic
in our analysis of retail prices.
Price Premiums for Honey Characteristics
Price premiums are estimated based on Eq. (2)
above. The regression estimates use 1192 observa-
tions from the original data set. Items that have a
52
very unusual form (e.g., powder) or container (e.g.,
wine glass) or to which other foods have been added
as flavoring (e.g., chocolate) were deleted because
these are not directly comparable to the character-
istics identified for the majority of items, and the
number of unusual observations was too small in
each category to provide a valid statistical measure.
The dependent variable in the regressions is the
unit retail price in dollars. The independent vari-
ables include dummy variables that summarize in-
formation about form, flavor, container, and
whether sold under a store or generic label, and
continuous variables for size in ounces and size
squared (to capture any price discounts associated
with large containers). The coefficients describe
how the price differs for a particular attribute,
holding all other attributes constant. The intercept
is the average price for honey that is regular flavor,
liquid form, glass container, and not marketed un-
der a store controlled or generic label.
It is possible that not all of the dependent variable
observations are truly independent, because items
sold under the same brand are likely to have prices
that are not independently determined. This may
account for some of the heteroskedasticity in the
residuals, which is discussed below. Because there
are 253 name brands and numerous store brands
that are not differentiated in the data, we still have
a considerable number of truly independent obser-
vations. Most of our characteristics, even unique
monoflorals, were observed across many different
brands.
Table II reports estimated coefficients for honey
characteristics in dollars per unit. The characteris-
tics included in the regression explain 77% of the
variation in retail prices. Because multicollinearity
is often a problem in hedonic price estimation, the
Belsley et al.15 diagnostics were generated. The
highest condition index was 15.7; thus, the esti-
mates are not degraded by multicollinearity.
Whites test for heteroskedasticity was significant16
because the variance of the residuals differed by
flavor categories. The variance of the residuals was
higher for observations in the unique monofloral
and other floral flavor categories, in comparison
with regular, clover, and orange blossom observa-
tions. Unobserved characteristics cause greater
price variation in these categories. Because the
 Honey Characteristics

Table II. Estimates of Price Premiums for Honey Characteristics.

Variable Parameter Estimate Standard Error T Statistic

Intercept 0.885 0.105 8.467

Size (oz.) 0.074 0.006 11.514
Size Squared 20.000 0.000 20.877
Squeeze Bottle 20.239 0.054 24.393
Plastic Bear 20.215 0.047 24.576
Other Plastic Container 20.176 0.057 23.091
Comb Honey 1.279 0.226 5.670
Creamed or Spun 0.394 0.085 4.650
Generic or Store Brand 20.228 0.043 25.274
Clover 0.080 0.039 2.059
Orange Blossom 0.101 0.088 1.142
Unique Monofloral 0.554 0.076 7.332
Other Floral 0.389 0.117 3.329

Note: See Table I for definitions of variables. The standard errors have been corrected using the het-
eroskedasticity consistent covariance matrix. The dependent variable is average price per item in dollars.
The intercept reflects the average price for honey that is liquid, regular flavor, in a glass container, and
sold under a name brand. The regression was estimated using 1192 observations from the original sample
of 1295. Observations with very unusual containers, form, or flavors added were dropped because they
are not comparable to other items.
Adjusted R2; 0.77. Whites test; 105.19. Highest condition index; 15.69.
F test for Categorical Variables:
Container dummies 5 0, F (3,1180) 5 9.05.
Form dummies 5 0, F (2,1180) 5 49.15.
Flavor dummies 5 0, F (4,1180) 5 19.96
All F ratios are significant at the 1% level.

standard errors from ordinary least squares are bi-
ased and inconsistent in this case, these were cor-
rected using Whites heteroskedasticity consistent
covariance matrix.16 Significance levels in Table II
are based on the corrected standard errors.
The regression estimates show that several charac-
teristics of honey are significant determinants of
price. The regression coefficient estimates show
that consumers pay $0.07 for each ounce. The size
squared coefficient is not significant, indicating that
larger containers do not carry any significant dis-
count in the honey market. In comparison to name
brands, consumers pay lower prices for generic or
store labels, as would be expected.
The F tests for the container, form, and flavor
variables reject the hypothesis that the dummy
variables in each of these categories are equal to
zero (Table II). Thus, prices do vary according to
form, container, and flavor. Consumers pay lower
prices for plastic containers in comparison to glass,
and the price discounts are similar for the three dif-
ferent kinds of plastic containers.
In addition to brand marketing and packaging,
the characteristics intrinsic to honey are also signif-
icant determinants of price. There are positive
price premiums for honey sold in different forms
(i.e., with the comb in or creamed). With respect to
flavor, the F test indicates that consumers pay sig-
nificant price premiums for monofloral flavors over
regular flavors. Clover and orange blossom carry
similar price premiums of $0.08 to $0.10/item high-
er than regular flavor items. The price premium for
unique monoflorals is $0.55/item. It is interesting to
note that this premium is higher than the $0.39/item

53
 Unnevehr and Gouzou
associated with other florals that are not from one
source. Thus, the distinction between pure and
mixed floral sources in labeling is reflected in mar-
ket prices.
Conclusions
The results show that honey products are highly
differentiated and that consumers are willing to pay
substantial premiums for particular honey charac-
teristics, especially unique floral sources. These flo-
ral sources carry a 65% higher price premium over
the average item price for regular honey. Thus, the
potential exists to market different floral sources of
honey to consumers based on their distinctive char-
acteristics. The small market share of these floral
sources may indicate the need to promote their spe-
cial flavor characteristics to a larger group of con-
sumers.
The results also provide insights into where pro-
duction research might have market payoff. Pro-
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The demand analysis reported above shows that
scanner data can provide a new source of informa-
tion about product characteristic demand at the re-
tail level. The characteristics that are identified as
currently commanding substantial price premiums
provide insights into directions for future promo-
tion efforts. In addition, new product development
can be focused on characteristics that have the po-
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