Impact of food nutrition labels on retail pricing and consumer purchasing

The Nutrition Facts labels on the back of packaged food help consumers by breaking down the ingredients and nutritional value of the product. That information is supposed to help consumers make informed food choices, but do these labels provide a complete picture of what “healthy” really means? And does the way information is provided on food labels change consumers’ perceptions and purchasing behavior?

To answer these questions, Chen Zhen, a University of Georgia professor in food choice, obesity and health in the Department of Agricultural and Applied Economics is leading a study recently funded by a grant from the U.S. Department of Agriculture National Institute of Food and Agriculture. In partnership with international colleagues, Zhen will observe and compare the influence of nutrition labeling systems used in the U.S. and the European Union (EU) to inform future policy decisions in those countries.

The four-year, $794,000 award will help the researchers better understand how the use of supplementary nutrition information on packaged food labels, particularly front-of-package (FOP) labels, have unintended consequences across the socioeconomic spectrum.

Zhen, faculty in the College of Agricultural and Environmental Sciences (CAES), said his work centers on the economics of nutrition and healthy eating. “There’s been a long-standing interest in the causal effect of providing additional information on food labels to consumers, particularly interpretive labeling that communicates more than just numeric facts,” explained Zhen.

The evolution of Nutrition Facts labels

In 1990, the Nutrition Labeling and Education Act (NLEA) mandated standardized Nutrition Facts labels on most packaged foods. However, for average consumers who make countless food decisions each day, these lengthy labels are often challenging to review and understand when making quick decisions, Zhen explained.

In the decade following the passage of the NLEA, the consumer use of labels declined and the obesity epidemic escalated, prompting the search for supplemental labeling strategies to help consumers use the information in a more comprehensive manner. Zhen said that strong international interest to improve diet quality led to the use of FOP nutrition labels that provide a quick summary of the food’s healthfulness.

Companies began adopting FOP summary labels, which penalize nutrients and nutrition factors that are generally considered to have unfavorable health effects and reward those that are beneficial to health. One such company was NuVal. At its peak, more than 2,000 grocery and retail stores had adopted the NuVal FOP label. By 2013, Zhen said the algorithm used by NuVal had become more rigorous, assigning a numeric score — with one being the least healthy to 100 being the healthiest — to provide a quick snapshot for busy consumers.

How labeling impacts pricing strategies and consumer behavior

“I had taken great interest in what impacts this change might have down the line,” said Zhen. “Using yogurt as a case study, what my colleagues and I saw was a marked reduction in NuVal scores for most yogurts after the algorithm changed — the products essentially became less healthy overnight.”

Interestingly, NuVal closed its doors just three years after the new algorithm was implemented. Zhen suspected that retailers began opting out of using the FOP summary labels in response to some packaged food products receiving lower ratings.

Zhen and his colleagues observed yogurt sales before and after the algorithm was revised, reporting an obvious decline in sales for products that received lower scores and a reactionary price reduction in the lower-scoring products — a tactic Zhen believes was an effort by retailers to compensate for the loss of sales.

“And that strategy worked to a degree,” he said. “When prices declined, even though the products had received lower scores, sales picked up again.”

Zhen wanted to know whether consumers’ purchasing behaviors were the only factors influenced by perceptions of the healthfulness of foods.

Unintended consequences of creating food disparities

“We are keen to believe there are unintended consequences happening here that negatively impact consumers,” he said.

When less healthy foods become less expensive, people are more inclined to purchase them, regardless of their health score, Zhen said, adding that the inverse is true for higher-scoring foods. In their study of yogurt sales, retailers increased prices for healthier products.

“The implication is that people with more money are able to purchase healthier foods, whereas people with less money are more likely to purchase less healthy foods,” he said. “We call this a nutritional disparity, or health gap, that can be seen in tandem with the wealth gap.”

Published in the American Journal of Agricultural Economics, the research earned the Best Article in Food Safety and Nutrition Award from the Agricultural and Applied Economics Association earlier this summer.

International partnership looking for similar trends in Europe 

That research served as the preliminary work for the current study, in which the international team will look at a similar labeling system called Nutri-Score being used throughout Europe. The team is collecting data on all packaged food items to see what potential purchasing changes occur across all food types in response to the revised algorithm.

Joining Zhen from Singapore is Eric Finkelstein, a renowned health economist who has performed groundbreaking research on the economic cost of obesity, and Sinne Smed, an expert on food policy issues in the EU from the University of Copenhagen.

At the beginning of 2023, the EU mandated that Nutri-Score revise its algorithm similarly to the updated system NuVal adopted before going out of business.

Scanner and sales data on packaged products will be used to compare what, if any, differences can be seen before and after the implementation of the new algorithm, Zhen said. The team will also be looking for pricing adjustments made by retailers in response to changes in scores and how price fluctuations may affect purchasing behaviors.

Finkelstein and Smed will compare their findings to the U.S. data to learn whether similar trends play out in terms of consumer behaviors and pricing adjustments.

Implications for food labeling legislation

Zhen said the work has huge implications for the near future, as the U.S. House Committee on Appropriations encouraged the exploration of mandatory FOP labels in its agriculture spending bill for fiscal year 2022. In September 2022, the White House announced that the U.S. Food and Drug Administration would research, develop and propose plans to standardize an FOP labeling system for packaged foods to help consumers, particularly those with lower nutrition literacy, quickly and easily identify foods that are part of a healthy eating pattern.

“Our analysis will help address this concern and provide estimates of the net effects of NuVal and Nutri-Score for both more and less advantaged households in an effort to inform policymakers of the likely effects of a mandatory nutrition label,” explained Zhen.

As more EU member countries and food companies voluntarily adopt the Nutri-Score label, understanding the effect of Nutri-Score on consumer demand and retail prices will benefit U.S. exporters who will eventually need to decide whether to affix the Nutri-Score symbol to products exported to the European market, Zhen added.

By Emily Cabrera
Emily Cabrera is a writer and public relations coordinator for the College of Agricultural and Environmental Sciences at the University of Georgia.