Markets Publications


Tracking Food Product Differentiation by Quality Ratings: A Cross-Entropy Analysis of Specialty Coffee e-Auctions

M. Laura Donnet, Dave D. Weatherspoon, Charles B. Moss

Food quality ratings can be used for product differentiation and strategic marketing. This article develops a differentiation measure based on the cross-entropy of two distributions for speciality coffees. It examines whether quality ratings achieve their objectives for speciality coffee supply chains. The estimation, using e-auctions data, indicates that the quality rating is more informative in the Cup of Excellence (CofE) relative to the Q auction. To determine significance, a statistical test for comparing the information measure across different e-auctions and segments of the quality rating was developed. The significant difference between the two auctions is not a surprise as the auctions trade coffee lots of different volumes and the quality evaluation is more important in the case of the CofE, with its jury of renowned coffee experts. The total cross-entropy measure of product differentiation shows that the 100-point quality rating does not carry the same information content and meaning in the two different e-auctions and their respective supply chains. The cross-entropy measure of product differentiation is shown to be a good indicator of the information and the value created throughout the specialty food supply chain.


The Impact of E-Auctions in Adjusting Procurement Strategies for Specialty Coffee

M. Laura Donnet, Thomas D. Jeitschko, Dave D. Weatherspoon

Supply relationships and e-auctions are complementary procurement forms that specialty coffee roasters can utilize when designing a procurement strategy. We model the roasters’ optimal choices of procurement strategies using an extended newsvendor model. By comparing the optimal strategies in a benchmark case solely based on relationships to a case in which auctions can be utilized, we derive the impact of e-auctions on the procurement quantity and profit under conditions of demand uncertainty. The two stage model predicts that the adjustment of procurement using e-auctions is most beneficial under market circumstances of high demand variability and small firm size. We use industry data to illustrate the market conditions for specialty coffee and discuss the potential impact of e-auctions on procurement strategies for specialty coffee based on our model. The theoretical propositions in conjunction with current industry data suggest that e-auctions have great potential to become an integral part of and shape roasters’ procurement approaches in the specialty coffee market.


Price Determinants in Top-Quality E-Auctioned Specialty Coffees

M. Laura Donnet , Dave D. Weatherspoon and John P. Hoehn

We analyze the price determinants of specialty coffees traded at e-auctions. We hypothesize that since specialty coffees are a highly differentiated product, prices will be determined by both sensory and reputation attributes. To test our hypotheses, we estimate a hedonic price function using data from Central and South American e-auctions and calculate the implicit prices of sensory and reputation attributes. The results show that market clearing prices are a function of sensory characteristics and reputation variables including third-party quality ranking, country of origin, coffee variety, and quantity. The additional attribute information disclosed at e-auctions results in substantially higher prices relative to conventional commodity coffee market prices.


Designing the Last Mile of the Supply Chain in Africa:  Firm Expansion and Managerial Inferences from a Grocer Model of Location Decisions

Dave Weatherspoon and Anthony Ross, International Food and Agribusiness Management Review, Volume 11, Issue 1, 2008

 The recent interest in the expansion of retail food chains and the perceived problems resulting from competition between these new, sophisticated supply chains and the most basic of food distribution networks in emerging economies have been greatly debated in the literature. This paper is a seminal approach to examining South-South food firm (grocer) foreign direct investment by incorporating data on the informal market into a facility location decision model. There are unique environmental complexities that developing/transitioning economies present. The unique finding of this model is that informal employment patterns, in both Agricultural and non-Agricultural sectors, influence the firm’s location. Given the absence of data, South-South foreign direct investment managers perceive avid market transactions as indicators of demand and potential supply availability in formal and informal sectors. For example, Pick n’ Pay’s CEO stated recently that their growth in the Southern Africa supermarket business is a direct result of the informal market converting to the formal market.


What Adds Value in Specialty Coffee? Managerial Implications from Hedonic Price Analysis of Central and South American E-Auctions

M. Laura Donnet , Dave D. Weatherspoon and John P. Hoehn, International Food and Agribusiness Management Review, Volume 10, Issue 3, 2007

We analyze price and quality information at the procurement level in the specialty coffee supply chain using data from small and large volume e-auctions. Hedonic price equations reveal that the Cup of Excellence auction is a more differentiated market disclosing more information about coffee values associated with ratings, rankings, quantities available, and country reputations whereas information in the Q auction is more limited and tends to be remunerated to a lesser extent. These results indicate that there are different business models and valuation of product characteristics within the specialty coffee industry. Management implications are drawn for specialty coffee producers and roasters.