Functional foods as differentiated products: The Italian yogurt market

In spite of the growing consumers' interest for functional foods, the knowledge regarding the demand for these products and their profitability is limited. Adapting the LA/AIDS (Linear Approximated-Almost Ideal Demand System) model by means of Pinkse, Slade and Brett's distance metric method (2002), this article studies demand, substitution pattern, and profitability of conventional and functional alternatives inside the yogurt category in Italy. Results indicate that, in the yogurt market, functional alternatives' demand is often less elastic than that of their conventional counterparts, that brand loyalty plays a key role, and that the profitability of the functional alternatives is, on average, larger than that of conventional ones.