Retail intermediation and local foods

Direct sales of local foods, for instance through farmer's markets, have reached a plateau, while intermediated sales (through more traditional retailers) are still rising rapidly. We provide an explanation for the growth of intermediated local foods based on the observation that consumers prefer to buy local foods as part of a shopping basket that includes both local and non-local items. We test our hypothesis using data from a natural experiment conducted by Relay Foods, an online retailer based in the U.S. state of Virginia, and a multi-variate logit model of shopping-basket demand. We find significant complementarities among items in a sample shopping basket that are not reflected in estimates from a discrete-choice model of category demand. Estimates of a structural pricing-and-localcontent model reveal important incentives for retailers to offer local foods as part of a broader selection of grocery items.