Strategic Adaptation to Future Demand Shifts: Evidence from Nutritional Labeling

How well can firms predict and respond to future shifts in consumer demand? We investigate this question by examining the effects of a nationwide labeling policy for unhealthy food products. Our analysis uses a novel dataset of hand-collected information over several years, supplemented with administrative data. We first show that sales of products with warning labels dropped sharply, with significant variation across product categories and consumer segments. To avoid the labels, firms strategically adjusted their product designs so that reformulated products fell just below the labeling threshold. Importantly, firms targeted their reformulation efforts toward products that would have been most adversely affected by the labels—both within the most impacted categories and among products sold to the most responsive consumers. Moreover, larger and more successful firms were better at anticipating these demand shifts, which translated into improved performance.