An analysis of the retail grocery industry: The spatial effects of supercenters

Bobby J Martens, Purdue University

Abstract

During the past two decades, grocery has shifted from an industry dominated by small grocers serving local markets to one characterized by large retailers present in international markets. Supercenter and warehouse stores continue to expand into the retail grocery industry due to many factors, including supply chain management strategies which drastically lower costs compared with traditional grocers, fewer weekly trips to supermarkets by consumers, and evolving store formats. The Schumpeterian tradition would suggest that the "creative destruction" introduced by supercenter and warehouse stores should drive economic progress, but concerns have emerged that the large international grocers are in a position to harm consumers.^ Therefore, this research analyzes he effects of entry by supercenter and warehouse stores on retail grocery market concentration, changes in the growth and location of retail grocery sales, and changes in the number of convenience and specialty stores. Urban and rural areas of the U.S. are evaluated separately, when possible, and the spatial aspects of location are considered in the models. Important results are that WalMart Supercenters increase retail grocery concentration and that entry by supercenter and warehouse stores in rural counties increases the growth in grocery sales by as much as 0.287 points. Grocery sales are shifted from counties without supercenter and warehouse stores to counties where the large stores enter and operate.^ The results have important implications for policy makers and the grocery industry, while the spatial methods suggest new approaches for future research. First, rural and urban differences should be considered when modeling retail grocery concentration, because large stores rely on economies of size that often cannot be supported in rural grocery markets. Therefore, large shifts in retail grocery sales are occurring from rural counties without supercenter and warehouse stores to counties with supercenter and warehouse stores. Second, location and spatial relationships are important when modeling the retail grocery industry. Large supercenter or warehouse stores affect the area entered and the effects spillover into surrounding areas up to 75 miles from the point of entry. Finally, as small supermarkets exit grocery retailing, there is new entry by convenience stores, supporting the logic of creative destruction.^

Degree

Ph.D.

Advisors

Frank Dooley, Purdue University.

Subject Area

Economics, Agricultural

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