The Impact of Wal-Mart Supercenters on Supermarkets’ Profit Margins (original) (raw)
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Entry of Wal-Mart Supercenters and Supermarkets' Profit Margins
2011
This article quantifies the impact of Wal-Mart Supercenters on supermarkets' profitability via a two-stage dynamic entry game, using method of simulated moments and milk scanner data from Dallas/Fort Worth supermarkets. The empirical findings show that the entry of Wal-Mart Supercenters accounts for about an average 50% decrease in milk profit margins for incumbent supermarkets. Effects of scale are found to be more significant for Wal-Mart Supercenters than for incumbent supermarkets, granting Wal-Mart a competitive edge.
Impact of Wal-Mart Supercenter on a Traditional Supermarket: An Empirical Investigation
2000
Supermarkets operate in an increasingly competitive environment. The rapid growth of alternative retail formats has transformed not only the competitive structure of the industry, but also the way in which consumers shop. The biggest challenge to the industry is coming from none other than the world's largest retailer: Wal-Mart. Although a relatively new player, Wal-Mart through its supercenter format has become the nation's largest grocer and is cited by supermarket managers as their biggest concern in the coming years. Despite the dramatic proliferation of supercenters, relatively little is known about the impact it has on the performance of a traditional grocery store or how it changes consumer buying behavior. This paper provides an empirical study of entry by a Wal-Mart supercenter into a local market. Using a unique frequent shopper database from a supermarket, we study the impact of Wal-Mart's entry on household purchase behavior. The database records purchases for over 10,000 households before and after Wal-Mart's entry. We develop a joint model of inter-purchase time and basket size and allow for a structural break at the time of competitive entry. The model allows us to evaluate the impact of Wal-Mart on household store visit frequency and basket size, while allowing for consumer heterogeneity. We investigate the shopping and demographic characteristics of the consumers that are most likely to shift purchases to Wal-Mart.
Market Entry and Consumer Behavior: An Investigation of a Wal-Mart Supercenter
Marketing Science, 2006
T his paper provides an empirical study of entry by a Wal-Mart supercenter into a local market. Using a unique frequent-shopper database that records transactions for over 10,000 customers, we study the impact of Wal-Mart's entry on consumer purchase behavior. We develop a joint model of interpurchase time and basket size to study the impact of competitor entry on two key household decisions: store visits and in-store expenditures. The model also allows for consumer heterogeneity due to observed and unobserved factors. Results show that the incumbent supermarket lost 17% volume-amounting to a quarter million dollars in monthly revenue-following Wal-Mart's entry. Decomposing the lost sales into components attributed to store visits and in-store expenditures, we find that the majority of these losses were due to fewer store visits with a much smaller impact attributed to basket size. We also find that Wal-Mart lures some of the incumbent's best customers, and that retention of a small number of households can significantly reduce losses at the focal store. Finally, certain observed household characteristics such as distance to store, shopping behavior, and product purchase behavior are found to be useful in profiling the defectors to Wal-Mart. Implications and strategies for supermarket managers to compete with Wal-Mart are discussed.
Supermarket responses to Wal-Mart Supercenter expansion: a structural approach
Empirical Economics, 2013
The impact of Wal-Mart in lowering incumbents' retail prices has been well documented by previous studies using reduced form models. This article uses a structural model to examine the pricing behavior and promotion responses of incumbent supermarkets to a rapid expansion of Wal-Mart Supercenters (WMS) using the Dallas-Fort Worth milk market as a case study. Empirical results verify that WMS expansion disciplines incumbent supermarkets by decreasing oligopoly power and numbing consumer responsiveness to promotion. In addition, WMS expansion lures away price-sensitive consumers, leaving incumbent supermarkets to face more priceinelastic but lower demands for milk.
Journal of Retailing, 2016
In this paper, the authors investigate whether a Wal-Mart supercenter entry engenders differential effects on competitive draws across different product categories and across distinct groups of brands within a product category sold at incumbent supermarkets, and if so, how. They use data from a natural field experiment created by openings of Wal-Mart supercenters near six stores of a major US supermarket chain. Using two different analyses-a before-and-after-with-control-group analysis of weekly sales, and an individual household level analysis of change in weekly spending they find that Wal-Mart entry does produce differential effects across categories and brand groups. Mid-tier national brands are more vulnerable to Wal-Mart entry than brands on the boundary of the price-quality continuum, such as premium and economy national brands. Food categories are more vulnerable to Wal-Mart entry, whereas promotion intensive categories and categories with low brand concentration are less vulnerable. Their findings suggest the potential for specific category and brand assortment differentiation strategies that can help conventional supermarkets to better compete with Wal-Mart.
Impact of Wal-Mart Supercenter Entry on Consumer Purchase Behavior: An Empirical Investigation
2000
Supermarkets operate in an increasingly competitive environment. The rapid growth of alternative retail formats has transformed not only the competitive structure of the industry, but also the way in which consumers shop. The biggest challenge to the industry is coming from none other than the world's largest retailer: Wal-Mart. Although a relatively new player, Wal-Mart through its supercenter format has become the nation's largest grocer and is cited by supermarket managers as their biggest concern in the coming years. Despite the dramatic proliferation of supercenters, relatively little is known about the impact it has on the performance of a traditional grocery store or how it changes consumer buying behavior. This paper provides an empirical study of entry by a Wal-Mart supercenter into a local market. Using a unique frequent shopper database from a supermarket, we study the impact of Wal-Mart's entry on household purchase behavior. The database records purchases for over 10,000 households before and after Wal-Mart's entry. Our primary focus in this paper is to analyze Wal-Mart's impact on the two key household decisions: store visit and basket size. We develop a joint model of interpurchase time and basket size and allow for a structural break at the time of competitive entry. The model allows us to evaluate the impact of Wal-Mart on household store visit frequency and basket size, while allowing for consumer heterogeneity. We investigate the shopping and demographic characteristics of the consumers that are most likely to shift purchases to Wal-Mart.