Close Encounter with the Hard Discounter: A Multiple-Store Shopping Perspective on the Impact of Local Hard-Discounter Entry

Abstract

“Hard discounters” (HDs) have become a considerable force in grocery retailing. With rock-bottom prices and minimal assortments, they differ greatly from “large discounters” such as Wal-Mart, constituting complements to, rather than substitutes for, more traditional supermarkets. Therefore, the authors propose that HD impact of entry on local incumbents is different as well. Using a store choice and spending model that explicitly accounts for interstore synergies and multiple-store shopping behavior, the authors study consumer responses to 194 HD openings. Although they find that HDs, like large discounters, especially appeal to private label–prone shoppers and lead to sizable incumbent losses, the results confirm that the nature of these losses is different. First, HDs do not cause incumbent chains to lose their best customers; instead, shoppers who have already visited other chains alongside the incumbent are lost. Second, the authors find that chains located in close proximity to new HDs do not suffer more from their entry. Third, losses are lower for upscale chains and incumbents that strongly complement the HD. The authors conclude by discussing implications for proper response to HD entry.

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