Food retail profits, competition, and the Great Recession

Abstract

We investigate the competitive effects of entry in the food retail sector in nonmetropolitan counties in the United States from 1998 to 2014. We pay particular attention to the period that covers the Great Recession, which disrupted market structure across a number of industries.Using a county-level panel dataset, we use a seminal entry model to infer the local competitive effects of entry in the food retail sector. We estimate entry thresholds over time, which we then use to describe the rate of decline in profit margins following subsequent entry via entry threshold ratios. We find that food retail firms required a smaller market size to break even during the Great Recession, perhaps pointing to higher profits, as consumers shifted purchases to food-at-home. This effect is shortlived for all but a single firm. The market threshold required to support a single food retail firm remains low throughout the post-recession recovery period. We also find that the second firm may not decrease profit margins, but that competition increases meaningfully with the third and fourth entrants. The increased competition during the Great Recession also appears to have persisted into the recovery period. [EconLit Citations: L18; Q18].

Dollar store expansion and independent grocery retailer contraction

“…Second, while the treatment effects remain negative and statistically significant for rural census tracts, they become indifferent from zero for urban census tracts after 5 years, pointing toward the new entry of independent grocery retailers after dollar store exposure in those markets. Lesser entry costs and technology scaling in urban census tracts can explain this recovery pattern (Balland et al, 2020; Cleary & Chenarides, 2022). Third, the average post‐event treatment effects are statistically indifferent from the static estimates, implying that the dollar store entry timing and location are conditionally exogenous, which validates the identification strategy.…”

“…Matsa (2011) shows that competition from Walmart incentivizes grocery retailers to invest in product quality because of the risk that customers will switch stores. The adverse dollar store entry effects in rural census tracts are more persistent and larger in magnitude because entry thresholds are higher in those retail markets (Cleary & Chenarides, 2022). This pattern is also reflected in the differential productivity effects between urban and rural regions caused by competitive market entry (Håkansson et al, 2019).…”

“…18 Since the pre-trend tests are statistically insignificant and the treatment pathways in the pre-treatment period are flat, the research design is validated. The fixed effects can accurately account for unobservables unrelated to the treatment but predictive of the outcome, such as the 2008 recession and Walmart expansion (see, e.g., Basker, 2007;Ellickson & Grieco, 2013;Cleary & Chenarides, 2022). 19 We transformed the parameter estimates to percentage effects using the formula exp β k À Á À 1 À Á Ã 100.…”

A closer look at the relationship between concentration, prices, and market power in food retail—A monopolistic competition and differentiated products approach

“…In local foods, Connolly & Allen Klaiber (2014) and (2019) show similar results of competitiveness after the entry of the third firm. Cleary and Chenarides (2022) examine competitive entry for food retail and show entry of the third to fourth firm significantly reduces incumbent profit margins.…”

Edible landscape: Key factors determining consumers’ commitment and willingness to accept opportunity cost and risk of foraged food

“…It is known that consumers are seeking alternative ways of food shopping and that there are trends toward home-growing, selfsufficiency, and food foraging (Bulgari et al, 2021;Chenarides et al, 2021;Rombach et al, 2022). Horticultural and food studies have provided evidence that Covid-19 has caused consumers to worry about food prices, with one of the impacts, 2 years into the Covid-19 pandemic, is a recession and food price inflation in the US (Cleary and Chenarides, 2022;Lusk and McFadden, 2021). Covid-19 has impacted food purchases and has led consumers to switch distribution channels or means to obtain food.…”