The Determinants of Assortment Composition and Assortment Size at U.S. Supermarkets

Abstract

This paper empirically investigates the determinants of supermarkets' assortments at U.S. supermarkets. We first observe that, across several product categories, the top selling items which cumulatively make up 50% of sales are viewed as core products which are sold at nearly every store. However, once the product is not a top seller, stores start to view stocking the products as optional. We then study how assortment composition and assortment size are related to underlying factors that describe local store clientele, local competitive structure, and the retail outlets' characteristics. From an analysis covering four important product categories, we find that corporate and ownership structure of retail stores are the most important drivers of differences in assortment composition across stores. We also find that supermarkets tailor their assortment by considering relevant local demographic dimensions or the stores around them, but this effect is an order of magnitude smaller than that of ownership structure and other store characteristics. From the large chain-level effects on assortment, we conclude that marginal assortment decisions are mostly cost driven, and are made at the corporate level. We discuss our findings in the context of manufacturers designing distribution policies.