Review of Industrial Organization
13: 381–399, 1998.
1998 Kluwer Academic Publishers. Printed in the Netherlands.
Competition in Grocery Retailing: The Impact of a
New Strategic Group on BLS Price Increases
BRUCE W. MARION
University of Wisconsin-Madison, Department of Agricultural & Applied Economics, 427 Lorch St.
Madison, WI 53706, U.S.A.
Abstract. Metropolitan areas with a signiﬁcant presence of warehouse stores had lower retail food
price increases during 1977 to 1992 than did areas with no warehouse stores. The negative impact
occurred largely during the ﬁrst half of the 15-year period. Strategic learning appears to have led to a
different response from incumbent supermarkets during 1985–1992. Change in prices was positively
related to change in concentration and negatively related to entry.
Key words: grocery retailing, competition, concentration, strategic groups, price changes.
The concept of minimal service, low-price grocery retailing dates back to the
advent of the supermarket in the 1930s. Independent grocers in selected areas have
successfully operated warehouse-type stores for decades. However, it was not until
the economicallyturbulent1970s thatthe warehousestore beganmakingsigniﬁcant
inroads into a number of urban grocery markets. Early warehouse store efforts by
chains such as Penn Fruit, Thriftmart, Acme and A&P were primarily last-ditch
attempts to save failing stores (Progressive Grocer, 1972). Although many of those
conversions ultimately failed, successful adaptation of the format throughout the
1970s and 1980s resulted in warehouse and super warehouse stores’ capturing
nearly 50 percent of sales in some markets (Mueller and Paterson, 1986).
Throughout this paper, the term “warehouse store” will be used to include
warehouse stores, super warehouse stores and hypermarkets. In total, “warehouse
stores" accounted for 10 percent of U.S. grocery store sales in 1993 (Food Institute
Report, 1994). We do not consider wholesale clubs as warehouse stores. While
wholesale clubs provide price competition on certain food products, we believe
that clubs are not in the same product market as supermarkets.
In this article, we focus on the competitive impactofwarehouse stores during the
period1977–1992. These storesrepresented newretail “formats” with substantially
The author is Professor of the Department of Agricultural & Applied Economics, University
of Wisconsin-Madison. The contributions of Cinthia Mazo, Keith Heimforth and Wiltse Bailey are