Competitive Effects of Wal-Mart Supercenter Entry: Moderating Roles of Category and Brand Characteristics

Abstract

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.