The Effect of Entry by Wal-Mart Supercenters on Retail Grocery Concentration

Abstract

The U.S. retail grocery industry shifted from an industry dominated by small grocers serving local markets to one characterized by large retailers present in international markets. Average retail grocery concentration as measured by CR4 increased from 19.9 in 1997 to 31.0 in 2002 (U.S. Department of Commerce, Bureau of the Census, 2000; 2005). Wal-Mart’s tremendous growth is the catalyst to this change, but little is known about Wal-Mart’s effect on market concentration. This analysis evaluates the effects of de novo entry by Wal-Mart Supercenters on retail grocery concentration. The effect of Wal-Mart Supercenters on changes in retail grocery concentration is estimated using econometric modeling. The results show that existing Wal-Mart Supercenter operations and entry by Wal-Mart Supercenters significantly increase the rate of change in retail grocery concentration. During the past two decades the U.S. retail grocery industry has seen a contraction of small “Mom and Pop” retailers, large chain retailers created via mergers and acquisitions, and the de novo entry of supercenters stores by Wal-Mart and Target (Kaufman 2002). The average retail grocery concentration, as measured by the sum of market share of the top four