This study builds on the spatial competitive interaction of store formats that are often considered generic retail positioning profiles. Specifically, a modeling proposal is developed that focuses on the role of the spatial coverage reached by particular store formats as a determining factor of intraurban market response. The proposal is assessed through an application to the Spanish retail context that tries to identify competitive frictions among the supermarket, the hypermarket, and the discount store. The results demonstrate the explanatory capabilities of the model and reveal interesting conclusions related to the impact of spatial growth by store formats on food shopping patterns. There is more intense competition between the discount store and the hypermarket, and the classic supermarket form maintains a balanced rivalry with both. The development of larger discount stores seems to affect the supermarket market share more severely, whereas the development of discount stores that offer parking subtracts more demand from the hypermarket.
Retailing has undergone an intense transformation during the past few decades. One consequence of this dynamism is the diversification of retail store formats characterized by diverse positioning profiles. For example, in the context of food shopping, the introduction of self-service has been followed by the expansion of the hypermarket and the superstore, the development of diverse forms of discount stores, and an emphasis on convenience stores. The retail offer has been enriched by a variety of retail forms aimed at satisfying the needs of different types of consumers in various shopping situations. This heterogeneity enables researchers to distinguish interformat competition in the rivalry among different store formats.
The purpose of this paper is to contribute to the analytical methodology and the understanding of competitive interaction among store formats. Specifically, two sequential objectives are pursued:
1.
To propose a market response model to assess the effect of changes in interformat retailing empirically. Our interest centers on the impact of the growth and expansion of store formats, and therefore the modeling emphasis is on the spatial dimension of retailing. Whereas previous attempts have related market share and retail format coverage statistics at an interurban or regional level, our modeling proposal focuses on capturing market response variations in an intraurban competitive scene. Furthermore, the modeling proposal embraces two methodological premises: (a) the use of standardized and comprehensible econometric tools and (b) the objective measurement of concepts that are compatible with usually available secondary data. Both aspects are critical to the adoption of quantitative models by retail managers (Simkin, 1996).
2.
To assess intraurban competition patterns among three dominant formats in the food market: the classic supermarket and its larger and price-oriented versions; that is, the hypermarket and the discount store, respectively. The market coverage reached by these formats and their more specific forms produces differential effects across their competitors' market share, which should be taken into account both by retail firms in their location and diversification strategies and by public authorities in the assessment of possible retail planning policies and their economic impact.
The relevance of the spatial perspective to the analysis of retail structure, growth, and evolution has been repeatedly pointed out in the marketing literature (Sparks, 1995). Spatial market coverage and location strategies constitute some of the most important and risky decisions of retail marketing management (Jones and Simmons, 1987). Along this line, research efforts to develop analytic methodologies to understand, explain, and even predict retail competitive interaction derived from location and spatial coverage strategies are especially significant (Babin et al., 1994). This paper contributes to this field of research by broaching the interformat level of competition rather than using traditional emphasis on retail chains or individual stores.
The contributions of this research consist of theoretical
and empirical formalization of a model (aimed at represent-
ing competitive interaction among store formats) that is
derived from spatial coverage and location patterns in
intraurban markets. Specifically, the market share of store
formats across intraurban residential zones and time periods
is interpreted as a parameterized function of their spatial
availability and accessibility.
The spatial facet in the analysis of interformat competi-
tion is relevant to retail firms in their growth strategies. The
development of new store formats threatens the performance
of existing ones. Only by anticipating potential consequen-
ces is it possible to develop marketing actions that enhance
the viability of a retail business in a changing environment.
Moreover, because format diversification represents a com-
mon growth strategy
(Pellegrini, 1994)
, an understanding of
interformat spatial competitive interaction facilitates the
optimization of the attraction and retention of customers
while minimizing cannibalization effects between store
formats.
The spatial analysis of interformat competition is also
relevant to local authorities in their retail planning, regula-
tory, and controlling competence. Moreover, many legisla-
tion initiatives to regulate retail development establish
prerequisites and conditions regarding new locations for
particular store formats, such as large-scale retailers or
discount stores, and their impact on the competitive struc-
ture (for examples, see
Cliquet, 2000; Davies and Itoh,
2001
).
The empirical implementation of this model in the
metropolitan area of Madrid has focused on analyzing the
relationship between spatial coverage and the market share
of three basic store formats—the supermarket, hypermarket,
and discount store—using individual food budget allocation
data. Although the results show only a moderate fit, prob-
ably due to the incomplete nature of the model and the
difficulty of quantifying the explanatory constructs, they
provide the means to make interesting conclusions about the
role of location for market response. In particular, compet-
itive effects derived from location are not symmetric but
differ across competing store formats. The results not only
suggest the direction of these competitive frictions, but also
indicate a quantifiable measure of their intensity.
In the Madrid market, most of the discount stores in
the intraurban scene are small discount stores, and the
results concurrently indicate the greatest rivalry between
discount stores and hypermarkets, which are oriented,
respectively, toward money and time saving. There seems
to be more overlap between the target segments of these
versions of supermarket, whereas the conventional super-
market competes equally against both. The development
of medium-size discount stores seems to capture more
market share from the supermarket than from the hyper-
market, whereas larger discount stores with parking takemore market share from the hypermarket than from the
supermarket.
Several limitations of this research should be noted. It is
first important to insist on the model’s incompleteness. It
focuses exclusively on market coverage and obviates other
relevant positioning dimensions whose roles may be im-
plicitly considered as intrinsic to the attraction construct. It
also ignores market spatial heterogeneity as a determinant of
market response. However, these explanatory factors can be
included in the model even while the same theoretical
framework and a similar econometric formulation are main-
tained. The role of additional determinant attributes easily
can be contemplated in the model by splitting the intrinsic
attraction into the effects of such variables. Heterogeneity
can be explicitly considered by a priori segmentation, by
including the consumers’ characteristics as covariates, or
even by adopting more sophisticated and data-demanding
methods such as random effects choice models
(Chintagunta
et al., 1991)
. In this sense, the proposed model has great
potential to evolve from simplicity to completeness, a key
criterion for successful implementation of marketing models
(Leeflang et al., 2000)
.
In addition, the operationalization of variables in this
model involves some difficulties that derive from the
translation of theoretical concepts into proxy variables.
Although spatial accessibility and coverage are highly
intuitive notions, they are not easy to define in practice. In
particular, the proposal focuses on coverage of residential
zones and obviates coverage of crowded zones that consti-
tute a key issue to capture the effect of multipurpose and
multidestination trips. Some additional limitations derive
from data quantity and accuracy, including a generic defi-
nition of store formats, poor spatial precision, and the
omission of spatial barriers and trip routes in measures of
accessibility. Although the proposed model uses objective
measurements of the variables through available secondary
data, subjective measurements of perceived accessibility
through surveys could improve its explanatory possibilities.
As a side note, secondary data derived from consumer
panels, store census, or geographic information systems
are continuously evolving toward improved quality and
precision.
Although the empirical results are probably specific to
the studied retail context, the model’s emphasis on stan-
dardized econometric tools and objective variable measure-
ment makes it easily replicable in other retail intraurban
contexts. Nevertheless, inferences about future contingen-
cies should be made with caution. First, the model only
proves relationships between variables, not causality, so
causal inferences must rely on the theoretical background
of the model. Second, significant relationships between
variables are only reliable in the range of values considered
in the estimation process so the predicted situation in
conditions different from the current ones might not be
reliable. Data from experiments with simulated retail sce-
narios could provide interesting insights into this problemIn addition to the areas for improvement evoked by
these limitations, two more research lines might build on
the contribution of this study. First, it would be interesting
to go deeper into the attraction dimensions that undergone
asymmetric competitive effects among store formats. Pre-
sumably, these effects are related to the overlapping of
benefits supplied: accessibility, price, quality, variety, serv-
ices, etc. Second, it would be interesting to explore the
simultaneous modeling of competitive interaction at the
inter- and intraformat levels of competition, namely, the
integration of interformat competition into the whole retail
structure and competitive interaction. The concept of store
format plays a determining role in retail competition in that
it agglutinates most relevant differences on image attrib-
utes so its explicit consideration in modeling approaches
may improve the explanatory possibilities but avoid ex-
cessive parameterization