Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Thursday, March 26, 2009

What Drives Channel Choice in Grocery Shopping?

Posted by D. Daniel Sokol

In light on the FTC case against Whole Foods, we have increased interest here at the blog on supermarket issues.  Pradeep K. Chintagunta (University of Chicago Booth-Business), Junhong Chu (NUS Business School) and Javier Cebollada-Calvo, Universidad P├║blica de Navarra ask What Drives Channel Choice in Grocery Shopping?

ABSTRACT: We provide a descriptive study of a household's decisions on where to shop, when to shop and how much to spend for grocery products in the same grocery chain's online and offline stores. We observe households that shop interchangeably in the online and offline stores and make a majority of their purchases in the chain. The data cover all product categories purchased by households at the chain (packaged goods, perishables, etc.). For each household we identify the top 30 categories that account for a majority of that household's expenditures in the chain. These categories vary across households. We relate a household's shopping decisions to the household's needs in each of its top 30 categories, price promotions in those categories, their perishability, and household and store specific characteristics. We specify a multinomial probit model for store visit and channel choice decision, a competing-risks continuous-time proportional hazard model for trip timing, and a regression model for basket expenditures. We allow all drivers of the shopping decisions to have channel-specific effects and take a hierarchical Bayes approach to estimate the parameters of the proposed models. We find channel-specific effects of inventory levels and price promotions on all three decisions. Depletion of inventories of categories that account for a larger proportion of household expenditures drives a household to the online store while depletion of inventories of lower expenditure categories drives a household to the offline stores. Price promotions influence households to visit the chain, increase the probability of households' visiting the chain, and reduce offline trip expenditure, but do not affect online expenditure much. All these indicate the more planned nature of online shopping trips, which are influenced more by households' internal needs and less by the retailer's marketing activities. There is evidence of sorting of trips whereby households make stock-up trips to the online store and fill-in trips to the offline stores.

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