A Model of Retail Formats Based on Consumers' Economizing on Shopping Time

Retailers in developed countries increasingly provide one-stop shopping. Why? Are they responding to growing demand for time-saving convenience? Or are they responding to economies of scale made possible by new retail technology? And what role, if any, is played by improvements in automotive, refrigeration, and other consumer technology? To examine these questions, we develop a model that can help explain the growth of one-stop shopping, estimate the model with aggregate grocery retail data, and compare the implications of our model with competing explanations. Our model includes several desirable features: (1) The extent of one-shop shopping is endogenously determined. (2) Consumer store choice is determined in an explicit household-production, utility-maximizing context. This choice is based on a tradeoff between time-saving shopping convenience and price. (3) The model is readily amenable to empirical testing. The key endogenous parameter of our model describes the number of categories carried by a store. In the context of grocery retailing, this parameter can distinguish between a single-category specialty store, a simple grocer, a supermarket, and a large superstore. This parameter is determined by the interplay of consumers economizing on shopping time and retail competition in the presence of technological constraints which relate operating cost with assortment size. Our approach may also be viewed as an example of how the boundary between retail service production and household service production can be modeled as a market outcome (in the spirit of Betancourt and Gautchi [Betancourt, Roger, David Gautschi. 1990. Demand complementarities, household production, and retail assortments. Marketing Sci. 9 (2, Spring) 146–161.] and Wernerfelt [Wernerfelt, Birger. 1994. An efficiency criterion for marketing design. J. Marketing Res. 31 (November) 462–470.]). The nature of extant retail formats and other channel-related institutions circumscribes the boundary between retailers and households. With the notable early exception of Baumol and Ide (Baumol, William J., Edward A. Ide. 1956. Variety in retailing. Management Sci. 3 (1, October) 93–101.), few explicit models describe retail format determination as an equilibrating market mechanism. Our model describes the determination of one aspect of retail formats (namely, the extent of one-stop shopping). Our hope is that similar approaches can be used to describe other aspects and types of emergent retail format