Since the first Walmart Supercenter was opened in 1988, supermarkets around the country have been struggling to maintain their market share and profitability. According to Supermarket News in 2012, Walmart is North America's largest food retailer, and Target is the 4th largest. As more retailers open more hypermarkets it is increasingly important for traditional supermarkets to know how to compete. Using data from The Food Industry Center's Supermarket Panel study Richard Volpe tests various supermarket strategies to determine which ones are effective in Evaluating the Performance of U.S. Supermarkets: Pricing Strategies, Competition from Hypermarkets, and Private Labels. The article was published in the December 2011 issue of The Journal of Agricultural and Resource Economics.
Drawing on a body of literature in marketing and agricultural economics, Volpe sets up an empirical model to test supermarket performance using variables that relate to market structure, consumer demographics, and advertising and pricing strategies. Volpe found both expected and unexpected results. Consistent with the literature, Volpe found that being in direct competition with a hypermarket had a negative effect on supermarket performance. However, this negative effect was smaller for larger supermarkets than for small supermarkets. While the body of literature comparing everyday low pricing (EDLP) and high-low pricing (HLP) is largely inconclusive, the results of this research found there is some evidence that supermarkets using EDLP had higher sales per square foot than those using HLP. In addition, using EDLP strategies when in direct competition with a hypermarket (whose strategy is usually EDLP) can mitigate some of the negative performance effects.
Contrary to the literature, Volpe found that increased private label product sales do not increase store performance. He states that the recent increase in private labels is good for consumers and private label manufacturers, but not retailers. The literature also shows that increased private label sales results in higher food prices overall. For these reasons, Volpe predicts that private label growth will slow down. He also states that use of technology had a significant effect on performance and more research is needed to study how it can improve supermarket performance. Since supermarkets who compete directly with hypermarkets have decreased performance relative to those who don't, Volpe argues it is important to understand how different factors influence supermarket performance.