Is the Traditional Retailing disappearing? Some evidences from Brazil

by Guilherme Fowler de Ávila Monteiro

Paper presented at 15th Annual World Food & Agribusiness Symposium, Chicago, Illinois, USA, June 25-28, 2005

Abstract

This article carries out an investigation regarding the behavior of prices and the competition patterns between two basic forms of retailing equipments: traditional retail (bakery, butcher shop and fair-free) and self-service (chains of supermarkets and independent supermarkets).

The 90's were characterized by the fast transformation of the Brazilian supermarket sector. The economic panorama represented a great incentive to the entrance of foreign companies in the national market, as well as contributed to the expansion of the big national supermarket chains. This process has inspired the argument by which the traditional retailing would tend to disappear, it because either the supermarket's prices were lower, or the costs of traditional retailing were higher. Many paper works have adopted this result as an assumption but we have not found one that has tested this hypothesis. Is it true that the traditional retailing charges higher prices than supermarket? Is it true that because (if) they charge higher prices they have disappeared?

The paper's objective is to analyze the behavior of food prices at different kinds of  tores and to test the hypothesis that traditional retailers have higher prices compared to supermarkets.

The accomplishment of the research involved the construction of a database for food  rices collected in the municipal district of Sao Paulo, Brazil. The analysis of these data took place through cointegration tests and Granger causality tests. The obtained results turn possible to argue about the existence of long-period equilibrium among the series of prices collected in the Supermarket (in general) and in the Traditional Retail.

This equilibrium is characterized by a non-null difference among the prices (excepted meats and cheese). In addition, the results also reveal the existence of an effective double causality among the prices. Considering that the disappearance of the small and medium retail is not confirmed by empirical data in Brazil, the traditional forms of retailing keep operating and growing in absolute number (Farina & Nunes, 2002), and once the econometric tests confirmed the hypothesis on relative prices, the implication is straightforward: consumers are willing to pay for some specific attributes provided by traditional retailers.

This result has important implications for strategic decisions of both retailers and food processing companies that will be discussed as conclusion of the paper.

Full paper available at http://www.ifama.org/conferences/2005Conference/Papers&Discussions/1082_Paper_Final.pdf