Supermarkets and their Impacts on the Agrifood System of Brazil: the competition among retailers

by Elizabeth M. M. Q. Farina, Rubens Nunes and Guilherme F. de A Monteiro.

Executive Summary

This article proposes an explanation for evidence that challenges the received knowledge in relation to the advance of the large supermarket chains in the Brazilian food market. It was thought that the large, more efficient chains would eliminate the traditional forms of retail and the smaller supermarkets as well. The evolution of the food retail structure in Brazil shows, however, growth in the number of tradition firms and independent supermarkets, in the last 9 years, with little evidence of loss of importance in food sales, especially as to the independent supermarkets whose share in food sales has grown. It was further believed that the concentration in retail would imply the power to raise prices, which would occur after the expulsion of the smaller firms. What was verified, however, were falling real prices in the food retail. At the same time, retailing price survey shows that the traditional stores survives despite higher products price and that independent supermarkets have lower average price than chain stores.

The text is divided in six sections. The first describes the food retail structure in Brazil. Following, a model of oligopoly with a competitive fringe is presented, in which the products of the nucleus and the fringe are differentiated by the convenience offered to the consumer. According to the model, the concentration in the nucleus is not sufficient to raise prices above the marginal costs. The third section analyzes the behavior of food prices in retail. Finally, some observations are made on extra-price competition. The conclusions follow.

Full paper available at http://www.ifama.org/conferences/2004Conference/Papers/Farina1059.pdf