Traditional Retailers In The Face Of Competition With Supermarkets In The São Paulo Region.

Modeling Produce Procurement And Merchandising Strategies Of Traditional Retailers In The Face Of Competition With Supermarkets In The São Paulo Region.

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

88th Seminar European Association of Agricultural Economics on Retailing and Producer-Retailer Relationships in the Food Chains, Paris, 2004

Abstract

This article proposes an explanation for evidence that challenges the view received in relation to the advance of the large supermarket chains in the food market. It was thought that the large, more efficient chains would expel the traditional forms of retail. 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.

The text is divided in five 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 attached.