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Economic

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Sharad Tandon, Maurice R. Landes, and Andrea Woolverton

The Expansion of Modern 

Grocery Retailing and Trade 

in Developing Countries

Economic

Research 

Report

Number 122

July 2011
www.ers.usda.gov

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Tandon,Sharad, Maurice R. Landes, and Andrea Woolverton. The Expansion 

of Modern Grocery Retailing and Trade in Developing Countries. ERR-122. 

U.S. Dept. of Agriculture, Econ. Res. Serv. July 2011.

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A Report from the Economic Research Service

Abstract

Over the past few decades, modern grocery retailing has been expanding rapidly in 

developing countries. The implications for food demand and trade are influenced by 

the extent to which modern food retailers focus primarily on growing preferences for 

nonprice characteristics, such as dietary diversity, convenience, and quality, as opposed 

to introducing supply chain efficiencies that may reduce real food prices over time. Based 

on a data set of 103 developing countries, there is suggestive evidence that the expansion has been associated with growth in demand for nonprice characteristics, such as 

convenience in food shopping and preparation. On the other hand, growth in modern 

food retailing appears to be uncorrelated with variables indicative of the emergence of 

more efficient food supply chains. The impacts of modern grocery retailing in developing 

countries are potentially important to U.S. agricultural markets. Growth in developingcountry imports of U.S. agricultural products has outpaced growth in developed-country 

imports in the 1990s and 2000s, with developing countries accounting for 64 percent of 

U.S. agricultural exports during 2007-09. 

Keywords: modern grocery retailing, supply chain, efficiency, developing countries, 

food demand, trade

Acknowledgments

The authors thank William Leifert and Constanza Valdes, ERS, for contributing the 

sections on Russia and Brazil, respectively. Five anonymous reviewers provided valuable 

comments and suggestions. Dale Simms provided editorial assistance and Curtia Taylor 

prepared the report for publication.

Sharad Tandon, standon@ers.usda.gov

Maurice R. Landes, mlandes@ers.usda.gov

Andrea Woolverton, woolverton.ae@gmail.com

The Expansion of Modern 

Grocery Retailing and Trade 

in Developing Countries

Economic

Research

Report

Number 122

July 2011
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The Expansion of Modern Grocery Retailing and Trade in Developing Countries / ERR-122

Economic Research Service/USDA

Contents

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Trends in the Expansion of Modern Grocery Retailing . . . . . . . . . . . . . . . . 2

Supply and Demand for Modern Grocery Retailing . . . . . . . . . . . . . . . . . . . 5

Supply Chain Investment and Price Competition, by Country . . . . . . . . . . . 9

Empirical Analysis of the Growth of Modern Grocery Retailing . . . . . . . 12

Growth in Packaged and Pre-Prepared Food . . . . . . . . . . . . . . . . . . . . . . . . 17

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Appendix:

Variable Definitions and Summary Statistics . . . . . . . . . . . . . . . . . . . . . 26

Country List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
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The Expansion of Modern Grocery Retailing and Trade in Developing Countries / ERR-122

Summary

Domestic and multinational modern grocery retailers are accounting for an 

expanding share of food sales in many developing countries, with potentially 

significant implications for food demand and trade. This report examines two 

mechanisms that are potentially important in driving the growth in modern 

food retailing. First, modern retailers may be meeting rising demands for 

dietary diversity, shopping and preparation convenience, and food safety 

that are commonly associated with rising incomes among some groups of 

consumers. Second, modern grocery retailers may be investing to improve 

the supply chain and reduce food prices, which can lead to a stream of efficiency gains to be shared between producers and consumers. Such efficiency 

gains are likely to be more significant in a developing-country context than 

in more developed countries because lower income consumers tend to be 

more responsive to income and price changes, and because agriculture and 

food account for large shares of both income and expenditures in developingcountry households. 

What Is the Issue?

Although the expansion of modern food retailing may boost food demand 

and trade, actual gains may be influenced by the extent to which retailers 

focus on accommodating consumer demand for food quality and convenience 

by investing in modern retail formats versus improving the efficiency of the 

food supply chain. If modern retailers introduce significant supply chain 

efficiencies, both farmers and consumers stand to benefit from the additional income they can devote to both food and all other goods. If, on the 

other hand, the expansion of modern food retailing is not accompanied by 

supply chain efficiencies, then the economy-wide benefits might be muted. 

Although consumers will still benefit, farmers’ income and overall consumption may not significantly change. The impacts of modern grocery retailing in 

developing countries are potentially important to U.S. agricultural markets. 

Growth in developing-country imports of U.S. agricultural products has 

outpaced growth in developed-country imports in the 1990s and 2000s, with 

developing countries accounting for 64 percent of U.S. agricultural exports 

during 2007-09. 

What Did the Study Find?

• The share of total grocery expenditure captured by modern retailers is 

correlated with the income level in developing and transition countries. 

Penetration of modern grocery formats is higher in countries where gross 

domestic product (GDP) per capita is higher. However, countries with 

the highest growth in modern grocery formats tend to be much poorer 

on average, suggesting a relationship between the rate of penetration and 

base income level. 

• Growth of modern grocery retailing across developing and transition 

countries between 1999 and 2009 is correlated with the share of the 

working-age population, suggesting demand factors, such as increased 

convenience, are important to the recent growth. 
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• Countries with high growth in modern retailing also observed higher 

growth in the sale of packaged and readymade foods, suggesting that 

modern outlets are growing fastest where demand for increased convenience is growing fastest.

• Growth in modern retailing is uncorrelated with a number of supplyside factors, such as conducive business environments and infrastructure 

(share of paved roads), that would likely be important if efficiency gains 

in the supply chain were aiding the growth in modern grocery retailing. 

Case studies of Brazil, China, India, and Russia further suggest that the 

growth of modern grocery retailing is not accompanied by immediate 

efficiency gains in the supply chain.

• Exports of U.S. processed foods are growing fastest in countries where 

modern grocery retailing is growing the fastest, suggesting that modern 

grocery formats in developing countries are an important outlet to 

promote U.S. agricultural products. 

How Was the Study Conducted? 

This study uses a newly constructed data set from Euromonitor, International 

describing the spread of modern grocery retailing. The data set covers a 

larger sample of developing countries (103) than previously available and 

allows disaggregated analysis by type of modern format and type of food 

items. Analysis using this data set finds that variation in demographic 

characteristics, such as share of the population most likely to benefit from 

the convenience offered by modern formats, is associated with the widely 

varying rates of retail penetration across developing countries over 1999-

2009. On the other hand, growth in modern food retailing appears uncorrelated with variation in efficiency growth variables like ranking for business 

environments and growth in foreign direct investment, as derived from the 

World Bank Development Indicators database. This basic pattern is corroborated by a number of case studies of transition countries: Brazil, India, China, 

and Russia. 
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Introduction

The growth of supermarkets, hypermarkets, and other modern grocery 

retail formats has accelerated recently in developing countries, after being 

relatively nonexistent a few decades ago.1 Average expenditures in modern 

grocery formats in many non-Organisation for Economic Co-operation and 

Development (OECD) countries are now catching up to more developed 

countries, driven by expansion of both multinational and domestic retailers. 

The fact that this transformation of food retailing is occurring at lower levels 

of per capita income and economic development may have important impacts 

on food demand, marketing, and trade (Reardon et al., 2003; Currah and 

Wrigley, 2004; Wrigley et al., 2005; Minot and Roy, 2007). 

Studies have postulated that the expansion of modern food retailing in developing countries is driven in part by growing consumer demand for nonprice 

characteristics of food supplied by modern formats—primarily convenience, 

quality, and product diversity. Another potential source of growth may be the 

lower prices arising from efficiency gains associated with supply chain investments made by modern retailers (Minten and Reardon, 2008). Both drivers 

can stoke demand for and supply of food products from modern formats. 

While nonprice factors and improved marketing efficiency can both stimulate food demand and trade, improvements in supply chain efficiency may 

have the larger potential impacts. More efficient food markets may not only 

have direct impact on demand by reducing retail food prices and boosting 

grower income, but can also lead to indirect gains in output and consumption 

through economywide effects (Landes and Burfisher, 2009). These impacts 

are likely to be heightened in developing countries because the shares of 

income earned in agriculture and spent on food are relatively large compared 

with the shares in developed countries, and developing-country consumers 

are more responsive to changes in both income and food prices (Deaton and 

Subramanian, 1996). 

Worldwide growth in modern grocery retailing can benefit U.S. agricultural exporters by raising the purchasing power of consumers in developing 

countries and creating new markets for U.S. agricultural exports. Between 

1990 and 2009, as modern grocery retailing took hold in many developing 

countries, imports of U.S. agricultural products by developing countries 

grew 6.6 percent annually versus 3.6 percent for developed-country markets. 

Developing countries registered strong annual growth in agricultural imports 

across a broad range of U.S. bulk (5.5 percent annual growth), intermediate 

(5.8 percent), and consumer-oriented products (10.4 percent) over 1990-

2009, and now account for 64 percent of U.S. agricultural exports (2007-09 

average).2

The cross-country evidence and case studies examined in this report suggest 

that the recent expansion of modern food retailing in developing countries 

is associated with demand factors, which include growing preferences for 

dietary diversity, safety, and particularly convenience. However, there is 

less evidence that the recent expansion of modern retailing is associated 

with large efficiency gains in the supply chain or lower food prices offered 

at modern formats in developing countries. Thus, the full impacts on food 

demand and trade by developing countries may yet be unrealized. 

1In the database used in this study, 

hypermarkets were defined as chained 

or independent retail outlets with a 

selling space of over 2,500 square 

meters and with a primary focus on 

selling groceries.

2These figures were derived from 

the Census Bureau data, accessed from 

USDA’s Foreign Agricultural Service in 

March 2010 (www.fas.usda.gov/trade.

asp).
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Trends in the Expansion of Modern 

Grocery Retailing

Drawing on grocery retailing data collected by Euromonitor, International 

through a combination of trade surveys, store checks, and a compilation of 

national official statistics, this section presents regional trends in modern 

grocery retailing. Though modern formats are proliferating in developing 

countries, the developed world continues to have the largest per capita market 

for both total grocery expenditures and total grocery sales in modern formats. 

Per capita expenditures in North America (excluding Mexico), Western 

Europe, and Australasia (Australia and New Zealand) dwarfed those of other 

regions in 2009 (fig. 1); grocery expenditures were at least 3 times larger than 

in Eastern Europe and over 10 times larger than in Asia, the Middle East, and 

Africa.3 These regional differences widen for the share of grocery expenditures in modern formats. 

There are also large differences, based on the share of the population living 

in developing countries, in the growth of modern formats. Over the past 

decade, growth in modern formats seems to have stalled in the regions where 

penetration is highest, including Australasia, North America, and Western 

Europe (fig. 2a), whereas both Asia and Eastern Europe—with many developing and transition countries—show faster growth. However, this growth 

is not uniform across all developing regions; modern grocery formats in the 

Middle East, Africa, and Latin America are growing slower than in Asia and 

Eastern Europe (fig. 2b).

Different rates of penetration in developing regions are roughly consistent 

with the four “waves” of modern food retail expansion identified by Reardon 

et al. (2003). In Latin America, higher income countries were in the first 

3Although the Asian averages include 

nondeveloping countries like Japan 

and South Korea, these countries have 

a small population compared with that 

in developing Asian countries, and thus 

receive very little weight in the per 

capita calculations. 

Figure 1

Per capita spending on grocery retailing in 2009 in U.S. dollars

US $

Source: Euromonitor, International. 

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Asia 

Pacific

Eastern

Europe

Latin

America

Middle East

and Africa

Australasia North

America

Western

Europe

Modern format Total grocery
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The Expansion of Modern Grocery Retailing and Trade in Developing Countries / ERR-122

wave of retail modernization starting in the 1980s, so that region began the 

2000s with a larger share of total grocery expenditures in modern formats 

than other developing regions. Later waves of modern food retail penetration, 

including countries in Southeast Asia and Eastern Europe, began in the 1990s 

and either caught up with or surpassed Latin America in the 2000s. Selected 

South Asian and Sub-Saharan countries appear to constitute a fourth wave of 

expansion beginning in the mid-2000s. 

Figure 2a

Share of total grocery retailing sold in modern formats, 

developing regions, 1999-2009

Percent

Source: Euromonitor, International. 

0

10

20

30

40

50

60

70

80

1999 2000 01 02 03 04 05 06 07 08 09

North America Western Europe Australasia

Figure 2b

Share of total grocery retailing sold in modern formats, 

developed regions, 1999-2009

Percent

Source: Euromonitor, International. 

0

10

20

30

40

50

60

70

80

1999 2000 01 02 03 04 05 06 07 08 09

Asia Pacific

Eastern Europe

Middle East and Africa

Latin America
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The driver of growth in the penetration of modern food retailing seems 

to be different across the fast-growing developing regions. Over the last 

decade, Eastern Europe experienced rapid growth in the share of packaged 

foods sold through modern formats, while Asia showed no growth in this 

share.4, 5 Eastern Europe began the decade with the lowest penetration by 

modern formats in the sale of packaged foods, but is fast catching up to 

the Middle East and Africa. Thus, despite Eastern Europe and Asia having 

similar growth in modern grocery formats, this growth is seemingly being 

driven by different food products. 

4Packaged foods refer to food items 

denoted as such by Euromonitor, 

International. These items are goods 

from bakeries, canned goods, chilled 

processed foods, goods from a confectionary, dried processed foods, frozen 

processed foods, meal replacement 

goods, noodles, pasta, ready meals, 

sauces and condiments, snack bars, 

soup, spreads, sweet and savory snacks, 

ice cream, dairy products, oils and fats, 

and baby food.

5This trend is not being driven by 

Japan and South Korea. India and 

China both show little to no growth in 

packaged foods, despite high growth 

in supermarket penetration over the 

decade.

Figure 3

Share of total packaged foods sold by modern formats

Percent

Source: Euromonitor, International. 

0

10

20

30

40

50

60

70

80

Asia Pacific

Eastern Europe

Middle East and Africa

Latin America

1998 99 2000 01 02 03 04 05 06 07 08 09
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Supply and Demand for Modern 

Grocery Retailing

The introduction of modern food retailing can influence food demand in 

developing countries through both price and nonprice factors. Studies identify a variety of sometimes conflicting evidence on the approaches adopted 

by domestic and multinational modern retailers, as well as the influence of 

those strategies on food demand and marketing (Reardon and Berdegue, 

2002; Schwentesius and Gomez, 2002). Rather than pointing to one universal 

model, the evidence suggests that a variety of country-specific factors influence the level of penetration and impacts of modern formats across developing countries.

Several nonprice factors are commonly associated with increased demand for 

food from modern formats across developing countries. First, modern formats 

better address the desire for convenience, which is being driven by urbanization and changes in consumer preferences (Veeck and Veeck, 2000, Gale and 

Hu, 2007). Second, consumers often value modern formats because they are 

perceived to provide higher quality and safer food (Veeck and Veeck, 2000). 

Thus, demand for modern formats can expand as consumers place more value 

on food quality and safety characteristics not met by traditional retailers. 

Additionally, the overall demand for modern food retailing is associated with 

growth in traditional drivers of aggregate food demand, such as income and 

population (Reardon et al., 2003). 

The expansion of modern food retailing can also shape food demand by 

introducing cost advantages that improve the efficiency of food distribution 

and lead to lower marginal costs compared with traditional outlets like openair markets or bodegas. First, modern grocery retailers can set up national 

and international procurement, processing, transportation, and distribution 

systems that exploit economies of scale (Boselie et al. 2003). Second, the 

consolidation of firms that procure goods from upstream distributors allows 

modern grocery retailers to bargain for better prices (Reardon et al., 2003). 

Also, modern retailers can access cheaper capital and benefit from foreign 

direct investments that spur transfers of technology and capital to developing 

countries (Chavez, 2002; Belik and dos Santos, 2002). 

The cost advantages of modern food retailers have been documented in developed countries. Artz and Stone (2006) found a 17-percent reduction in food 

prices paid by consumers associated with the entry of Wal-Mart supercenters 

in Mississippi. Hausman and Leibtag (2007), using a national data set, found 

that Wal-Mart supercenters undersold traditional supermarkets by 15-25 

percent. Both studies found evidence that the food price declines were associated with both the direct sales of the supercenters at lower prices, and subsequently reduced prices from competitor retailers. 

However, anecdotal evidence on whether modern retailers offer lower prices 

in developing countries is mixed. Some studies find that particular prices 

are lower (Reardon and Berdegue, 2002), while others find modern retailers 

actually charge higher prices for many goods (Schwentesius and Gomez, 

2002; Farina, 2002; Tschirley et al., 2004). In addition to the mixed evidence, 

these price analyses are complicated by the possibility of quality differences 
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between modern and traditional formats. However, Minten and Reardon 

(2008) reviewed price differences across 10 developing countries and found 

that cost reductions occur over time. Specifically, they suggest that modern 

retailers tend to initially focus on processed and high-quality products, 

compete with traditional retailers on price for processed and staple products 

over time, and finally introduce price competition in fresh products, such 

as fruit and vegetables. Eventually, modern retailers reduce costs through 

marketing innovations like centralized procurement, logistics technology, 

specialized wholesalers, and contracting (Reardon and Timmer, 2007; Minot 

and Roy, 2007). 

The expansion of the modern retail sector might also increase productivity 

in upstream industries in the supply chain. In particular, consolidating the 

buyers of agricultural goods may alter the relationship between farmers and 

buyers, leading to increased agricultural productivity. Given the large share 

of the economy devoted to agriculture in developing countries, these efficiency gains might significantly increase welfare. Several studies have found 

evidence of farmers benefitting from technical assistance and contracting 

arrangements provided by modern retailers (Faigenbaum et al. 2002; Dries et 

al., 2004; Hu et al., 2005; Birthal et al., 2005; Minten et al., 2009). However, 

other studies find smaller benefits (Dries et al., 2004; Hernandez et al., 2007) 

or no benefits to domestic agricultural producers (Wang et al., 2006). 

Although both nonprice factors and efficiency gains can spur the growth of 

modern grocery retailing, the possible welfare effects might be different. If 

growth is driven by nonprice factors, such as convenience, and the expansion 

of modern retailing is not accompanied by significant investment in supply 

chains, then significantly lower food prices are unlikely.6 On the other hand, 

if the growth is accompanied by significant investments in supply chains and 

efficiency gains, then—provided the markets are competitive and there are no 

significant barriers to entry by new retailers—food prices might decrease. 

In developed countries, increases in efficiency leading to decreases in 

retail prices have been shown to reduce poverty (Goetz, 2006; Goetz and 

Swaminathan, 2006). These benefits can be even larger in developing countries. Relative to developed countries, households in developing countries 

devote a much larger share of their income to food consumption (Deaton and 

Subramanian, 1996). Even modest efficiency gains that are passed on to the 

consumer can significantly reduce the share of household income budgeted 

for food, allowing consumers to allocate more expenditures to both food 

and all other goods. However, the potential for such welfare gains depends 

on whether the market for food retailing is competitive. If food prices are 

no cheaper in modern outlets relative to traditional shops, then the demand 

impacts are similar to when growth is driven only by nonprice factors such as 

convenience, product diversity, and food quality (Cotterill, 2006; Competition 

Commission, 2000).

The research findings diverge on the extent to which modern retailers, due 

to their size and market power, may be appropriating gains from improved 

market efficiency rather than passing them to producers and consumers. 

Analyzing developed countries, Cotterill (1986) and Cotterill and Harper 

(1995) associate levels of retail sector concentration with higher consumer 

prices in the United States, while Kaufman and Handy (1989) and Binkley 

6Convenience might incur a savings 

in time, which consumers could 

devote to more labor and higher 

wages. However, these gains would 

be secondary relative to a decrease in 

food prices, given that higher wages are 

contingent on finding more labor opportunities. In developing countries with 

pervasive underemployment, this type 

of gain would likely be mitigated. 
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Potential Impacts of More Efficient Food Markets: The Case of India7

7Derived from Landes and Burfisher (2010).

Table 1

Aggregate impacts of efficiency gains in agricultural and food marketing in India

Variable

50% increase in total factor 

productivity in agricultural 

and food marketing

Percent change from base

Real gross domestic product 1.0

Real household consumption 1.4

Real investment demand 0.4

Government revenue 1.0

Producer price index 0.4

Land rents 5.6

Wages 1.6

Capital rents 0.1

Exports 0.7

Imports 0.7

Table 2

Price effects of efficiency gains in agricultural 

and food marketing in India

Selected 

sectors

50% increase in total factor productivity

in agricultural and food marketing

Producer price Consumer price

Percent change from base

Rice 1.2 -0.8

Wheat 1.8 -0.5

Corn 2.2 -0.2

Fruit, vegetables 2.3 -1.0

Oils, fats 0.4 -2.1

Sugar 1.0 -1.8

Fibers 2.4 -0.1

Poultry and pork 2.7 0.6

Dairy products 1.9 -0.7

Modern food retailing is a relatively recent phenomenon in India, accounting for only about 2 percent 

of retail food sales, but is growing rapidly. While it is 

too early to assess the impacts of modern retailers in 

India, a recent study suggests the potential effects 

of increased investment and efficiency in agricultural marketing that might be associated with the 

expansion of the modern retail sector. The study 

was conducted using a general equilibrium modeling 

framework that accounts for economywide impacts in 

a developing country where large shares of income 

are earned from agricultural production and spent on 

food—factors that are likely to magnify the impacts of 

improvements in food marketing efficiency. 

Indian food retailing is dominated by small, independent sellers, and the agricultural marketing system 

is comprised primarily of a large number of fragmented, non-integrated marketing and processing 

firms using low levels of technology. Except in a few 

instances—such as the poultry industry in south 

and central India where successful vertical market 

integration is occurring—the evidence indicates that 

food markets are inefficient and deliver mostly unprocessed products to consumers at relatively high cost. 

Central and state government policies make it risky to 

invest in large-scale or vertically integrated agribusiness enterprises, leading to chronically low levels of 

private investment. 

Landes and Burfisher (2010) simulated the impacts 

of a 50-percent increase in efficiency—or total factor 

productivity—in India’s marketing system for food 

products. The results indicate that improvements in 

agricultural marketing efficiency could have substantial and broad impacts, generating gains in output and 

wages, raising agricultural producer prices, reducing 

consumer food prices, and increasing private 

consumption. The analysis also examines potential 

impacts for rural and urban households by income 

class and finds that the gains from improvements in 

food marketing efficiency are largest for low-income 

rural and urban households. 
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and Connor (1996) find no such relationship. The developing-country literature focuses primarily on asymmetric market power faced by small farmers 

when dealing with large modern retailers. Swinnen and Vanderplas (2007) 

find no consistent evidence of modern retailers appropriating efficiency gains 

or otherwise exploiting producers or consumers. They suggest that developing-country outcomes may have as much to do with imperfections in factor 

markets and contract enforcement regimes faced by growers than with the 

practices of modern retailers. 

Supply Chain Investment and Price 

Competition, by Country

Although modern grocery retailers are proliferating across developing and 

middle-income countries, it is difficult to assess their impact. The investments such retailers make in developing efficient supply chains are critical 

in assessing their impact on welfare and food demand. Anecdotal evidence 

from several large developing and transition countries suggests that modern 

grocery retailers have invested in the supply chain to varying degrees, but 

there is little evidence that consumers pay lower prices in modern grocery 

formats.

Brazil. Evidence suggests more investment in developing efficient supply 

chains in Brazil than in many other developing countries (U.S. Department 

of Agriculture, Foreign Agricultural Service, 2009). The country has been 

experiencing rapid growth in modern grocery retailing for longer than most 

other developing and middle-income countries. Furthermore, beginning with 

the economic reforms enacted in 1995, which included privatization and 

trade liberalization, Brazil’s retail food sector began to undergo a series of 

structural reforms that facilitated foreign investment, greater consolidation of 

the food industry through mergers and acquisitions, and a rapid rise in hypermarkets and convenience stores (U.S. Department of Agriculture, Foreign 

Agricultural Service, 2009). 

Prior to the entrance of foreign retailers, Brazil’s modern grocery retailers 

purchased over 60 percent of their products from traditional sources (IBGE, 

2010). However, foreign firms not only acquired domestic firms as they 

entered the market, but also brought their own supply chain models. Now 

retailers, both foreign and domestic, have started purchasing directly from 

farmers and have incorporated them into the supply chain (IBGE, 2010).

Although there have been large changes to Brazil’s retail industry in the 

past decade, it is difficult to assess the degree to which these investments 

have increased efficiency and lowered prices. A recent survey by the 

Brazilian Supermarket Association (ABRAS, 2010) found that high- and 

middle-income Brazilian consumers were attracted to supermarkets, in 

part, by competitive prices. However, the survey also found that these same 

consumers also preferred the brand information and wider range of products— including perishables, baked goods, wine, ready-to-eat dishes, and deli 

items—available through modern retailers. The same survey found that lower 

income consumers tended to shop in traditional formats like open-air markets 

and corner stores. 
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China. Like other fast-growing developing countries, China’s modern 

retail sector has been growing rapidly over the past decade. This growth is 

driven by both foreign and domestic retailers, and has been encouraged by 

the Government (Gale and Hu, 2007). However, despite this growth and 

a supportive regulatory environment, there is circumstantial evidence that 

modern grocery retailers have not significantly invested in more efficient 

supply chains. First, although it is difficult to compare the quality and safety 

of the food products offered, prices at modern retailers tend to be a little 

higher than those in traditional formats (Hu, 2007). Second, retailers tend to 

rely on independent suppliers and traditional wholesale formats for their food 

items, with only a few retailers establishing their own distribution centers 

(Hu, 2006; Goldman and Vanhonacker, 2006). 

On the other hand, modern grocery retailers have accommodated an 

increasing demand for more convenience and better food quality and safety 

that is being driven, in part, by rising incomes and urbanization (Hu, 2006). 

Also, modern grocery retailers themselves are helping to shape food demand 

and trade by supplying a wider variety of domestic and imported food items 

(Gale and Hu, 2007). 

Government efforts to increase efficiency in the supply chain include promotion of farmer cooperatives in an attempt to help coordinate small farmers 

and to streamline the supply chain between farmers and retailers (Hu et al., 

2005). The number and scale of cooperatives is still small, and fresh food 

sales account for very little of the growth of modern retail formats in the 

past decade. Given the supportive environment provided by both the national 

and local governments and their current initiatives to stimulate supply chain 

investment, modern retailers may focus more on supply chain efficiency and 

price competition in the future.

India. India’s food marketing system continues to be dominated by traditional, small-scale traders and retailers, but rising incomes and diversification 

of diets have led to more modern grocery retailing by domestic and international firms since 2000 (Minten et al., 2009). Although modern grocery 

retailing remains a nascent industry with little evidence of major investments 

in supply chain efficiency, a recent study found that modern retailers are 

providing more choices to consumers, and selling basic foods at the same or 

lower prices than traditional retailers (Minten et al., 2010). Both domestic 

and international investors are experimenting with a variety of formats—

including hypermarkets, supermarkets, convenience stores, and cash-andcarry wholesale outlets—and exploring various approaches to vertical coordination or integration of supply chains, particularly for fresh produce. 

Distinct from the expansion of modern grocery retailing, more efficient 

food supply chains are developing in India, including the vertical integration of the broiler industry (Landes et al., 2004) and vertically integrated 

farmer-owned dairy cooperatives. Several of the emergent modern retailers—

including domestic players Reliance and Big Bazaar and international players 

Walmart-Bharti and Metro AG—are trying to similarly reshape traditional 

supply chains, but progress is slow (U.S. Department of Agriculture, Foreign 

Agriculture Service, 2009).
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Indian agriculture continues to receive relatively low levels of public and 

private investment, with agricultural marketing dominated by small-scale, 

non-integrated enterprises employing low levels of technology (Landes, 

2008). While modern retailers are beginning to spark new investment, they 

face a difficult climate for successful investment in larger, vertically integrated, and modern enterprises. Agricultural policy in India is determined 

at the state level, and this has discouraged private investment in agricultural 

markets, particularly in enterprises that operate across state borders or seek 

to integrate farmers into supply chains. Impediments by state government 

authorities include the imposition of movement and storage limits on most 

major food products through the Essential Commodity Act, the requirement that all primary marketing of farm commodities occur in government 

markets under the state Agricultural Produce Market Committee Acts, and 

the interstate taxing of many farm commodities. At present, modern retailers 

are finding some state governments, including Gujarat and Punjab, to be more 

supportive of private investment than others. 

In India, modern retailers also must cope with significant infrastructure constraints and institutional weaknesses that tend to raise the cost of 

investing in agricultural markets. Investment in road and rail transport 

capacity, power generation, water supply, and cold storage capacity has lagged 

well behind the needs of a rapidly expanding economy. Public agricultural 

market services and institutions—including public goods such as grades and 

standards, inspection services, regulatory oversight, market information, 

futures markets, and extension services—are either underdeveloped or nonexistent in most areas, imposing increased costs and risks for private investment 

in agricultural markets. For front-end retailing, the high cost of real estate in 

most of India’s urban areas has been prohibitive. 

Although foreign investment in modern food retailing is expanding, growth 

has been constrained by policies that prevent foreign direct investment (FDI) 

in multi-brand retailing in any sector. As a result, FDI in food marketing has 

been limited to “cash-and-carry” or wholesale trading, such as Metro AG’s 

operations in south and east India, or to joint ventures with Indian firms in 

which the Indian partner owns the retail operation and the foreign partner has 

ownership of the wholesale and supply chain operation, such as the WalmartBharti joint venture in north India. While this policy has likely slowed FDI 

growth in India’s food markets, it is not clear if the FDI restriction or the state 

regulatory, institutional, and infrastructure constraints are the primary causes 

of weak investment in modern food supply chains. 

Russia. Modern food retailers grew substantially in Russia during the 

2000s, first in Moscow and St. Petersburg, and then in other cities. Although 

most modern retailers are domestically owned and operated, foreign chains 

(mainly EU-based) are becoming increasingly active, establishing the first 

hypermarkets within the country (FAO, 2009).

Russia’s transition from a planned to a market economy in the early 1990s 

generated conditions strongly conducive to supermarket growth. The variety, 

convenience, and service levels of modern grocery retailers were in stark 

contrast to the Soviet-era food stores, where any single urban store usually 

sold only one food product group, such as bread, milk, or meat. Early modern 
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The Expansion of Modern Grocery Retailing and Trade in Developing Countries / ERR-122

from the European Union, previously unavailable during the Soviet period 

(FAO, 2009). 

Modern grocery retailers initially had to rely on ineffi cient supply systems, 

and slowly upgraded their supply chain. The severe disruption to the entire 

agro-food system during the economic transition created similar challenges 

for all food retailers. Although supplier relationships are varied, modern 

retailers are contributing to the vertical integration of the country’s food 

supply chain, and this has helped improve the productivity, quality, and reliability of Russian food production and supply, particularly vegetables and 

potatoes. However, continued constraints include weak food supply infrastructure, which increases transaction costs. As with Brazil, it is diffi cult 

to identify whether early investment in the supply chain has translated into 

lower prices for consumers (Koester, 2005).

Although the supply chain in Russia has begun to develop since the growth 

of modern grocery retailers, other concurrent factors have helped this development. For example, the rise of large corporate farms has contributed to 

vertical integration within the country’s agro-food system and altered the 

supply chain. These enterprises typically combine primary agriculture, 

processing, and distribution (though usually not retailing), and can deliver 

investment, superior technology, and better management practices. In so 

doing, these integrated fi rms appear to be increasing productivity within 

Russian agriculture, especially for grains. Although most large corporate 

farms are domestically owned and managed, there is some foreign participation, especially by multinational corporations such as Cargill (Rylko and 

Jolly, 2005).
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Empirical Analysis of the Growth of Modern 

Grocery Retailing

Given data limitations, it is difficult to directly assess the extent to which 

the expansion of modern food retailing in developing countries is associated 

with improved supply chain efficiencies, with growing consumer preferences 

for nonprice characteristics of food, or both. Ideally, it would be best to look 

at the price differences between modern and traditional formats, and the 

amount of investment by each firm in their supply chains. However, data on 

price differences and firm investments are not available across developing 

countries. 

Although it is difficult to further assess possible efficiency gains directly, it 

is possible to investigate which factors are contributing to growth in modern 

grocery formats. A number of country characteristics could proxy for both 

the size of demand growth for nonprice characteristics and the size of 

possible efficiency gains, and these indicators vary widely across developing 

countries. Thus, it is possible to analyze whether growth in modern grocery 

formats is largest in regions where indicators suggest demand growth to be 

large, where expected efficiency gains are largest, or both. 

Euromonitor, International presents country-level data describing the growth 

of modern grocery retailing, as well as data on income, demographics, and 

other country characteristics. Supplementing the data with variables from 

the World Bank Development Indicators database, a number of proxies for 

growth in demand for nonprice characteristics and growth in efficiency gains 

are created for 103 developing and middle-income countries.8 Specifically, 

the data allow the creation of the following proxies:

Demand Growth:

• Growth in Population—an indicator of growth in aggregate demand.

• Growth in Income—an indicator of growth in aggregate demand.

• Level of Income—a proxy of growth in aggregate demand.

• Share of Working-Age Population—an indicator of the demand for 

convenience in food shopping and preparation.

Efficiency Growth:

• Share of Total Roads That Are Paved—a measure of the quality of 

infrastructure and the ease of setting up supply chains and distribution 

centers.

• Ranking for Business Environments—an indicator of the ease of 

doing business.

• Growth in Foreign Direct Investment (FDI)—a measure of attractiveness of business environment.

• Average Number of Days Required To Start a Business—an indicator 

of the ease of starting new businesses.

8The data set includes countries for 

which all variables were available, 

less Australia, Canada , Japan, New 

Zealand, South Korea, the United 

States, and countries located in Western 

Europe. See the appendix for a list of 

countries included in the data set.
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The Expansion of Modern Grocery Retailing and Trade in Developing Countries / ERR-122

Higher growth in income, a higher level of income, higher growth in population, and a higher share of working-age population should all be associated with stronger demand for modern retail grocery formats. On the other 

hand, setting up efficient supply chains is a dynamic process that takes place 

over time. Thus, if efficiency gains are actually a driver of modern retail 

growth, such expansion may be more likely in countries with environments 

conducive—i.e., more paved roads—to the development of efficient supply 

chains. The literature suggests that a conducive business environment also 

includes competition, freedom of entry and exit for firms, property rights, 

and flexible and enforceable legal environments. These factors are measured 

here by world rankings of business environments, the average number of days 

required for starting a business in each country, and growth in foreign direct 

investment (FDI), where better business environments are expected to be 

associated with larger efficiency gains and greater modern retail penetration 

(Reardon et al., 2003). 

The empirical strategy is to analyze differences in a country’s share of total 

grocery sales sold by modern formats between 1999 and 2009, denoted as the 

difference in the penetration of modern formats. The definition of growth in 

modern grocery penetration and all proxy variables, along with the summary 

statistics, are presented in appendix table 1. This change in penetration is 

regressed on the demand growth and efficiency growth variables: 

∆Penetrationi = β0 + β1BusRank1 + β2DaysStartBus1 + β3PavedRoad1

+ β4FDIGrowth1 + β5PopGrowth1 + β6ShareWorking1

+ β7GDPGrowth1 + β8GDP1 + β9Controls1 + u1

where ∆Penetrationi = Penetration2009 - Penetration1999 and denotes the 

growth in modern food retailing penetration between 1999 and 2009 for 

country i; BusRank denotes the rank of country i for the ease of setting up a 

business; DaysStartBus denotes the average number of days to start a business; PavedRoad denotes the share of roads that are paved in the country; 

FDIGrowth and PopGrowth denote the FDI and population growth in 

country i between 1999 and 2009; ShareWorking denotes the share of the 

population of country i that is between the ages of 15 and 64; GDPGrowth

denotes the growth in gross domestic product (GDP) between 1999 and 

2009; GDP denotes the 2004 per capita GDP in country i; and Controls

denote a number of other variables for country i that may be correlated 

with both ∆Penetration and the other independent variables and confound 

the true correlation between modern retail penetration and the variables of 

interest.9, 10 

The variables DaysStartBus and PavedRoad are not available for all 103 

developing countries in the data set, so the estimates for a number of specifications are shown in table 3. First, in column 1 are the results for a specification that includes proxies that are available for all countries. Column 2 

provides the results when the proxy variables not available for each country 

are included.

The estimates suggest that growth in consumer demand is associated with 

growth in the penetration of modern grocery retailing over the past decade. 

9Control variables include the population density in 2004, the population 

level in 2004, and regional indicators 

for whether the country was in Asia, 

Eastern Europe, Latin America, or 

the Middle East/Africa. Results are 

identical when using control variables 

from 1999. 

10There are a variety of other 

approaches to estimating these relationships, such as estimating nonlinear 

relationships or estimating the relationship between the independent variables 

and penetration in 1999 and 2009 

separately, and testing the equality of 

the coefficients. Results are similar 

regardless of approach, and we report 

the above specification for ease of interpreting the coefficients.
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Only the share of the working-age population is statistically significant. 

Furthermore, this variable has a large and significant impact on the growth 

of penetration in all specifications. The results in column 1 imply that an 

increase in ShareWorking by one standard deviation (.068) is associated with 

an increase in penetration by 4.0 percent. On the other hand, none of the 

other variables—either supply or demand proxies—are consistently correlated with growth in modern penetration across specifications. 

Examination of the extent to which growth in modern retail penetration is 

associated with different subsets of the working-age population may provide 

additional insight. For example, growth can stem primarily from younger 

workers adopting new formats and products, or possibly from all of the 

working population utilizing the convenience of readymade foods and onestop shopping. To investigate the role of various population segments, the 

share of working-age population variable is disaggregated into the shares of 

the working-age population under age 30, between 30 and 49, and from 50 to 

64. These results are shown in column 3 of table 3 and indicate that the share 

of the working-age population ages 30-49 has the most significant impact 

on modern retail growth; the coefficients estimated for the other age groups 

are both smaller in magnitude and not statistically significant. Given that 

the correlation is not driven by younger households only, it seems likely that 

faster growth in modern retailing has been primarily associated with populations demanding convenience rather than changes in food preferences associated with younger consumers.

By contrast, none of the proxies for efficiency growth is associated with 

growth in modern retail penetration. None of the coefficients on the efficiency proxies are statistically significant in any of the specifications (table 

3). Furthermore, the estimated standard errors of the coefficients are small 

enough to preclude a relationship as economically meaningful as the share of 

working-age population in any of the specifications. For example, in column 

(2), the effect of increasing the BusRank coefficient by one standard deviation using the bounds of the 95-percent confidence interval is still smaller 

than the effect of increasing the share of working-age population coefficient 

by one standard deviation.11

A previous study (Traill, 2006), using a smaller sample consisting of both 

developed and developing countries, found the level of penetration of modern 

formats to be positively correlated with income per capita. Thus, column 4 of 

table 3 estimates a specification that regresses the level of penetration in 2004 

on the proxies for demand growth for nonprice characteristics and efficiency 

growth in the supply chain associated with the expansion of modern formats. 

These results also suggest that penetration of modern grocery formats is 

higher in countries where GDP per capita is higher. Additionally, penetration 

is smaller where GDP growth is faster. However, countries with the highest 

growth rates also tend to be much poorer on average, suggesting a relationship between the rate of penetration and base income level. 

Despite these correlations between the level of penetration and the level and 

growth of income, columns 1-3 demonstrate that these relationships do not 

survive the first difference, in which many time-invariant factors drop out 

of the estimation.12 Thus, we cannot uncover whether supermarket penetration is higher in richer developing and transition countries simply because of 

11Given that modern grocery retailing 

began at different times in different 

regions, we also analyze whether 

these proxies for efficiency gains were 

correlated with the growth in penetration in different waves. Specifically, 

we estimate the baseline empirical 

specification but interact the efficiency proxies with dummy variables 

indicating the order in which countries 

started to develop modern grocery 

retailing, as described by Reardon et al. 

(2003). None of these differences are 

statistically different. We also allow for 

the effect of proxies to vary by income 

level. However, in those specifications, we still find that only the share 

of working-age population is correlated 

with penetration of modern grocery 

retailing.

12Although many of the variables in 

the estimation are static, including the 

share of the working-age population, 

these factors are being interpreted as 

proxies for either growth in demand 

for nonprice characteristics of food or 

growth in supply chain efficiency. 
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The Expansion of Modern Grocery Retailing and Trade in Developing Countries / ERR-122

Table 3

Relationship between modern grocery penetration and proxies for demand and efficiency growth

Dependent variable:

∆ Modern penetration Penetration level 2004

(1) (2) (3) (4)

Proxies for demand growth: 

Population growth

-.044 .076 .034 .069

(.050) (.144) (.050) (.064)

GDP growth

.009 .044 .003 -.046***

(.007) (.030) (.008) (.015)

GDP per capita

-.001 -.002 -.001 .006***

(.001) (.002) (.001) (.002)

Share of working-age 

population

.587** 1.05* - .030

(.290) (.615) (.460)

Share of population

age 15-29 - - -.153 - (.402)

Share of population

age 30-49 - - 1.10*** - (.406)

Share of population

age 50-64 - - .228 - (.695)

Proxies for efficiency growth:

Business rank

.000004 .00001 -.00006 -.0006

(.0003) (.0005) (.0003) (.0004)

Foreign direct investment 

growth

-.00008 .00003 -.00009 -.0001

(.00009) (.00009) (.0001) (.0003)

Days to start a business - .0001 - - (.0001)

Length of paved roads - -.0002 - - (.0008)

Observations 103 63 103 103

R2 .505 .590 .538 .407

Notes: *Significant at the 10% level; ** significant at the 5% level; *** Significant at the 1% level.. Robust standard errors are reported in 

parentheses. All specifications include regional indicator variables, the population level in 2004, and the population density in 2004. R2 = share 

of total variation in the dependent variable explained by the regression.

Source: Euromonitor, International.
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income, or unobserved factors which cause both income and penetration of 

modern formats to be high.

Although there is little correlation between penetration growth and the 

proxies for efficiency growth, these empirical patterns do not imply that there 

is no efficiency gain associated with modern grocery retailing. However, the 

lack of correlations between growth in modern grocery retailing and the efficiency growth proxies above, combined with the lack of strong evidence that 

consumers pay lower prices at modern grocery retailers, suggest that further 

empirical study on how modern grocery retailing might affect food prices by 

improving supply chain efficiency is warranted. 
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The Expansion of Modern Grocery Retailing and Trade in Developing Countries / ERR-122

Growth in Packaged and 

Pre-Prepared Foods

The expansion of modern food retailing appears to be correlated with 

nonprice factors such as convenience, as corroborated in analysis of the types 

of goods sold through modern formats. The expectation is that countries with 

rapid growth in modern formats, based on consumer demand for convenience 

and diet diversity, would also exhibit strong growth in sales of pre-prepared 

and packaged foods. This issue is studied by splitting the sample of 103 countries in half based on fastest versus slowest growth in modern formats, and 

comparing the average growth in total food sales for both fresh and packaged 

foods. Sales of total packaged foods grew somewhat faster in countries where 

penetration grew most, although the difference is not large (fig. 4). There 

was, however, essentially no difference in growth between these two groups 

of countries in the sale of fresh food.13

The growth of packaged food sales was not uniform across different food 

categories, with large differences in sales growth between high- and lowpenetration countries for specific types of packaged foods. Sales growth 

across the readymade convenience food categories was generally faster in 

high-penetration countries (fig. 5a), and the growth rate was twice as fast or 

faster in some categories such as snacks and snack bars, baby food, ice cream, 

soups, and meal replacements (fig. 5b). 

However, to make sure that these differences are statistically significant and 

not capturing differences in GDP per capita, we also estimate the following 

specification:

13Neither of these differences in 

averages between the two groups are 

statistically significant at standard 

significance levels. The p-value for the 

difference in growth of packaged food 

between the two types of countries is 

.311; the p-value for the difference in 

growth of fresh food is .943. 

Figure 4

Annual growth in sales of packaged and fresh foods by rate 

of retail penetration, 1999-2009

Percent

Source: Euromonitor, International. 

0

5

10

15

20

25

30

35

40

Fresh Packaged

Slow penetration High penetration
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Figure 5a

Annual growth in sales of packaged foods by rate of retail penetration, 1999-2009:

subcategories with small differences in sales growth

Percent

Source: Euromonitor, International. 

0

10

20

30

40

50

60

70

Slow penetration High penetration

Packaged Chilled/

Processed

Bakery Can Sauces Dried Frozen Pasta

Figure 5b

Annual growth in sales of packaged foods by rate of retail penetration, 1999-2009: 

Subcategories with large differences in sales growth

Percent

Source: Euromonitor, International. 

0

10

20

30

40

50

60

70

Slow penetration High penetration

Packaged Snacks Ice cream Baby foods Soup Meal 

replacement

Snack bars
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The Expansion of Modern Grocery Retailing and Trade in Developing Countries / ERR-122

Growth in Packaged Food Categoryi = β0 + β1∆PenDifi + β2GDPPerCapitai

+ β3GDPGrowthi

 + ui

where Growth in Packaged Food Categoryi is the growth in each of the six 

subcategories of packaged foods in fi gure 5b; ∆ Penetration is the change in 

penetration of modern grocery retailing as defi ned in appendix table 1; GDP

is the level of GDP per capita in 2004; and GDP Growth is growth in GDP 

between 1999 and 2009. 

Estimates of this specifi cation are reported in table 4. These results suggest 

that the differences in growth of these particular types of packaged foods 

are not capturing GDP differences and that sales of these particular food 

items are growing faster in places where modern grocery retailing is growing 

faster.14 

The pattern of faster growth in demand for packaged and convenience foods 

accompanying the penetration of modern food retailers can also be observed 

in the pattern of food import demand. World Trade Atlas data on imports 

of packaged foods were available for 33 of our samples’ 103 developing 

and middle-income countries. Using this restricted sample, the relationship 

between modern retail penetration and import demand was estimated using 

the following specifi cation:

∆ProcessedImports = β0 + β1∆Penetration1 + β2GDP1 + β3GDPGrowth1 + ui

where ∆ProcessedImports is the change in the value of imports (from chapters 19-21 of the Harmonized System) for country i between 1999 and 2009; 

∆Penetration is the change in the penetration of modern grocery retailing 

between 1999 and 2009; and GDP and GDPGrowth are defi ned as before. 

Although the estimates are derived from only a subset of countries in the 

original data set, the results indicate that imports of packaged foods are 

growing faster in countries where penetration of modern grocery retailing is 

growing fastest (table 5, column 1). In addition, these correlations are robust 

to the inclusion of both GDP per capita and GDP growth in column 2.15

14The relationship between penetration difference and growth in Meal 

Replacement and Snack Bars is less 

precise than the other relationships. 

This follows from the smaller number 

of countries that consumed these goods 

at all in 2009. All countries where 

consumption of these goods was not 

reported in either year (1999 or 2009) 

were assigned a growth rate of 0. All 

other goods were consumed in all 103 

countries. 

15Given the small number of observations, it is necessary to assume that 

the errors are normally distributed in 

order for these statistical inferences to 

be valid. A histogram of the estimated residuals is in fact bell-shaped, 

suggesting the assumption is not obviously violated.

Table 4

Relationship between growth in processed foods and the change in modern retailing penetration

Dependent variable: Growth in sales in processed food subcategory

Snacks Ice cream Baby foods Soup Meal replacement Snack bars

Δ Penetration

1.17** 1.28*** 1.79*** 1.37*** 1.85 4.98

(.481) (.429) (.435) (.513) (1.17) (3.91)

GDP per capita

-.002 -.0007 -.002 .0002 .002 -.003

(.002) (.002) (.002) (.002) (.003) (.009)

GDP growth

-.026 .036 -.049 -.031 -.059 -.107

(.029) (.027) (.069) (.033) (.051) (.099)

Notes: Signifi cant at the 10% level; ** Signifi cant at the 5% level; *** Signifi cant at the 1% level. Robust standard errors are reported in 

parentheses. All specifi cations contain 103 observations. 

Source: Euromonitor, International.
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These patterns are consistent with consumers patronizing modern formats, 

at least in part, for added convenience. The correlation between growing 

imports and penetration of modern grocery retailing might interest U.S. food 

processors trying to find new markets for their goods.

Table 5

Relationship between imported processed food and the expansion of 

modern grocery retailing

Dependent variable: ∆ Processed imports

(1) (2)

∆ Modern penetration 

7.07*** 5.27**

(2.32) (2.21)

GDP per capita - -.033

(.020)

GDP growth - 2.39**

(.892)

Observations 33 33

Controls? No Yes

R2 .255 .430

Notes: * Significance at the 10% level; ** Significance at the 5% level; *** Significance at the 

1% level. Robust standard errors are reported in parentheses. R2 = share of total variation 

in the dependent variable explained by the regression.

Source: Euromonitor, International.
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The Expansion of Modern Grocery Retailing and Trade in Developing Countries / ERR-122

Conclusions

Modern grocery retailing is expanding quickly in many developing countries, 

which has implications for food demand and trade. This report hypothesizes 

that two mechanisms are potentially important in explaining the growth in 

modern food retailing. First, modern retailers may be meeting rising demands 

for dietary diversity, shopping and preparation convenience, and food safety 

that are commonly associated with rising incomes among some groups of 

consumers. Second, modern grocery retailers may be investing in the supply 

chain and improving efficiency, which can lead to a stream of efficiency 

gains to be shared between producers and consumers. The potential impact 

of improved marketing efficiency on food demand and trade is possibly more 

significant in a developing-country context than in more developed countries 

because lower income consumers tend to be more responsive to income and 

price changes, and because agriculture and food account for relatively large 

shares of both income and expenditures in developing-country households. 

This report finds that the growth of modern grocery retailing in developing 

countries is correlated with the share of the working-age population, which 

suggests that demand factors such as increased convenience might be important to that expansion. This finding is supported by sales of convenient packaged foods, which are growing fastest in countries where modern grocery 

retailing is expanding the most. On the other hand, this report finds no correlation between the growth of modern grocery retailing and factors that would 

support efficiency gains in a country, such as better business environments 

and infrastructure. This lack of a correlation is not conclusive but, combined 

with the lack of primary data sources on how much modern grocery retailers 

are investing in the supply chain, these findings warrant further empirical 

study of how modern retailers might be affecting the supply chain. 
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Appendix

Appendix Table 1

Variable

________________

Description

______________________________________

Sample average

(Standard deviation)

_________________

∆Penetrationi

The difference in the share of total expenditure son grocery retailing 

accounted for by modern formats—hypermarkets, supermarkets, 

and chained convenience stores. Specifically, it is: (Modern Expenditure2009/ Total Expenditure2009 - Modern Expenditure1999/ Total 

Expenditure1999)

.0804

(.114)

Penetrationi

The share of total expenditures on grocery retailing accounted for 

by modern formats—hypermarkets, supermarkets, and chained 

convenience stores. Specifically, it is: Modern Expenditure2004/ Total 

Expenditure2004

.247

(.196)

GDPGrowthi

Percentage change in GDP between 1999 and 2009. Specifically, it 

is: (GDP2009 - GDP1999)/ GDP1999

1.10

(.782)

GDPi

GDP per capita in thousands of U.S. dollars per person. This was 

obtained by dividing the level of GDP in millions of U.S. dollars in 

2004 by the population level in thousands of people in 2004. 

9.82

(12.3)

PopGrowthi

Percentage change in GDP between 1999 and 2009. Specifically, it 

is: (Population2009 - Population1999)/ Population1999

.233

(.235)

ShareWorkingi 

The share of total population between age 15 and 64 in 2004. Specifically, it is: Population Age 15-642004/Total Population2004 .619

(.069)

BusRanki

Ranking covers the period from June 2008 to May 2009. The easeof-doing- business index ranks economies from 1 (best) to 183 

(worst), calculated as the ranking on the simple average of its percentile rankings on each of the ten topics covered in Doing Business

2010, published by the World Bank. 

103.2

(51.8)

PavedRoadi

Share of total roads that were paved in 2004, as reported by the 

World Bank.

.417

(.304) 

DaysStartBusi

Average number of days to start a business, as calculated in 2004 

by the World Bank.

56.8

(75.7)

FDI Growthi

Percentage change in FDI between 1999 and 2009. Specifically, it 

is: (FDI2009- FDI1999)/ FDI1999

.012

(70.5)

Growth in Packaged 

Food Categoryi

Equals the percentage change in sales in particular types of packaged foods between 1999 and 2009. Specifically, it is: (PackagedCategory2009 - PackagedCategory1999)/PackagedCategory1999

-

∆ProcessedImportsi

Percentage change in value of imports (from chapters 19-21 of the 

Harmonized System) between 1999 and 2009. Specifically, it is: 

(Imports2009 - Imports1999)/ Imports1999

2.47

(2.08)

Notes:

1. All data acquired from Euromonitor, International. There are 103 countries in the data set; for Share of Roads that are Paved, Days to 

Start a Business, and ∆ProcessedImports, values are reported for 94, 67, and 33 countries respectively.

2. Column 1 reports the variable name; column 2 defines each variable; and column 3 reports the sample average, with the standard 

deviation reported in parentheses.

FDI = Foreign direct investment. GDP = Gross Domestic Product.
27

The Expansion of Modern Grocery Retailing and Trade in Developing Countries / ERR-122

Appendix: Country List

Afghanistan, Albania, Antigua, Argentina, Armenia, Bahamas, Bahrain, 

Belize, Benin, Botswana, Brazil, Brunei, Bulgaria, Burkina Faso, Burundi, 

Cambodia, Cape Verde, Central African Republic, Chad, Chile, China, 

Colombia, Comoros, Côte d’Ivoire, Czech Republic, Djibouti, Dominica, 

Egypt, El Salvador, Equatorial Guinea, Eritrea, Ethiopia, Fiji, Gabon, 

Gambia, Ghana, Grenada, Guyana, Haiti, Honduras, Hong Kong, Hungary, 

Indonesia, Israel, Jamaica, Jordan, Kuwait, Kyrgyzstan, Laos, Lebanon, 

Lesotho, Madagascar, Malawi, Malaysia, Mali, Mauritania, Mauritius, 

Mexico, Moldova, Mongolia, Morocco, Mozambique, Namibia, Nicaragua, 

Niger, Oman, Panama, Papua New Guinea, Paraguay, Philippines, Poland, 

Qatar, Russia, Rwanda, Samoa, Sao Tomé e Príncipe, Senegal, Seychelles, 

Singapore, Slovakia, Solomon Islands, South Africa, St Kitts, St Lucia, St 

Vincent and the Grenadine, Sudan, Suriname, Swaziland, Syria, Tajikistan, 

Tanzania, Thailand, Togo, Tonga, Trinidad and Tobago, Turkmenistan, 

Uganda, Ukraine, Vanuatu, Venezuela, Vietnam, Yemen, Zambia