Evaluating Labor Productivity in Food Retailing

Competition from new store formats including supercenters, warehouse clubs, and mass merchandisers has emerged as a major threat to traditional grocery chains. A primary objective of this paper is to understand how the store-level performance is related to the workforce composition of full-time and part-time employees chosen by the food retailer along with benefits and incentives provided to employees. The elasticity of complementarity for food retailers measures how changes in store size affect use of full-time and part-time employees. Larger store size increases the marginal value of labor, and firm hiring decisions shift to expanded use of part-time employees. Key Words: elasticity of complementarity, employee compensation, food retailing, inverse price elasticities (ProQuest: ... denotes formulae omitted.) The retail food industry has undergone significant changes since the 1980s as supermarkets have responded to increased competition from alternative retail formats and changes in consumer shopping habits. Supermarkets have evolved from small, independently owned, full-service establishments to large, administratively centralized, horizontally and sometimes even vertically integrated self-service chains. Competition from warehouse clubs, mass merchandisers, supercenters, and convenience stores has intensified, forcing supermarkets to reevaluate many of the ways in which they conduct their business operations. As the size of the typical supermarket grew, not only in the United States but also in Europe, economists began to focus attention on economies of size and scale in food retailing. Paul Miller, in a 1930 article in the American Journal of Agricultural Economics, was perhaps the first agricultural economist to examine the emergence of mass retailing by chain stores and the implications for growers and processors. The importance of food retailing is also reflected in research initiatives highlighted on the Economic Research Service's webpage,1 including public policy related to the structure of U.S. retail food markets and its impact on agricultural suppliers, financial performance, competition, and food market prices. Li, Sexton, and Xia (2006) discuss the extent of market power by retailers, noting that "we know rather little about retailers' behavior in terms of choices of products and brands carried, pricing strategies promotions" (p. 236), and the authors conclude that the implications for consumers and producers are not clear. Wal-Mart, the world's largest retailer, has perfected the supercenter format to become the leading firm in the grocery industry. From a base of only 10 in 1993, Wal-Mart now operates over 2,195 supercenters, with company plans indicating that this store format will expand by 200 new stores every year for the next five years. Target was operating 177 SuperTarget locations as of January 2007. The supercenter format is identified as the major threat to traditional grocery chains, as close to 80 percent of supermarket managers listed competition from this store format as their major concern (National Grocers Association 2005). A clear gap in the current work on the food retail sector is an analysis of the retail labor force and how hiring decisions and employment opportunities are related to retail performance and store-level decisions. Davis et al. (2006) examined human resource practices across retail food establishments and found that these practices are quite persistent even in the face of new external competition, such as entry by a new supercenter. We extend this work by incorporating detailed store-level information on benefits and incentives that can be linked to store performance. Researchers have assessed the impacts of new store formats such as "big box" stores on rural economies and local food stores' sales and on community social capital stocks (Goetz and Rupasingha 2006, Artz and Stone 2006). Food retailing and marketing researchers have examined the impact of supercenter entry on pricing strategies and profitability of incumbent supermarkets. …