Co-location, good, bad or both: How do new entries of discount variety stores affect local grocery businesses?

Abstract

We analyse 69 entries and relocations by the largest Norwegian discount variety chain Europris during the period 2016 to 2019, and measure how its location choices affect local grocery stores’ performance. We use detailed data from a major Norwegian grocery chain, which enables us to combine local grocery stores’ sales and traffic with travelling distance to new or relocated Europris stores, and a two-way fixed effects strategy. Our findings suggest that entries and relocations have significant effects and that the sign of the effect depends on the distance between the stores, creating a non-linear relationship between the effect of entry and the distance between the stores. Sufficiently close entries and relocations increase local demand since more customers are attracted to the market, but, as the distance increases, the competitive effect of a new discount variety store dominates, and local grocery store sales and traffic are reduced. As we move further away, the entry effect is gradually reduced to zero.