Differentiation in demand with different food retail formats

Recently, discount stores have gained importance in food retailing. We investigate whether certain types of consumers have turned towards particular formats, both in terms of socio-demographic characteristics and responsiveness to price changes. The distinctiveness of discount consumers is analyzed utilizing dynamic probit models with Heckman-type selection to estimate the factors influencing a household’s propensity to visit a discount store and its overall spending in discounters. In addition, we estimate price and expenditure elasticities for nine product groups in discounters and supermarkets based on a two-step estimation method account for censoring in the food budget shares. Our results indicate that income constraints play a key role in the choice of discount stores, while differences in the overall price levels lead to higher frequentation of discounters. The latter effect tends to be mainly driven by demand responses in supermarkets, where demand for all nine considered product groups is found to be statistically more responsive to inner-format price changes than demand within discount stores. However, we find that discount store demand increases significantly stronger as supermarket prices go up, than is the case for supermarket demand when discount store prices are raised.