ESCP Europe

Langue

English

Publication year

20/06/2022

International retail buying alliances have been subject to controversy over the past few years. Brand owners argue that these buying groups are created predominantly to increase retailer profits, and thus merely add costs to the supply chain. Retailers insist that alliances are a necessary strategy to restore the negotiating balance between national retail chains and big multinational brand owners. This study investigates whether German market leader EDEKA's membership of international retail buying alliance AgeCore has led to lower consumer prices as a result of improved buying conditions, comparing shopper prices based on scanner data for a data set of over 6 million observations, composed of 138,000 stock-keeping units (SKUs) from 20 food categories based on monthly observations over a 6-year period. More specifically, SKUs within the scope of AgeCore negotiations are compared with non-AgeCore SKUs, following the Counterfactual Impact Evaluation (CIE) methodology often used by scientists at the Joint Research Centre of the European Commission. The aim is to find out if average monthly consumer prices of SKUs in the buying group (the treatment group) would be cheaper than comparable SKUs which were not part of the buying group negotiations (the control group), ceteris paribus. Three different models are used to estimate the effect of AgeCore on consumer prices offered to EDEKA shoppers. A base model using two types of variables - a range of time variables and buying group membership - indicates that the average monthly consumer price of SKUs in the buying group are 21% cheaper than similar products outside the buying group, ceteris paribus. This is a likely over-estimation of the effect of the buying group, as EDEKA would always need to be price competitive on best-selling items, whether they are within AgeCore or not. An enhanced model, introducing rescaled annual sales value per SKU as an additional variable, reduces the estimated impact of AgeCore to -12%. A third, advanced model, introduces product category as an additional explanatory variable, as the unit price of SKUs varies considerably between product categories. This methodology reveals that average monthly prices for SKUs in a specific product category belonging to AgeCore tend to be lower than the average monthly price of similar SKUs in that product category that are outside AgeCore. The effect varies from -36% in the frozen food category to -6% for snacks, for example. In some categories, average consumer prices for SKUs within AgeCore are higher than those outside AgeCore. This is, for example, the case for beverages, both alcoholic and non-alcoholic (in the latter case, the treatment and control groups are too dissimilar). Only three product categories show no statistically significant effect of being in the AgeCore set: bakery, plant-based dairy and delicatessen. Regardless of potential improvements to the methodology, the analysis shows unambiguously that EDEKA's membership of AgeCore has resulted in approximately, on average, 12% lower prices of AgeCore SKUs as compared to similar non-AgeCore SKUs for their shoppers. Admittedly, the effect of the international buying group on EDEKA consumer prices varies considerably across product categories. The results of the study are consistent with other studies on the impact of retail buying groups, and thus contribute to a growing body of evidence illustrating that retail buying groups do lead to a significant reduction in consumer prices. [ABSTRACT FROM AUTHOR]