The Value of Grocery Delivery and the Role of Offline Complements

Abstract

The growth of the online economy can either reinforce or attenuate disparities in access to
retail depending on the nature of its interaction with consumers’ offline vicinity. This paper
measures the welfare value of new online grocery services and identifies the channels through
which consumers benefit from this innovation. I construct a new dataset with the roll-out of
two grocery delivery platforms to show how their different delivery logistics affect consumers. I
combine this geographic entry information with scanner data to estimate a Revealed Preference
model where consumers choose over bundles of products and retailers. I find the new services to
be worth on average $120/year to users. If delivery logistics rely on partnerships with local
stores, households that live close to multiple retail stores are the most likely to gain access to
the new technology. This complementarity between the delivery service and the consumer’s
geographic location benefits high income zip codes 34% more than low income zip codes due
to differences in the supply of offline retail. On the other hand, distance to brick-and-mortar
retail makes delivery a more valuable substitute to the offline economy. The value creation
through this channel is 26% larger in low income zip codes compared to high income ones.