An Economic Model of the Evolution of Food Retail and Supply Chains from Traditional Shops to Supermarkets to E‐Commerce

16 Pages Posted: 21 Apr 2020

See all articles by Liang Lu

Liang Lu

University of Idaho

Thomas Reardon

Michigan State University

Date Written: October 2018

Abstract

Food retail has been in continuous evolution for the past century—both in developing and developed countries—from local traditional stores to supermarkets to e‐commerce. In this paper we analyze the evolution of food retail by building a store choice equilibrium model and providing an illustrated discussion. The patterns in retail in any given time and place of different types of stores (such as traditional shops, supermarkets, and online e‐commerce) depend on two main factors. The first are consumers’ characteristics such as income, tastes, and travel costs of going to different stores and/or shipping costs if purchasing online. The second are the stores’ cost structures, which include item costs from upstream producers, the costs of procurement supply chains (beyond the cost of the item) for perishable items, and the costs of in‐store storage. We show under what conditions in equilibrium the different retail types exist and which can become dominant, and what types of goods (dry packaged foods versus perishables) are distributed by what type of retailers.

Keywords: Traditional retail, supermarkets, e‐commerce, supply chains

Suggested Citation

Lu, Liang and Reardon, Thomas, An Economic Model of the Evolution of Food Retail and Supply Chains from Traditional Shops to Supermarkets to E‐Commerce (October 2018). American Journal of Agricultural Economics, Vol. 100, Issue 5, pp. 1320-1335, 2018, Available at SSRN: https://ssrn.com/abstract=3578919 or http://dx.doi.org/10.1093/ajae/aay056

Liang Lu (Contact Author)

University of Idaho

875 Perimeter Drive
Moscow, ID 83844
United States

Thomas Reardon

Michigan State University ( email )

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