Who Bears the Brunt of Disruptive Innovation? The Effect of Grocery E-Commerce on Local Retail Competitors

Abstract

The emergence of e-commerce nowadays is at the center of attention as a threat to local businesses. Yet previous literature provides limited empirical evidence on e-retailer’s role due to the absence of clearly designated service areas. This study enhances our understanding of e-commerce’s impact by focusing on two e-grocery giants—Amazon Fresh and Instacart—to examine how their market entry impacts local brick-and-mortar businesses operating in the same grocery retail industry. Our study leverages e-grocery’s clear service areas at zip code level to employ a difference-in-difference setting on longitudinal establishment-level records from the National Establishment Times Series database in the greater Atlanta metropolitan area. We find that local retailers experience an annual decline of sales by 2.5-3.5%, and they partly adjust operation by cutting headcount 1.5-1.8% after Amazon Fresh enters the local market. Specifically, the negative impacts are disproportionately borne by small businesses while the effects are spatially ubiquitous regardless of proximity to a nearest retail cluster anchored with big-box stores. The entry and persistent operations of Amazon Fresh, which provides both sale and delivery of goods, burden local retail stores more heavily over time. In contrast, Instacart, a distinct online grocery platform, which solely provides delivery services as a third-party agency, yields a neutral impact on the local retailers’ employment. In fact, we find some suggestive evidence that the diffusion of online delivery platform among major brick-and-mortar stores help boost sales performance of a grocery retail industry overall in the service area.

Keywords: E-commerce, technology, disruptive innovation, grocery retail industry, small business

JEL Classification: L81, L87, O10, O14