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

Abstract

The rising prominence of e-commerce has raised concerns regarding its potential threat to local businesses. However, existing literature lacks substantial empirical evidence of the impact of e-retailers due to its ambiguous service areas. This study aims to address this gap by focusing on an e-grocery giant Amazon Fresh to examine its influence on local brick-and-mortar businesses within the grocery retail industry. We leverage e-grocery’s clearly defined service areas at the zip code level to employ a difference-in-difference approach with longitudinal establishment-level records from the National Establishment Times Series (NETS) database in the greater Atlanta metropolitan area. We find that retail competitors experience an annual decline in sales following Amazon Fresh’s entry into the local market. In response, these retailers partially adjust operations, reducing their headcount. Notably, the negative impacts disproportionately affect small businesses, and the effects are spatially widespread, irrespective of proximity to major retail clusters anchored by big-box stores. Over time, the presence and continuous operations of Amazon Fresh that offers both sales and delivery of goods exert a heavier burden on local retail stores. In contrast, we do not find such evidence of disruptive effects for Instacart, which is increasingly becoming a dominant grocery e-commerce model in partnership with local store chains over independent operations. 

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