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Journal of Retailing and Consumer Services 21 (2014) 438–448

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Journal of Retailing and Consumer Services


journal homepage: www.elsevier.com/locate/jretconser

Interformat competition in the grocery retailing


Maria Grazia Cardinali 1, Silvia Bellini n
Marketing Area – Department of Economics, University of Parma, Via Kennedy 6, Parma 43125, Italy

art ic l e i nf o a b s t r a c t

Article history: In the last few years, we have seen significant changes in the Italian retail environment which suggest
Received 9 December 2013 that the patterns of retailing competition are more complex than in the past. In order to expand their
Received in revised form target market in a context of economic recession, retailers are implementing new strategies aimed to
13 March 2014
stimulate the switching between different store formats. As a result, store formats are getting similar and
Accepted 18 March 2014
new "hybrid" formats are emerging.
This paper investigates the interformat competition between grocery store formats in the Italian
Keywords: retail market in order to understand which formats are converging and which, otherwise, are
Interformat competition maintaining their distinctiveness. Our findings show that the rivalry between store formats (interformat)
Intraformat competition
is becoming more intense than the competition within store formats (intraformat). These results have
Competitive convergence
significant implication on both retailers and trade marketing strategies.
Grocery
Retailing & 2014 Elsevier Ltd. All rights reserved.
Consumer perceptions

1. Introduction unbranded products. Other retailers (e.g. Finiper) have made a


“trading up” policy in order to make the hypermarket format able
In the last few years, we have seen significant changes in the to satisfy daily shopping needs: they have extended the range of
Italian grocery retailing because of the economic crisis. In parti- fresh foods and ready meals, and they have introduced small
cular, two prevalent trends can be observed. Firstly, the structure baskets for daily shopping.
of the retail market is changing: small and medium size store Also the supermarket format is evolving, in order to better
formats (o2.500 mq, i.e. convenience stores, small/medium satisfy “price sensitive” consumers: some retailers (e.g. Simply and
supermarkets and discounts) are growing, while larger scale Unes) have implemented a “trading down” policy: they have
formats ( 42.500 mq, i.e. large supermarkets and hypermarkets) rationalized the assortment and introduced “Every Day Low Price”
are declining (Competition Authority, 2013). (EDLP) policies. At the same time, we can observe a “trading up” of
Secondly, retailers’ strategies are changing in response to the the supermarket formats which are evolving in order to better
recession: in a mature environment with slow growth opportunities, satisfy the needs of the consumers who eat away from home:
in fact, grocery retailers expand their target market and develop new Conad, for example, has extended the ready meals assortment and
strategies in order to capture the competitors' customers. In parti- created eat-in areas in stores.
cular, retailers try to stimulate the switching between different store The discount format (e.g. Lidl) has implemented a “trading up”
formats. As a result, new “hybrid” formats (i.e. new formats which policy by improving the quality of the assortment: it has intro-
combine the characteristics of different store formats) are emerging duced a new line of organic products and it has also tested a new
as a consequence of the “trading up” and “trading down” policies line of products with a low fat and sugar.
implemented by retailers in response to the new market context. These trends suggest that the patterns of competition among
The trading up and trading down policies make the store store formats are more complex than in the past.
attributes less distinctive than in the past. Competitive interaction among retailers, in fact, is described
Some examples will help to better interpret the current trends. most commonly as either intra or intertype. Levy and Weitz (1998)
Some retailers (e.g. Auchan and Carrefour) have implemented a define intratype competition as that existing between the same
“trading down” policy in order to make the hypermarkets more type of retailers selling similar merchandise, while intertype
attractive: they have extended the range of value products, they competition is between different types of retailers selling similar
have introduced the “self-discount” areas and the unpackaged merchandise. According to this interpretation, the intratype com-
petition exists between two grocery retailers (e.g. Auchan and
n
Carrefour) while the intertype competition occurs between a mass
Corresponding author. Tel.: þ 39 0521 032416.
E-mail addresses: mariagrazia.cardinali@unipr.it (M.G. Cardinali),
merchandise retailer and a category killer (e.g. Auchan and Toy's).
silvia.bellini@unipr.it (S. Bellini). Changes in the retail environment make this dichotomy insuf-
1
Tel.: þ39 0521 032479. ficient. The intratype competition in the grocery sector, in fact, has

http://dx.doi.org/10.1016/j.jretconser.2014.03.005
0969-6989/& 2014 Elsevier Ltd. All rights reserved.
M.G. Cardinali, S. Bellini / Journal of Retailing and Consumer Services 21 (2014) 438–448 439

two dimensions: the first, which is the most known and studied by in stores. As a consequence, grocery retailers have entered into
the literature, is the intraformat competition which occurs within competition with food service operators.
the same store format; the second, more recently and less studied Valdani et al. (2001) studied the competition between grocery,
by the literature, is the interformat competition which invest non-grocery and public utilities sectors. In particular, they revealed a
different store formats. This means that the hypermarket does growing convergence between grocery and fuel sectors: on one
not compete only with another hypermarket (intraformat compe- hand, grocery retailers have opened fuel stations under their own
tition) but also with a discount or a supermarket (interformat banner; on the other hand, fuel companies have opened conveni-
competition). These issues are the focus of our work. ence stores near their fuel stations. At the same time, grocery
On the basis of these observations, we investigate the competi- retailers have started to invest in insurance and financial services,
tion between store formats in grocery retail sector in terms of a getting in competition with financial operators.
dual perspective combining the supply side with demand. The The “competitive convergence”, which is characterized by the
supply side of the investigation focuses on the degree of similarity entrance of grocery retailers in non-food sectors (e.g. fuel, phar-
in store attributes and the demand side focuses on consumer macy, insurance, finance, optics) and “non-core” services (e.g. food
perception of how different formats meet their shopping needs. service), is due to the to the maturity of the grocery sector.
This dual perspective is useful for the retailers who want to Focusing on the grocery retail sector, several studies (Lal and
better understand the role that formats have in the consumer's Rao, 1997; Bell et al., 1998; Bell and Lattin, 1998; Fox et al., 2002;
purchasing decision as well as which parameters are better than Bhatnagar and Ratchford, 2004; Gonzales-Benito et al., 2005;
others in the process of offer segmentation. Popowski-Leszczyc et al., 2000, 2004;Rhee and Bell, 2002; Singh
If we find out that store formats are perceived as similar in et al., 2006; Gijsbrechts et al., 2008; Cleeren et al., 2010) have
meeting food shopping needs, retailers should focus more on the made a distinction between intraformat and interformat competi-
brand image in order to differentiate themselves from competi- tion: the first occurs between the same type of store formats (e.g.
tors, achieve a sustainable competitive advantage and consolidate Auchan vs Carrefour), while the second occurs between different
their position in the market. types of store formats (Auchan vs Carrefour Market).
Several contributions have tried to understand what are the
levers that contribute to generate the competitive convergence
and the interformat competition.
2. Theoretical framework Some authors (Lal and Rao, 1997; Bell and Lattin, 1998; Rhee
and Bell, 2002; Popowski-Leszczyc et al., 2000; Singh et al., 2006)
The matter of intertype and intratype competition is of great examined the role of pricing strategies in increasing competition
relevance in the current context of economic recession, since between retailers, focusing on the nature and intensity of compe-
retailers are looking for marketing strategies to prevent consumers tition between EDLP and HiLo supermarkets. Fox et al. (2002)
from switching store formats. This trend is of course not new looked at competition between grocery stores, mass merchandi-
(Hirschmann, 1978; Ingene, 1983; Levy and Weitz, 1998; Dunne sers and drug stores, and the influence of range, price and
and Lusch, 1999), but in recent years it has increased rapidly promotion policy on purchasing behavior and on the amount of
affecting the market retail structure (Miller et al., 1999). spending for each store format. Purchasing behavior and amount
The emerging of new form of competition that goes beyond the of spending were found to be more variable between formats than
traditional boundaries draws a new market context that is defined within the same format.
as “competitive convergence” (Ancarani and Costabile, 2009) in Bhatnagar and Ratchford (2004) presented a model to explain
order to emphasize a growing competition between different factors underlying consumer choice between supermarkets, con-
firms or, as far as concern the retail sector, between different venience stores and food warehouses. It is based on the assump-
retailers or different store formats. tion that consumers choose the format that gives the best overall
The matter of competitive convergence was first studied from combination of prices and costs for each shopping mission. Their
the perspective of the industrial sectors: starting from the nineties, analysis showed how to identify the best format for minimizing
several authors have studied the convergence among industrial costs on the basis of whether the shopping mission is routine,
sectors (e.g. information technology and media), mainly due to the daily or emergency, etc. They found that substitution is limited by
advent of digital technologies (Bradley et al., 1993; Moore, 1996; rational choice on the part of the consumer, who tries to limit
Yoffie, 1997; Evans and Wurster, 1997; Shapiro and Varian, 1999; overall costs for each purchase.
Valdani et al., 2001). These authors analyzed the intertype com- An interesting study on the degree of competition between
petition resulting, which involves, for example, companies that different store formats (Gonzales-Benito et al., 2005) presents a
belong to the information technology sector with companies model showing the degree of interaction between supermarkets,
coming from the media sector. hypermarkets and discount stores in the Spanish market. Competi-
The phenomenon of the competitive convergence in the retail tion between hypermarkets and discount stores was found to be the
sector, instead, is more recently, especially in Italy. At the end of most intense, while supermarkets compete with the same level of
the nineties, with the introduction of a new commercial legisla- intensity against both the hypermarkets and discount stores.
tion, several retailers began to develop new market strategies Gonzales-Benito et al. (2005) discussed intraformat and interformat
extending their target market: specialized and non-specialized competition, and they showed empirically that competition is more
retailers started to compete against each other for the same intense within a format than between different store formats. This
households. This phenomenon has been described as “intertype work is interesting because it recognizes that spatial competition
competition” (Lugli, 2004) as well as “competitive convergence” between stores is not based exclusively on a specific format. The
(Valdani et al., 2001). In particular, Lugli (2004) explored the competition between different formats, defined as an “asymmetric”
convergence between grocery retail and food service. Grocery competition by the authors, need to be taken into account, along
retailers have implemented new strategies in order to satisfy the with the competition within the same formats.
need of consumers who eat out of home: they have introduced Lastly, in a recent work, Cleeren et al. (2010) presented findings
ready meals in their range, they have created new categories by of a study of the German market which measures the competitive
aggregating food, beverage and non- food items (such as paper impact of a new entry on the market both within the formats and
napkins and plastic cups), and they have introduced “eat-in” areas between two formats, supermarkets and discount stores.
440 M.G. Cardinali, S. Bellini / Journal of Retailing and Consumer Services 21 (2014) 438–448

Table 1
Store sample by store formats.

Store formats Retail chain

Hypermarket Ipercoop (Hypermarket 1), Famila (Hypermarket 11), Esselunga (Hypermarket 7), Auchan (Hypermarket 8), Finiper (Hypermarket 9),
Carrefour (Hypermarket 16)
Supermarket Conad (Supermarket 3), Coop (Supermarket 10), Simply Market (Supermarket 14), Pam (Supermarket 15), Carrefour Market (Supermarket 17),
Unes (Supermarket 19), Billa (Supermarket 20)
Convenience Punto Sigma (Convenience 6), Punto Sma (Convenience 4), U2 (Convenience 5), Conad City (Convenience 12)
Discount Eurospin (Discount 13), Lidl (Discount 2),
Penny Market (Discount 18)

Table 2
Definition of store formats in Italya.
Source: Competition Authority, 2013.

Store format Retail chain

Hypermarket A grocery retail store, self-service based with a sales area of more than 2.500 mq, with a big parking area, which offers a wide
range of products (from 7000 to 40,000 references of food and non-food items). Generally, it attracts consumers located in a
radius distance of 30 min or more
Supermarket A grocery retail store, self-service based with a sales area of more than 400 mq, which offers a wide range of food items, in
most cases packaged, as well as some non-food items for domestic use (from 5000 to 10,000 references of food and non-
food). Services (the number of check outs, parking areas, opening hours, etc.) depend on the size of the store. Generally, it
attracts consumers located in a radius distance of 15 min
Convenience store A grocery retail store, smaller than the supermarket, self-service based with a sales area of between 200 and 400 mq, which
offers a limited range of food items in terms of brands and references. It satisfies daily shopping needs. Generally, it attracts
consumers located in a radius distance no more than 10 min
Discount A grocery retail store, self-service based with a sales area of between 200 and 1000 mq, which offers a limited range of
products (the number of references is usually less than 1000) that excludes, in most cases, fresh department and branded
products. The layout is very simple, as well as the services offered to customers. It differs from other retail stores for the low
price policy

a
These definitions, agreed by the Italian Ministry of Industry Commerce and Handicrafts, have been developed for statistical purposes from a working group, composed
of officials of the Ministry and experts from the industry trade associations, regions, ISTAT and research institutions.

The strength of these studies is that they measure interaction the last few years. This growth could have led standardization
and competition between stores within the same format (intra- between store formats making them less differentiated and
format) and between different formats (interformat). A weakness, recognizable by consumers.
however, tends to be that they are based on a consumer perspec- Q2. What parameters bring about convergence and which
tive, while the offer side is not considered. In the past, interformat maintain format differentiation?
competition was driven only by price promotion, while in the Some structural and service parameters contribute to compe-
actual market scenario (as described in our introduction) retailers titive convergence, while others help and will continue to
compete against each other using all the retail mix levers, such as create identity and differentiation of store formats. In the past
range and services. This makes the boundaries between store it was promotions which tended to make boundaries fluid, but
formats increasingly confused. in recent years more parameters bring about convergence.
Measuring the degree of similarity between formats from the Q3. Which formats are showing the most convergence and
perspectives of both retailers and consumers can suggest how the which are retaining their identity on the Italian market today?
competitive boundaries between grocery retailers might be drawn in We intend to explore which formats show most convergence
future. and which retain their identity and are easily recognized by the
consumer in the current context of increased competition.
Q4. What perception do consumers have of the different store
3. Research aims and methodology formats in terms of meeting shopping needs?

On the basis of these observations, our work intends to


investigate the new dimensions of competition between grocery From the point of view of demand, we aim to find out whether
store formats in order to verify if they are becoming similar, which consumers perceive the gradual convergence of store formats and
means that they are converging. whether it influences purchasing behavior by changing the criteria
Our research differs from the contributions discussed above by for choosing store. The results will enable us to assess current
using a dual perspective combining the supply side with demand. segmentation strategy and how well it meets shopping needs.
On the supply side, we focus on the degree of similarity in store In order to pursue the research aims mentioned above, our field
attributes while on the demand side we focus on consumer research was carried out in two strands.
perception of how different formats meet their shopping needs. Firstly, the convergence between store formats in terms of supply
In particular, we aim to answer the following questions: perspective has been measured using the store checks' analysis.2

Q1. Which are the boundaries between store formats in the era
of “competitive convergence”? 2
Analysis based on store checks is a method of observation which measures
Competitive convergence is of course not new in the grocery both qualitative and quantitative variables in the supply perspective (Pellegrini and
sector, but the current economic recession has speeded it up in Dolciotti, 2001).
M.G. Cardinali, S. Bellini / Journal of Retailing and Consumer Services 21 (2014) 438–448 441

Table 3
Variables.

Parameters Store attributes Measurement

Structural variables (macro-parameters) Layout model (grid/free flow) Present/absent


Aggregation of promotion areas Present/absent
Gondola promotion areas Present/absent
Double entrance Present/absent
Value area Present/absent
Unpackaged items area Present/absent

Time saving services (macro-parameters) Self-scanning Present/absent


Automatic checkout Present/absent
Daily shopping baskets Present/absent
Fast checkout Present/absent
Home delivery Present/absent

Range (macro-parameters) Categories Products Type of number of products per categories


Retail mix levers (micro parameters) Products Number
Brands Number
Organic products Number
Premium products Number
Value products Number
Store brands Number
Promotions Number of product code in promotions
Average duration of promotions in flyer Days
National brand in flyer Number
Follower brand in flyer Number
Store brands in flyer Number
Food products in flyer Number
Non-food products in flyer Number
Fresh products in flyer Number
Products with discount lower than 30% in flyer Number
Products with discount between 30% and 40% in flyer Number
Products with discount higher than 40% in flyer Number

Field research was carried out in Milan (Italy) in July 2012 on a store formats and their role in purchase decisions. The discussion
sample of 20 point of sales (Table 1), belonging to the main Italian was aimed to understand if the choice of the main store depended
grocery retail chains, which account for over 70% of Italian grocery on the belonging to a particular store formats or it depended on
turnover, and to four different store formats, which have been the retailers' strategies.
identified on the basis of the Competition Authority's classification Each discussion lasted for about 2 h, and was sound and video
(Table 2). Store checks were made on just one point of sale per recorded. Sessions have been videotape and verbatim transcribed
retail chain, indicated by the retailer as being representative of for the purposes of thematic analysis. In particular, the analysis
retailing strategy for store format. was divided into two steps. First, we read the transcripts twice to
For each of them, several store attributes were observed and become familiar with the data and defined the codes using the
measured in order to understand if store formats are becoming template method (King, 1998) which combines the theory-driven
similar (Table 3). The selected variables correspond to those most approach (themes identified a priori) with the data-driven one
frequently mentioned in the literature. (themes emerging from the discussion). Secondly, the codes were
According to the main contributions, in fact, store formats in aggregated into categories, according to the similarities found
grocery retailers differ with reference to several attributes (Spranzi, between them. The NVivo 9 software was used to facilitate the
1981; Pellegrini, 1988; Lugli, 1998; McGoldrick, 1990), ranging from focus groups content analysis by means of data categorization.
structural parameters (size of the store, location, layout, display, Some comments from participants have been selected to explain
services) to retail mix levers (range, communication, promotion, in depth the themes and are verbatim reported in quotes in the
price). These attributes have a different impact on store loyalty findings.
(Mitchell and Kiral, 1998; Morganosky and Cude, 2000; Cortinas
et al., 2004; Miranda and Konya, 2005; Pan and Zinkhan, 2006; Clottey
et al., 2008; Bellini et al., 2011) and store choice (Reutterer and 4. Findings
Teller, 2009). Moreover, the store attributes qualified the degree of
retail innovation, as defined by Cardinali (2003) who distinguished 4.1. Convergence between store formats
between primary and secondary innovation.
Secondly, empirical qualitative research based on the focus To answer our first research question, we analyzed structural
group discussion was used to verify consumer perception of the and service parameters of the stores. Field research confirmed that
convergence. different formats are growing increasingly similar as a result of
Focus group discussion took place in September 2012 and trading up and trading down policies operated by different formats.
involved 28 consumers in four groups of seven. Recruitment was One of the clearest trends emerging is the growing hybridization
made through intercept technique at the stores involved in the of hypermarkets. Many are implementing trading up and trading
research. Participation was restricted only at consumers who down policies in response to the crisis, while others have also
declared to be the main responsible for the household shopping. recently opted for a discount policy by increasing their range of
Discussion was based on a semi-structured interview, starting low price products. These are often displayed in order to appeal to
with the reason why one particular store was chosen, which the value segment. Some of them introduced a display of unpackaged
identified consumer shopping needs, and led into closer focus on unbranded goods for which the consumer brings their own
442 M.G. Cardinali, S. Bellini / Journal of Retailing and Consumer Services 21 (2014) 438–448

Structural variables Dendrogram

Supermarket 10
Supermarket 14
Supermarket 20
Supermarket 15

Supermarket 17

Convenience 6
Hypermarket 11
Supermarket 3
Convenience 4
Hypermarket 1
Discount 13

Discount 2

Discount 18
Convenience 5

Supermarket 19

Convenience 12

Hypermarket 7
Hypermarket 9
Hypermarket 8

Hypermarket 16

Fig. 1. Degree of similarity in structural variables.


Source: Author's elaboration.

containers. At the same time, this trading down policy does not The distance between store formats, shown on the horizontal
exclude a trading up policy. Different forms of time saving services axis, confirms that sometimes stores from different formats are
are also being tried out. These are mainly offered at the checkout and nearer than stores from the same format. For example, Fig. 1 shows
include fast checkouts for a limited number of products in a basket, that as far as structural parameters are concerned, three super-
automatic checkouts and self-scanning. There are also time-saving markets, one convenience and one hypermarket can be aggregated
innovations in layout, such as everyday shopping circuits, and at a distance of 3. Another example is that supermarket 3 and
aggregating all fresh goods for daily purchase on display together convenience 4 are very similar and can be aggregated at a distance
etc. The hypermarket format is thus being hybridized, as it competes slightly bigger than 1, while hypermarket 7 and hypermarket 9 can
directly with discount stores on one hand and supermarkets and be aggregated at a distance bigger than 6.4
convenience stores on the other hand. For time saving services (Fig.2), stores belonging to different
The discount store format also provides interesting findings. store format show shorter distances, lower than 5. For example,
Due to the trading up policy, discount is becoming increasingly two hypermarkets (1 and 7) can be aggregated with supermarket
close to levels in supermarkets and hypermarkets. Most of the 10. In the same way, two supermarkets (3 and 19) and conve-
discount chains on the Italian market now have a “mixed layout” nience 4 can be aggregated a distance shorter than 5.5
with fresh goods zones, like supermarkets and convenience stores. Lastly, Fig. 3 shows the distance between formats for the range.
Most have recently increased the number of fresh goods on offer, The distance between supermarket 19 and three convenience
and have increased the number of national brands which have stores (6, 12 and 5) is shorter than the distance between super-
high signaling value in promotional flyers. Trading up of the markets 10 and 19, which can be aggregated only at a greater
product range and the improvement of customer services is making distance (4 versus 10).6 In the same way, hypermarket 1 and
the boundary between discounts, hypermarkets and supermarkets supermarket 17 show a minimum distance and can be aggregated
increasingly blurred.
The boundary between hypermarkets and supermarkets too
is becoming increasingly fluid, and there is increasing overlap (footnote continued)
between the two store formats. according to the distance measure chosen; once formed the first cluster composed
The convergence between store formats in the macro-parameters from the two cases most similar, it goes on iteratively for any other cases in the
sample. The agglomeration procedures as well as the distance measures are
(structural parameters, time saving services and range) was measured provided by default in many of the most common used multivariate statistics
through proximity matrices, known as dendrograms (Fig. 1–3).3 software. For our analysis, we used SPSS software.
4
Supermarket 3 (Conad) and Convenience 4 (Punto Sma), while belonging to
different formats, are very similar in the structural parameters such as layout
3
Dendrograms are one of the various possible outputs of the statistical model, aggregation of promotional areas and gondola promotion areas, while
explorative method known as hierarchical cluster analysis, as computed in many Hypermarket 7 (Esselunga) and Hypermarket 9 (Finiper), while belonging to the
multivariate statistics software (for example, SPSS and SAS). As a method of same store formats, are very different concerning the structural parameters
representation of cluster membership, they are useful to expose and clarify the analyzed.
5
groupings emerging from the data collected. The calculation of the index number Hypermarket 1 (Ipercoop) and Hypermarket 7 (Esselunga) have introduced
(from 1 to 25) is made through the application of an agglomeration procedure time saving services (self-scanning, automatic checkout, daily shopping baskets,
implicating the use of one between the many available measures of similarity/ fast checkout, home delivery). This make them very similar to the Supermarket 10
dissimilarity. The lower the index number, the lesser is the dissimilarity between (Coop).
6
the cases taken into consideration. The agglomeration procedure is iterative: first, it Supermarket 10 (Coop) has introduced new products in fresh foods and ready
combines the cases which are closer between them than any other in the sample, meals. This make it similar to the convenience stores analyzed.
M.G. Cardinali, S. Bellini / Journal of Retailing and Consumer Services 21 (2014) 438–448 443

Time saving Dendrogram

Convenience 5
Convenience 6
Convenience 12
Supermarket 20
Discount 18

Supermarket 3

Supermarket 19

Convenience 4
Supermarket 15
Supermarket 17

Hypermarket 1
Hypermarket 7
Supermarket 10
Supermarket 14
Hypermarket 11
Discount 2

Discount 13

Hypermarket 8
Hypermarket 16
Hypermarket 9

Fig. 2. Degree of similarity in time saving services.


Source: Author's elaboration.

Range Dendrogram

Convenience 6
Convenience 12
Convenience 5
Supermarket 19
Discount 2
Discount 18
Discount 13
Supermarket 10
Supermarket 3
Convenience 4
Hypermarket 1
Supermarket 17
Supermarket 14
Supermarket 15
Hypermarket 11
Hypermarket 7
Hypermarket 9
Hypermarket 8
Hypermarket 16

Fig. 3. Degree of similarity in range.


Source: Author's elaboration.

in the same cluster, whereas the distance between hypermarket 4.2. Structural parameters and time saving services in
8 and hypermarket 16 is about 20. standardization and differentiation
Convenience 5, supermarket 19 and three discount stores (2, 13
and 18) can be aggregated at a distance slightly over 5. Again, In order to answer our second research question, an index of
these are stores from different formats. dissimilarity for structural parameters and time saving services was
These preliminary findings reveal the growing similarity calculated.7 This is an indicator of the “closeness” of the different
between formats, which are increasingly less differentiated and formats (Fig. 4). The closer the index to 100, the more widely is the
overlapping in terms of structure, time-saving services and range.
This appears to show that Italian retailers are aiming to attract
customers from one format to another through macro-parameters 7
The index of similarity (Gini index) has been constructed only with reference
strategies and not only through price promotions, as supported by to the macro-parameters because it requires the conditions of “present or absence”
the literature in the past (Lugli, 1998). of the phenomenon.
444 M.G. Cardinali, S. Bellini / Journal of Retailing and Consumer Services 21 (2014) 438–448

Mixed layout

Aggregation of promotion area


Small baskets for day-to-day shopping

Gondola promotion areas

Home deliveries

Fast checkouts

Automatic checkouts

Self-scanning

Unpackaged items area

Value area

Double entrance

Fig. 4. Degree of similarity between formats (based on Gini dissimilarity index).


Source: Author's elaboration.

Table 4
Convergence between store formats by macro parametersa

Store format Hypermarket Supermarket Discount Convenience

Hypermarket – High convergence Medium convergence Low convergence


Structural variables, time saving Structural variables, time saving Time saving services
services, range services
Supermarket High convergence – Low convergence Medium convergence
Structural variables, time saving Range Structural variables, time saving
services, range services
Discount Medium convergence Low convergence – No convergence
Structural variables, time saving services Range
Convenience Low convergence Medium convergence No convergence –
Time saving services Structural variables, time saving services

a
We defined the convergence as “high” when it occurs in all the three parameters (structural variables, time saving services, range), as “medium” when it occurs in two
of the three parameters and “low” when it occurs in only one parameter.

phenomenon present in the store formats, and the closer the index is hypermarket for what concern the structural parameters and time
to zero the more concentrated it is and the more it is a distinctive saving services, and to the supermarket for the range. In the same
lever for the format. Fig. 4 shows clearly the degree of similarity way, the boundary around hypermarkets is gradually disappearing
between different formats concerning structural parameters and and there is increasing overlap with the supermarket format, in all
time saving services: 8 parameters of 11 in fact present an index of the three macro-parameters.
dissimilarity above 50%, a clear sign that store formats are becoming
closer. Only three of the variables (unpackaged items area, value area, 4.4. Similarity between store formats: consumer perception
double entrance) are concentrated in one single format (hypermar-
ket) and are, in fact, distinctive store attributes. 4.4.1. Purchasing needs
Focusing more closely on this issue, we see that formats are In order to identify shopping needs and the role of the format in
becoming more similar in certain structural aspects of the store meeting them, focus group participants were asked to compare their
such as layout, aggregation and promotion areas, and these factors reasons for choosing the store by writing down words and phrases
are immediately followed by time saving services. associated with their usual shop. This activity led to the identification
of the categories and codes listed in Table 5. In particular, words and
4.3. Standardization versus differentiation of store formats on the phrases of store associations can be grouped into four conceptual
Italian market categories of consumer needs: time-saving, quality of the shopping
experience, money saving and trust.
The hybridization of store formats has not occurred to the Time-saving is a priority for consumers: 40% of words and
same extent in all store formats (Table 4). As well as some formats phrases associated with the usual point of sale mention them. It
are gradually becoming closer and partially overlap in macro- may refer to exogenous factors concerning with context (“the store is
parameters, there are those which are keeping their own identity. easy to get to”) or format (“It's not too big and not too small”). Other
One of these is discount format, although they are currently under- factors are endogenous and depend on the retail mix. Range is
going big changes resulting from the widespread practice of particularly important: it helps to save time when it is “very wide”, as
trading up. This format, in fact, is becoming similar to the a single shopping expedition can be made, and also when it is “basic”,
M.G. Cardinali, S. Bellini / Journal of Retailing and Consumer Services 21 (2014) 438–448 445

Table 5
Categories and codes of the thematic analysis.
Source: Author's elaborations.

Categories Codes Frequency %a Frequency % (Total)

Time savings 40
Exogenous factors (location, 14
parking, opening time, store size)
Endogenous factors (instore services, layout, display, 26
promotions, range, customer service)
Quality of the 31
shopping experience
Range 18
Environment 9
Customer services 4

Money savings 18
Long term prices 10
Short term prices (promotion) 8
Trust 9
Familiar 5
Guide in the choice 3
Loyalty program 1

a
The remaining 3% of the words and phrases associated with the main store are not categorized because they refer to an
occasional frequency of the store (e.g. the store is attended only for “packaged goods”, “home care products”, “non-food items”).

as shopping is quicker because no time is needed to evaluate 4.4.2. The role of store format and retail mix levers in meeting
alternatives. Store layout helps to save time if it “not too spread shopping needs
out”, for example if items on special offer are aggregated on pro- Focus group participants were asked to discuss the role of the
motional areas. Display also speeds up shopping when it is “logically store formats in meeting their shopping needs. For this purpose,
organized” and “products are well-presented”. The store may also participants were asked to complete the pre-printed sentences
help save time by in-store services such as “self-scanning”, or offering “Supermarket is….”, “Hypermarket is…”, “Discount is….”, “Con-
“sales person presence" and “efficiency at the checkout”. venience is….” on a sheet. Initially, the participants appeared to be
Quality of shopping experience is the second reason for choos- clearly aware of the roles of the different formats: they readily
ing a point of sale: 31% of the words and phrases associated with identified the supermarket as “point of sale for food products”, the
the usual store reflect a concept of quality in the widest sense. hypermarket as “food and non-food products”, the discount store
Range accounts for 18% of these and is followed by environment as “a shop for cheap products” and the traditional store as “shop
(9%) and customer services (4%). The quality of the range is for emergencies”.
evaluated intrinsically ("quality of fresh products” and “quality of But looking at these findings in more detail (Table 6), formats
private label products”) and for its differentiation (“ethnic pro- converge in consumers’ eyes on several fronts. “Variety of range” is in
ducts” and “displays of newly launched products”). Participants fact associated with both the supermarket (25% of the associations)
evaluate also the quality of environment (“pleasant”, “light”, and the hypermarket (31% of the of the associations). The “long
“clean” and “tidy”), and the customer services (sales personnel queues and chaos” which first distinguishes the hypermarket (20% of
are “competent", “polite” and “ready to listen”). the associations) also appears for the supermarket (13% of the
Prices, which are usually cited as an important reason for associations), although in third place in the order of frequency. The
choice in quantitative research questionnaire based, appear to be “low prices”, mainly associated with discounts (32% of the associa-
less important in our investigation: only 18% of words and phrases tions), are also mentioned for supermarkets (15% of the associations)
associated with usual point of sale reflect money saving, either in and for hypermarkets (7% of the associations). The only format which
the long-term pricing (“good price-quality ratio”) or short-term retains its identity is the convenience, where consumers perceive
pricing (“special offers”). Focus group discussions concentrated “quality” (35% of the association), “high prices” (21% of the associa-
more on time-saving than money savings: consumers tend to tions) and “trust” (19% of the associations).
judge positively a purchase for the time it takes and ease of Even if consumers recognize structural differences between
purchasing, even if it is not necessarily cheap. formats, chiefly size and range, they do not perceive big differ-
Lastly, consumers need to trust the retailer: 9% of the words ences in terms of meeting shopping needs.
and phrases reflect the need to be reassured (point of sale must be The need to save time is not met by the hypermarket (43% of
“trustworthy”, “welcoming”, “familiar”) and guided in their shop- the association are in the negative sense), which is seen as “time-
ping decisions. In this sense, the store can orient the consumer by wasting”, for consumers who “have time” or who “have time to
way of layout and in store communication (“It gives ideas for waste”. There are consumers, however, who shop at the hyper-
cooking”, or “gives advice on nutrition”).8 market satisfying their need to save time as “There are small
Time-saving, quality of shopping experience, money saving and baskets on wheels for small quantities of goods at hypermarkets
trust are the four pillars supporting a stable relationship with the too” and “Fast check-outs mean the queue is shorter”. According to
retailer. some consumers, in fact, the hypermarket is "similar to the
supermarket" (5% of the association). It is also remarked “My
usual hypermarket is like a supermarket: clothes and other
8
departments are separate and you hardly see them, they don’t
The remaining 3% of the words and phrases associated with the main store
are not categorized because they refer to an occasional frequency of the store (e.g.
waste my time”. So in fact, in-store services and layout are helping
the store is attended only “for packaged goods”, “for home care products”, for non- hypermarkets and supermarkets to converge, as hypermarkets
food items). meet needs previously met by smaller formats.
446
Table 6
Categories and codes of the thematic analysis per store formatsa.
Source: Author's elaborations.

M.G. Cardinali, S. Bellini / Journal of Retailing and Consumer Services 21 (2014) 438–448
Categories Hypermarket Supermarket Discount Convenience

Codes Frequency Codes Frequency Codes Frequency Codes Frequency


% % % %

Time savings Positive (similar to the supermarket for the 48 33 2 17


presence of small baskets and fast checkouts)
5 Positive (easy to reach, not 20 Positive – Positive (no time wasting, for 17
too big, right choice) emergency, easy to reach
Negative (not easy to reach) 2
Negative (time wasting, long queues and chaos, 43 Negative (Long queues and 13 Negative –
too big, not easy to reach, too much choice) chaos)
Quality of the 42 40 57 43
shopping
experience
Positive (variety of range, food and non-food) 39 Positive (Variety of range, 40 Positive – Positive (quality of range, high 35
Specialized in food products) quality of services, specialized)
Negative (medium/low quality product) 3 Negative – Negative (low quality of products, 57 Negative (not too much variety) 8
low services, low quality of
environment, low variety of range,
unbranded
products)
Money savings 7 21 32 21
Positive (money savings) 7 Positive (money savings, 21 Positive (money savings) 32 Positive
value for money)
Negative – Negative – Negative Negative (high prices) 21
Trust 3 6 9 19
Positive – Positive (friendly, loyalty 6 Positive – Positive (trust and relationship 19
program) with staff)
Negative (not friendly) 3 Negative – Negative (I don’t’ like it) 9 Negative –

a
The words and phrases most frequently mentioned by the participants are shown in italics in the order of frequency.
M.G. Cardinali, S. Bellini / Journal of Retailing and Consumer Services 21 (2014) 438–448 447

The need to save money is met by discount stores (32% of the implementing new strategies aimed to stimulate consumers'
association), which are immediately associated with “low prices” and shifting between different store formats. As a result, different
used by people who “wish to save”. But if the aim is saving is also store formats are getting similar and new “hybrid” formats are
possible to go to a supermarket. Consumers commented “You can emerging. The boundaries between formats therefore need to be
find low prices at the supermarket too, but the quality is better, so redefined, so that criteria segmentation can take account of new
there is no point going to the discount store”. They also remarked parameters.
“Prices at discount stores are similar to private label prices, so it is not Finally it emerged that not all levers contribute in the same
worth going there”. So again, the need for low prices is met by more way to the convergence between formats: range and time saving
than one format: supermarkets (21% of the association) and hyper- services appear to be most influential.
markets (7% of the association) as well as discount. The findings of the store checks are confirmed by the consumers’
Lastly, the need for quality and trust appear to be met by the research. Consumers perceive that different store formats are becom-
convenience store, associated with “quality" (35% of the associa- ing increasingly similar in meeting shopping needs. This implies a
tion) and “relationship of trust with retailer” (19% of the associa- certain hierarchical organization when consumers select a retail store,
tion). But these needs too can be met in other formats, even in first choosing the retailer and later the store format within the retailer
the supermarket. Consumers find for example that “You can taste portfolio, depending on the shopping needs. Our findings confirm the
samples of cheese, jam and honey at the hypermarket, like in a starting hypothesis that increasing convergence between store formats
convenience store” and that “If you want a particular cut of meat, affects consumers’ decision-making on purchasing. These findings
they will prepare it for you just like the old-fashioned butcher”. suggest retailers to invest more in store banner differentiation rather
So customer service is bringing the supermarket closest to the than in format. As supported by the literature (Birtwistle et al., 1999;
traditional store meeting the need for quality and trust. Uusitalo, 2001). A store's image is an important means of managing
store positioning. A proper understanding of the store image can help
retailers in store differentiation strategies.
5. Conclusions and implications These results are important for retailers who want to configure
an optimal network of store locations as well as for producers who
For a long time, the literature argued that competition took want to allocate their trade marketing budgets.
place within a store format (McGoldrick, 1990; Spranzi, 1991; The gradual process of standardization between store formats
Lugli, 1998). Only in the last decade, some authors have started opens a discussion on the role of store format in retailing strategy.
to recognize a greater competition between store format (Lugli, This segmentation is becoming less important compared to the
2004; Gonzales-Benito et al., 2005; Cummins et al., 2008; Findlay differentiation strategy or to the joint maneuvers of marketing
and Sparks, 2008; Reutterer and Teller, 2009) arguing that there is, levers which give each retailer a distinctive identity. This means
in fact, an increasing use of multiple stores and formats since they that, given the irreversible nature of the standardization, in the
offer different opportunities to satisfy bundles of wants and needs near future the degree of differentiation between formats will
depending on the shopping occasion. However, this type of lessen. The differentiation will be achieved through the joint
competition (interformat) remains less intense than the one operation of levers macro and micro by joint maneuvers of macro-
within the same format (intraformat). and micro-marketing levers (Bellini et al., 2011) in order to sustain
Our findings, however, show that the spatial rivalry between customer loyalty.
store formats (interformat) is becoming more intense than the In the near future, retailers are thus to face new challenges:
competition within store formats (intraformat). The degree of rationalization and segmentation appear to be the key to future
similarity between different store formats is sometimes almost strategy. On one hand, rationalization of format, less differentiated
greater than the degree of similarity between different stores and recognizable to consumer, is going to be a necessity. On the
within the format. This means that traditional segmentation other hand, segmentation of format will need to follow parameters
criteria used by retailers are in conflict with consumer perception of demand rather than supply.
of the different store formats. The increasing standardization between store formats has clear
Specifically, our field research confirmed that several trends are repercussions also for producers, given that segmentation needs to
taking place in competitive convergence, and these are probably set follow different criteria and trade marketing policies need to be
to redraw the boundaries of competition between grocery retailers. differentiated for store formats. It has always been thought that
Firstly, there is an increasing overlap between store formats. investments should be planned according to formats and then
Boundaries are gradually disappearing and this is widening the according to retailer. In the past, the high level of differentiation of
arena of competition between stores. This competition is “all store format made this practice right, although only few firms
against all” regardless store formats. The different formats are no actually have succeeded in orienting trade marketing by format.
longer distinguished by their capacity to meet specific shopping However, today this practice does not appears to be effective and
needs: all of them meet food shopping needs. Only discount have there is a need to discover what criteria will be useful for
kept a distinct profile on the Italian market. They too are under- clustering stores in the future.
going big changes, but so far have kept several elements that
distinguish them from other formats. Hypermarkets too have kept
some strong elements that identify them, mainly resulting from
their size, but they show increasing areas of overlap with super- 6. Limits of the research and prospects for future research
markets which are set to increase further in future.
A second finding of our field research is that a similarity This study investigates the boundaries between store formats in
between different store formats can sometimes be greater than the era of competitive convergence from the perspectives of both
similarity between different stores in the same format. This trend consumer perception and retailers strategy. Field research has indi-
could be explained as the retailers reaction to the economic cated the growing overlap between different store formats in Italy in
crisis: in a mature environment with slow growth opportunities, terms of structural parameters, time saving services and range. This
retailers seek to develop new strategies in order to expand issue is important as it emphasizes the role that store formats will
their target market and capture the competitors' customers. In have in the near future in retailer strategy as well as in consumer's
particular, Italian grocery retailers are reacting to the recession by purchasing choices. There are however several limitations.
448 M.G. Cardinali, S. Bellini / Journal of Retailing and Consumer Services 21 (2014) 438–448

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