Economic Research Report No. (ERR-105) 51 pp

October 2010

How Much Lower Are Prices at Discount Stores? An Examination of Retail Food Prices

Nontraditional stores, including mass merchandisers, supercenters, club warehouse and dollar stores, have increased their food offerings over the past 15 years and often promote themselves as lower priced alternatives to traditional supermarkets. How much lower are food prices at these stores? In order to better understand nontraditional stores' impact on the cost of food, ERS analysts evaluate food price differences between nontraditional and traditional stores at the national and market level using 2004-06 Nielsen Homescan data. Findings show that nontraditional retailers offer lower prices than traditional stores even after controlling for brand and package size. Comparisons of identical items, at the Universal Product Code (UPC) level, show an expenditure-weighted average price discount of 7.5 percent, with differences ranging from 3 to 28 percent lower in nontraditional stores than in traditional stores. Nontraditional stores in metro areas where such stores have a higher-than-average market share have smaller and less frequent price discounts than those in areas where such stores have a lower market share.

Keywords: Retail food prices, price variation, Nielsen Homescan, supercenter, club warehouse store, dollar store, traditional food retailers, nontraditional food retailers

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