Modeling Productivity in Supermarket Operations: Incorporating the Impacts of Store Characteristics and Information Technologies

Data from the 2002 Supermarket Panel are used to estimate a supermarket production function with weekly gross margin as the output measure and store selling area and total labor hours as variable inputs. The model also includes productivity shifters describing format and service offerings, store ownership structure, unionization, and adoption of new information technologies and related business practices. The null hypothesis of constant returns to scale cannot be rejected. Increases in ownership-group size, warehouse and supercenter formats, unionization of the workforce, and adoption of vendor-managed inventory and a frequent-shopper program are all associated with significantly higher productivity. The supermarket industry experienced profound changes during the 1990s. Changes in store char-acteristics were readily apparent to consumers. Median store size grew from 31,000 square feet in 1990 to 44,600 square feet in 2000 (Food Marketing Institute 2002b). New formats also emerged, most notably the supercenter. There were less-visible but equally important changes in industry structure. I