Assessing Performance Impacts in Food Retail Distribution Systems: A Stochastic Frontier Model Correcting for Sample Selection

A key organizational decision for retailers is whether to self-distribute or rely on a wholesaler-supplied network and yet little is known about the impact of this strategic choice on store-level productivity. We estimate a stochastic frontier model for food retailers that accounts for selectivity effects linked to the choice of distribution strategy. We find that adoption of data-sharing technologies has a positive impact on store-level gross margins of stores in self-distributing chains. Technical inefficiency among U.S. food retailers leads to a gross margin that is around $5,000 less for a conventional food retailer and about $7,670 less for a supercenter.