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

In recent decades, technology allowed for the retail industry’s pivot to vertical integration and systematic changes in national supply chains. After a wave of the spread of Walmart and other big-box stores, the emergence of e-commerce nowadays is at the center of attention as a threat to local businesses. Yet previous literature provides limited empirical evidence on e-retailer’s role due to the absence of clearly designated service areas. This study enhances our understanding of e-commerce’s impact by focusing on e-grocery giant—Amazon Fresh and Instacart— to examine how their market entry impacts local brick-and-mortar businesses operating in the same grocery retail industry. Our study leverages e-grocery’s clear service areas at zip code level to employ a difference-in-difference setting on longitudinal establishment-level records from the National Times Series (NETS) database in the greater Atlanta metropolitan area. We find that local retailers experience an annual decline of sales by 2.5-3.5%, and they adjust operation by cutting headcount 1.5-1.8% after Amazon Fresh enters a local market. Specifically, the negative impacts are disproportionately borne by small businesses while the effects are spatially ubiquitous regardless of how close an affected store locates to a nearby retail cluster anchored with big-box stores. Moreover, the entry and persistent operations of Amazon Fresh, which provides both the sale and delivery of goods, burden local retail stores more heavily over time. In contrast, Instacart, a distinct online grocery platform, which solely provides delivery services as a third-party agency, yields a neutral impact on the local retailers’ employment. In fact, we find evidence that the diffusion of online delivery platform among major brick-and-mortar stores can help boost sales performance of a grocery retail industry overall in the service area