Co-Location, Good, Bad, or Both: How do New Entries of Discount Variety Stores Affect Local Grocery Businesses?

This article examines how the location choices of Europris, Norway’s largest discount variety chain, affect sales and customer traffic at local grocery stores from 2016 to 2019. Using detailed weekly sales and store visit data from a major Norwegian grocery chain alongside geographic information on store proximity, the study employs a two-way fixed effects approach to estimate the impact of Europris store entries and relocations. The findings reveal a non-linear relationship: when Europris stores are located very close (within 250 meters, enabling one-stop shopping), grocery stores experience increased sales and traffic due to positive agglomeration effects; however, as the distance increases beyond this threshold, competitive effects dominate, leading to reduced grocery store performance, with the strongest negative impact observed at distances between 2 and 5 kilometers. The study further distinguishes effects by product overlap, showing that competition is more pronounced for product categories sold by both chains. These results are supported by robustness checks and a simple theoretical model illustrating the interplay between increased local demand (extensive margin) and intensified competition (intensive margin). The findings contribute to understanding retail spatial competition and have implications for store location policies, suggesting benefits from co-location strategies that facilitate one-stop shopping.