The Effect of Retail Distribution on Sales of Alcoholic Beverages

Richard Friberg's website

“The Effect of Retail Distribution on Sales of Alcoholic Beverages" (joint with Mark Sanctuary).  Abstract: We use monthly sales of all wines, beers and spirits over the years 2006-2011 sold by Sweden's retail monopoly on alcohol to estimate the causal effect of retail distribution on market share by volume at the product level. Products are defined at the level of the stock-keeping unit (SKU). Two institutional features are key to identifying the causal effect: first, the monopolist uses four levels of retail distribution and a change in retail distribution is therefore associated with a discrete shift in the number of stores that carry a product in a given month. Second, the retailer is legally bound and monitored by the EU to ensure that it acts in a nondiscriminatory manner with all its suppliers. These features allow us to rule out many possible confounding factors in the estimation of the effect of distribution on sales volume. We nd large and statistically significant effects from changes in retail distribution on market share by volume across all levels of retail distribution. The associated volume elasticity of retail distribution is convex; the wider the retail distribution the greater the marginal volume increase from further widening. In this market, wider distribution means reaching stores with successively smaller assortment. Our results are indicative that the smaller assortment in smaller stores, coupled with a low resistance to compromise, is the main reason for the convex pattern. In other words, convexity appears to be generated by products achieving \a larger share of a smaller pie" as retail distribution expands.