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The Effects of Menu Costs on Retail Performance: Evidence from Adoption of the Electronic Shelf Label Technology

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  • Ioannis Stamatopoulos

    (McCombs School of Business, The University of Texas at Austin, Austin, Texas 78712;)

  • Achal Bassamboo

    (Kellogg School of Management, Northwestern University, Evanston, Illinois 60208;)

  • Antonio Moreno

    (Harvard Business School, Boston, Massachusetts 02163)

Abstract

We use the adoption of electronic shelf labels (ESLs) by an international grocery retailer in 2015 to identify the effects of physical menu costs (i.e., labor and material costs of price adjustment) on retail performance. We find that the installation of ESLs increased gross margins substantially, which implies profit gains that go far beyond labor cost savings. We also explore the mechanism behind this effect. We find that the lift in gross margins was associated with an increase in quantity sold and a decrease in price per unit sold, and that the lift primarily came from low-shelf life product categories. Moreover, we find that more and smaller price changes occurred with ESLs. These additional price changes were mostly price decreases, and they were dispersed in time. Our findings are consistent with reductions in both variable and fixed menu costs (i.e., both costs that scale with the number of products affected and costs that do not).

Suggested Citation

  • Ioannis Stamatopoulos & Achal Bassamboo & Antonio Moreno, 2021. "The Effects of Menu Costs on Retail Performance: Evidence from Adoption of the Electronic Shelf Label Technology," Management Science, INFORMS, vol. 67(1), pages 242-256, January.
    • Handle: RePEc:inm:ormnsc:v:67:y:2021:i:1:p:242-256
    DOI: 10.1287/mnsc.2019.3551
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