Small shops for sale! The effects of big-box openings on grocery stores

This paper evaluates the effects of big-box openings on the closure of grocery stores at the municipality level. To estimate these effects, I use a discontinuity in commercial regulation in Spain as the source of exogenous variation for the period 2003 to 2011. More specifically, this regulation, which varies by region, establishes entry barriers on big-box stores in municipalities of less than 10,000 inhabitants. I first test whether there is a discontinuity on the number of big-box openings when crossing the population threshold from regulated to non-regulated areas. This first stage shows that non-regulated municipalities recorded 0.3 more big-box openings than the regulated ones. I then use this discontinuity as an instrument to examine the effects of these openings on the number of grocery stores. The results show that, four years after the big-box opening, between 20 and 30% of the grocery stores in the municipality have disappeared. However, even if a big-box store opening is a big threat to grocery stores the results also indicate that it does not seem to be the case for the city centre’s activity given that the empty commercial premises are taken by some new small retail stores. Additionally, when examining by typology, the conventional big-boxes (those selling well-known brands) seem to compete more with grocery stores than do the discount big-boxes (those selling their own, lower price brands) and the former are, therefore, more instrumental in forcing them to close down.