Traditional grocery chains, like Kroger, Albertson, Publix and Safeway are today facing a big challenge in the form of mass merchandisers, in particular Wal-Mart. In order to ward of this challenge most grocery chains have provided shoppers with the ability to indulge in multi-purpose shopping by introducing large box type grocery stores (e.g. Meijers), or have located their stores near malls and in power centers as anchors (Safeway). While the managerial retailing literature is replete with anecdotal examples of these successes, and the claims that these strategies insulate grocery chains from the onslaught of mass merchandisers, not much is known about the demand side impacts of these strategies. In addition, no empirical work has been conducted to understand the consumer responses to these strategies.

In part the change in the competitive retail environment is driven by the need for shoppers to economize on the time spent shopping. Retailers have responded to this need by providing a wide assortment of products allowing consumers to combine purchases in multiple product categories. The emergence of new retail formats like big box stores or category killers, which are frequently clustered in agglomerations called power centers or power nodes, have increased the ability for shoppers to make single-stop multi-purpose shopping trips. Large discount stores, such as Wal-Mart, apart from expanding into sporting goods and automotive products, now have added full-fledged grocery centers allowing shoppers to buy food along with other items. Currently, Wal-Mart is the largest grocery retailer in the world. Other retailers have responded to the need of consumers to combine shopping trips by providing grocery outlets near to, or sometimes inside of, a shopping mall, thereby allowing shoppers to indulge in activities other than grocery shopping.

While it has been widely accepted in the retailing literature that consumers indulge in multi-purpose shopping, most models of store choice implicitly or explicitly assume grocery shopping to be single-purpose shopping trips. This is an important limitation of the current literature as it provides managerial recommendations that are biased at best, while, erroneous and completely incorrect at worst. This paper proposes a model of multi-purpose grocery shopping behavior, which studies the effect of location, pricing strategy, and shopping strategy (single versus multi-purpose shopping) on store choice. A Latent Class Multi-dimensional Scaling Choice model is estimated. This model provides a map of the competitive market structure, and identifies locations of stores in perceptual space (latent dimensions) and the importance consumers attach to these dimensions.

The model is applied to data collected from a major town in New Zealand. We identify price and service to be the two dimensions on which the stores in the market compete with each other. This is in contrast to the single-purpose model, which concludes that stores compete mostly on price. Results indicate that 34 % of the grocery shopping trips are multi-purpose trips, while 66 % are single-purpose trips. Three segments of grocery shoppers are identified based on their utility for time and different shopping strategies used and the stores they frequent (in particular the price format of the store selected). One segment is characterized as cherry pickers, these are mostly single-purpose shoppers who have no preference for a specific store format. The other two segments are time constrained service seekers, and time constrained price seekers. Both segments undertake single and multi-purpose shopping trips, and both shop at different store formats, however, the service seekers tend to prefer Hi-Lo stores, while the price seekers prefer EDLP stores.

Multiple-purpose shopping has also important implications for location and pricing strategies for retailers, which has not been studied to date. An important finding is that the location strategy is dependent on the retail price format, store size and location of other stores (agglomeration effects). Our model allows us to assess the agglomeration benefits that a store derives by locating itself in a particular suburb or near other stores. Results based on the market structure map shows that price and service are two dimensions on which store chains compete. Most retailers implement competitive market strategies based on these two dimensions, however, our results also show that providing opportunities for multi-purpose shopping is a way that store chains can insulate themselves from competitive pressures.

Our findings show that segments that have a preference for Hi-Lo stores are less willing to travel farther distances. Hence, this implies that especially these stores need to be conveniently located usually in the neighborhood that is being targeted. In addition, results show that this segment derives the highest utility from the presence of supermarkets and malls. This implies that distantly located service oriented stores that provide opportunities for multi-purpose shopping will also be attractive to this segment. The multi-purpose model also provides valuable insight into location strategy for small Hi-Lo stores, and how smaller convenient stores can co-exist with larger multi-purpose stores.

We conclude that multi-purpose shopping has important implications for consumer store choice and has important managerial implications for the selection of marketing strategies.