For most consumers, the allure of shopping at a warehouse club store—such as Costco or B.J.’s—is easy to articulate.
There’s a certain logic to the stores’ low prices and bulk packaging: you can get more for your money, and make fewer trips to your regular grocery store. And the membership fee of $50 or $100 pays for itself in the money you save versus shopping at a traditional supermarket. The club store industry has been riding that calculation to great success. Between 1992 and 2013, club stores and supercenters were the fastest growing retail category in the U.S., with sales rising from $40 billion to $420 billion, and the number of club stores exploding to more than 1,600.
There’s just one problem. The whole value proposition basically falls apart in practice. As Kusum Ailawadi, the Charles Jordan 1911 TU’12 Professor of Marketing, finds in a new research paper, people who shop at club stores are spending more on food and making more shopping trips than they would if they didn’t shop there, and they’re eating more too. “We are not saving time, we are not saving money,” Ailawadi says, “and we’re increasing our consumption of non-perishable and impulse foods.”
Ailawadi details these findings in “The Club Store Effect: Impact of Shopping in Warehouse Club Stores on Consumers’ Packaged Food Purchases,” which was co-written with Yu Ma of McGill University and Dhruv Grewal of Babson College. The paper is forthcoming in the Journal of Marketing Research.
As with many of Ailawadi’s previous studies on consumer food shopping behavior, this research relies in part on homescan panel data from several thousand households who have agreed to scan the barcodes of every grocery item they bring into their house. The authors then combine that data with three other sources: an annual health and wellness survey given to the homescan households, the nutrition information for most of the purchases they made, and new club store openings during the research period of 2006 through 2009. The unique combination of these data, along with multiple types of econometric analysis, allows the researchers to answer the central counterfactual question of the study: “what would those people who are now shopping at the club store have done if they had not shopped at the club store?” Ailawadi says. “We’re trying to get as close as possible to that causal effect.”
We are not saving time, we are not saving money, and we’re increasing our consumption of non-perishable and impulse foods.
The club store effect is substantial. Club store shoppers are, per capita, taking home about 3,500 more calories per month—a 7 to 10 percent increase—than if they didn’t shop at that format. Ailawadi can’t prove that households are actually eating all of this food, since she can only observe purchases, but her prior research has shown that when people bring more food into their house, they also consume more food. The research team also finds that much of the club store effect comes from storable foods and not perishable ones—which is less likely to spoil fast and be thrown away. Those extra calories can make a big difference in consumers’ health—just adding 100 calories per day to one’s diet can result in 10 pounds of weight gain over the course of a year.
For those who think these results don’t apply to them, Ailawadi has some bad news: “We didn’t see any significant difference based on education, health consciousness, or even income,” she says. The club store effect was slightly reduced for people who spend more than average on health and personal care products—presumably they care more about how they feel and look. And the effect was more pronounced for large families.
With this research in hand, Ailawadi hopes consumers will think more deeply about their grocery shopping. For example, she doesn’t want people to fall prey to the common belief that we can stockpile food at home for convenience but not increase consumption. This is just as important to remember for supposedly healthy packaged foods. People tend to have a health-halo bias, thinking they can eat large quantities of something that is perceived as being healthy. But they end up offsetting any health benefits of the food by eating larger quantities of it.
Ailawadi isn’t against club stores. She just wants them to be more mindful of the impact they can have on consumer health. “There are clearly some win-wins for the warehouse club format,” she says. Because these stores sell in bulk, reducing calories in their products by small amounts can have a large aggregate benefit. And club stores don’t need to always charge more for healthy foods; the price premium can be on junk food. “A nudge like that can go a long way, as my own research as well as that of my colleagues has shown.”