Fuels sales through retail chains and their store traffics and revenue

Abstract

Purpose: Using panel data on gasoline and grocery transactions in Korea, the purpose of this paper is to empirically explore the effect of a retail chain store’s establishment of on-site fuel sales. The empirical analyses present strong empirical evidence that the sale of fuel had statistically and economically significant effect on retail store traffic and revenue in the short run. However, the effect did not remain significant in the longer run. To explain the dramatic decrease in the effect of the fuel sale, the authors consider the enhanced competition in the local gasoline retail industry and examine cross-sectional price variations at the station level. The results suggest that the increased competition led to the reduction in the price dispersion across stations and thereby to an increase in consumer welfare. Design/methodology/approach: Using a linear specification that has traditionally been used to model retail chain data, the authors developed a series of difference-in-differences models. This technique is ideal for estimating the effect of a treatment in the presence of possible selection bias and has been widely employed in many social-science studies on policy intervention. Findings: In a certain environment, introducing fuel sales did not increase retail chain store traffic or revenue in the long run, despite having statistically and economically significant effects in the short run. The results document empirical evidence of myopic management in a common marketing practice, which often leads to a negative impact on the firm value in the long run. Research limitations/implications: The span of data and sample size were limited to meet the company’s data protection policy. Practical implications: Considering that many of developed countries are characterized by a gasoline retail environment similar to that which is investigated in this paper, the authors believe that the implications of the results are particularly valid for practitioners and policy makers. Social implications: The findings document empirical evidence of myopic management in a common marketing practice, which often leads to a negative impact on the firm value in the long run. Marketing researchers should make efforts in establishing metrics to help identify myopic management decision. Originality/value: This paper addresses an interesting and practical issue related to the effects of the introduction of gasoline sales by a supercenter store on its store traffic.