The Expansion of Modern Grocery Retailing and Trade in Developing Countries
by Sharad Tandon
, Maurice Landes
, and Andrea Woolverton
Economic Research Report No. (ERR-122) 33 pp, July 2011
Domestic and multinational modern grocery retailers are
accounting for an expanding share of food sales in many developing
countries, with potentially significant implications for food
demand and trade. This report examines two mechanisms that are
potentially important in driving the growth in modern food
retailing. First, modern retailers may be meeting rising demands
for dietary diversity, shopping and preparation convenience, and
food safety that are
commonly associated with rising incomes among some groups of
consumers. Second, modern grocery retailers may be investing to
improve supply chains and reduce food prices, which can lead to a
stream of efficiency gains to be shared between producers and
consumers. Such efficiency gains are likely to be more significant
in a developing country context than in more developed countries
because lower income consumers tend to be more responsive to income
and price changes, and because agriculture and food account for
large shares of both income and expenditures in developing country
What Is the Issue?
Although the expansion of modern food retailing may boost food
demand and trade, actual gains may be influenced by the extent to
which retailers focus on accommodating consumer demand for food
quality and convenience by investing in modern retail formats,
versus improving the efficiency of the food supply chain. If modern
retailers introduce significant supply chain efficiencies, both
farmers and consumers stand to benefit from the additional
income they can devote to both food and all other goods. If, on
the other hand, the expansion of modern food retailing is not
accompanied by supply chain efficiencies, then the economywide
benefits might be muted. Although consumers will still benefit,
farmers' income and overall consumption may not significantly
change. The impacts of modern grocery retailing in developing
countries are potentially important to U.S. agricultural markets.
developing country imports of U.S. agricultural products has
outpaced imports by developed countries in the 1990s and 2000s,
with developing countries accounting for 64 percent of U.S.
agricultural exports during 2007-09.
What Did the Study Find?
• The share of total grocery expenditures captured by modern
retailers is correlated with the income level in developing and
transition countries. Penetration of modern grocery formats is
higher in countries where GDP per capita is higher. However,
countries with the highest growth in modern grocery formats tend to
be much poorer on average, suggesting a relationship between the
rate of penetration and base income level.
• Growth of modern grocery retailing across developing and
transition countries between 1999 and 2009 is correlated with the
share of the working-age population, suggesting demand factors,
such as increased convenience, are important to the recent
• Countries with high growth in modern retailing also observed
higher growth in the sale of packaged and readymade foods,
indicating that modern outlets are growing fastest where demand for
increased convenience is growing fastest.
• Growth in modern retailing is uncorrelated with a number of
supply-side factors, such as conducive business environments and
infrastructure (share of paved roads), that would likely be
important if efficiency gains in the supply chain were aiding the
growth in modern grocery retailing. Case studies of Brazil, China,
India, and Russia further suggest that the growth of modern grocery
retailing is not accompanied by immediate efficiency gains in the
• Exports of U.S. processed foods are growing fastest in countries
where modern grocery retailing is growing the fastest, suggesting
that modern grocery formats in developing countries are an
important outlet to promote U.S. agricultural products.
How Was the Study Conducted?
This study uses a newly constructed data set from Euromonitor,
International describing the spread of modern grocery retailing.
The data set covers a larger sample of developing countries (103)
than previously available and allows disaggregated analysis by type
of modern format and type of food item. Analysis using this data
set finds that variation in demographic characteristics, such as
share of the population most likely to benefit from the convenience
offered by modern formats, is associated with the widely varying
rates of retail penetration across developing
countries over 1999-2009. On the other hand, growth in modern food
retailing appears uncorrelated with variation in efficiency growth
variables like ranking for business environments and growth in
foreign direct investment, as derived from the World Bank
Development Indicators database. This basic pattern is corroborated
by a number of case studies of transition countries: Brazil, India,
China, and Russia.