IMPACT OF DEREGULATION OF TRADING HOURS ON GROCERY STORE RETAILING. Sami Kajalo Helsinki School of Economics

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1 IMPACT OF DEREGULATION OF TRADING HOURS ON GROCERY STORE RETAILING Sami Kajalo Helsinki School of Economics Track: Distribution and Logistics Issues in Marketing Keywords: Retailing, trading hours, Sunday trading, deregulation, Finland Abstract In 1997, late night trading was allowed from Monday to Friday from 8 pm until 9 pm in Finland. On the same occasion, Sunday trading was allowed for all stores during June, July and August. The present paper reviews previous studies on the impacts of extension to the retail trading hours and empirically investigates the impact of extended trading hours on grocery store retailing in Finland. The data for this purpose was collected by telephone interviews among grocery retailers (N=500), and personal interviews with grocery store chain top managers (N=8). The data shows that both late night and Sunday trading have become a common practice, and if full deregulation were enforced, trading hours would be further extended. Introduction Recently, in several European countries there has been a lively debate on the deregulation of trading hours. These debates have shown that deregulation creates considerable controversy. Moreover, deregulation has accompanied public debate in several European countries, including England in 1994 and Germany in 1996 (see e.g. Grünhagen & Mittelstaedt 2001). This paper studies empirically the impact of changes to the retail trading hours in Finland. In 1997, late night trading hours were extended from Monday to Friday from 8 pm until 9 pm. On the same occasion, Sunday trading was allowed for all stores during June, July and August. A telephone survey of 500 respondents was conducted among grocery retailers. Moreover, 8 retail chain top managers were interviewed to study the impacts of extended trading hours on their operations. The survey and the interviews attempt to answer, how grocery stores changed their trading hours after the deregulation, and how trading hours of different stores vary. Moreover, the present paper investigates the perceived economic impacts, for example, on the sales and profitability of grocery stores. Distribution and Logistics Issues in Marketing Track 756

2 Previous Studies Several theoretical models relating to the impacts of the deregulation have been presented. Tullock (1980) argued that regulation reduces the costs of retailers, and therefore deregulation would be inconvenient for retailers. Nooteboom (1983) suggested on the basis of a cost-based analysis that deregulation is disadvantageous for smaller retailers. However, based on a mathematical model to derive optimal trading hours for individual stores Thurik (1987) resulted in the opposite conclusion. The conclusion was that long trading hours can be particularly useful for stores with high net margins, which are usually smaller stores. Kay and Morris (1987) focused on the argument that competitive pressures would induce excessive opening at times of higher labour costs, such as on Sundays. They noticed the constraint that individual stores may not vary their price by the time and conclude that excessive opening is indeed possible. However, the study also presented data on costs and demand in the United Kingdom retail market, created a simulation model, and concluded that there it would be improbable that deregulation would lead to such an excessive Sunday trading. This simulation model, which is also presented in Jaffer and Morris (1984; 1986), Kay et al. (1984) and Jaffer and Kay (1986), was later critized by Moir (1987). Moir argued that such a model from the whole retailing system is very difficult to construct, and raised a number of questions on its reliability. Likewise, Clemenz (1990) argued that previous studies are far from exhaustive, and it is impossible to capture all relevant aspects of deregulation in a single theoretical model. Thus, theoretical models may only highlight particular facets of the impacts of deregulation. Morrison and Newman (1983) tested their theoretical model with empirical data on extended trading hours on Sundays preceding Christmas in Canada. The main finding was a transfer of market share from small stores to large stores because of extended trading hours. Moorhouse (1984) compared areas with and without restrictions on Sunday trading in the United States. The results suggested that regulation reduces the number of stores. Also, Ingene (1986) compared areas with and without these restrictions in the United States to find out whether restrictions affect the aggregate sales of the retail industry and whether some lines of retailing lose or benefit from these restrictions. The study provided strong evidence that these restrictions do not have any effect on the aggregate sales of the retail industry in the United States. However, it was found that these restrictions do shift sales between various lines of retailing. Restrictions had a negative impact on the sales of two lines of retailing: department stores and grocery stores. The lines of retailing that benefited from restrictions on trading hours were apparel, furniture, general merchandise and variety stores. Baker (2000; 2002) presented a mathematical model to predict shopping behaviour in Australia. The model which was based on data collected from surveys on shopping behaviour suggested that in Australia deregulated shopping hours have allowed more mobile and affluent households to shop in larger stores instead of smaller local stores. Likewise, Kosfeld (2002) presented a game-theoretic model to study the impact of deregulation on actual trading hours. The aim was to answer why after the deregulation of late night trading in Germany stores first extended their trading hours ANZMAC 2003 Conference Proceedings Adelaide 1-3 December

3 but after some time many stores returned to their previous trading hours. The results of the study emphasised the importance of advertising as a way to signal consumers the extended trading hours. Impact of Deregulation in Finland In spring 1997, late night trading hours were extended from Monday to Friday from 8 pm until 9 pm in Finland. On the same occasion, Sunday trading was allowed for all stores during June, July and August between noon and 9 pm. The empirical data focuses on the impacts of extended trading hours and consists of a telephone survey of 500 grocery retailers conducted using pre-structured questions in November The sample was based on the database from the market research company ACNielsen, and it represents all traditional grocery stores, but not all retail units selling groceries. There are no shopmobiles, kiosks, petrol stations, restaurants with take-away sales or stores located in market halls. The survey data of 500 retailers was enriched by qualitative data from interviews with 8 retail chain top managers (Kajalo 2002). The survey data showed that most stores had changed their trading hours after the deregulation, as about half of the stores had at least tried late night trading until 9 pm on weekdays and 87% had tried Sunday trading. Staying open until 9 pm from Monday to Friday and opening regularly on Sundays when it was allowed were also common. One third of the grocery stores were open until 9 pm on weekdays and in summer 1998 two thirds opened on Sundays. Sunday trading was previously the privilege of sparsely populated areas, but since the deregulation of 1997 Sunday trading has extended to towns. The change has been rapid. In summer 1998, 61% of the grocery stores in town or city centres opened on every Sunday. Just a year earlier the proportion had been only 42%. There are significant differences in trading hours between different parts of the country. However, in general, the data shows that Sunday trading is becoming common practice for grocery stores throughout Finland. In 1997, 50% of the grocery stores opened on every Sunday, whereas a year later the proportion was 65%. Sunday trading is most common among large grocery stores, as many of them open on every Sunday when it is allowed. Moreover, large grocery stores typically stay open as late as possible on weekdays. At the other end of the scale are some very small grocery stores which close as early as 5 pm or 6 pm from Monday to Friday and stay closed altogether on Sundays. In summer 1997, Sunday trading was, to some extent, more common among small grocery stores, but already in 1998 that had changed. This was due to the fact that large grocery stores started to open on Sundays. In 1997, only 44% of stores with over 1,000 square meters floor space opened on every Sunday, whereas this was 77% in Trading hours of most stores are decided solely by the retailers. However, there are also chains where the decision is taken by the chain management, and all stores of the chain have similar trading hours. The data also shows that some retail chains have Distribution and Logistics Issues in Marketing Track 758

4 extended their trading hours more rapidly than others attempting to gain competitive advantage by extended trading hours. The respondents of the telephone survey were also asked about the impacts of extended trading hours on their stores. 61% of the respondents disagreed with the statement that extended late night trading hours increased profitability. The perceived impacts of Sunday trading were considered more positive, as 51 % of the retailers considered the impact on profitability positive. The survey data showed that the experiences of extended trading hours on economic impacts varied by the store type. Large grocery stores had been open both on Sundays and until 9 pm on weekdays, and they had usually had positive experiences of these trading hours. On the other hand, many smaller grocery stores did not find experiences of late night trading positive, or had not even tried opening until 9 pm. In general, it may be concluded that the experiences of Finnish grocery stores vary significantly in this matter. Views of the impacts on sales, profitability and labour costs differed among the survey respondents strongly. Considering late night trading, there was a significant difference in experiences between large stores and smaller stores. Retailers of large stores viewed their experiences of extended trading hours as more positive, and they also had more positive attitudes towards further deregulation. The retail chain top managers expressed that a significant number of their stores would open regularly on Sundays if Sunday trading were allowed throughout the year. The interviews also indicate that on weekdays late night trading would extend to 10 pm or until 11 pm at the latest. Trading hours on Saturdays were expected to be the same as on other weekdays or slightly shorter. On Sundays some retail chain top managers expected their stores to stay open only for a few hours, but others expected Sunday trading to last until the evening. In general, the retail chain top managers seemed to be much more positive than the respondents of the survey considering the impacts of extended trading hours, and few adverse aspects of extended trading hours were presented. The retail chain top managers believed that full deregulation would lead to a situation where most stores would extend their opening only modestly, but some individual stores might move towards very long trading hours, even 24 hours a day and 7 days a week. Even though most managers believed that full deregulation would lead to a common practice of 7 days a week opening among grocery stores, they were very sceptical of opening after 10 pm or 11 pm. Managers expected that such late night opening could be profitable only for very few stores, which could be either convenience stores or very large stores in major cities. To conclude, the survey data and interviews with retail chain top managers show that Finnish grocery stores have rapidly adopted the new opportunities for extended trading hours. On the other hand, the results show that there are very different views among Finnish grocery retailers about the economic impacts of extended trading hours. ANZMAC 2003 Conference Proceedings Adelaide 1-3 December

5 The data suggests that more stores will adopt new trading hours, and in the case of further deregulation trading hours would extend even further. The interviews with the retail chain top managers even suggest that full deregulation might lead to a situation where Sunday trading would be common practice among grocery stores. In the same way, the late night hours would in the case of full deregulation extend among a significant number of stores at least until 10 pm. Conclusions and Discussion This paper reviewed several studies on the impacts of deregulation of trading hours. However, it is very difficult to make a conclusive statement on what the impacts are. At least until now, little evidence has been presented to show that deregulation would have a major economic impact on retailing. It seems that as Burke and Schackleton (1989) suggested both the opponents and the supporters of regulation tend to exaggerate the impacts of the deregulation of trading hours. In the main, the conclusion made in the 1980s by Kay et al. (1984) seems still valid. They concluded that one can be more confident in asserting that the impacts of deregulation are small than in identifying the final direction of changes (see also Burke & Shackleton 1989). Thus, based also on the recent research in this field it could be concluded that the impacts of deregulation on, for example, sales, profit margins, retailing costs, prices and employment would be modest. On one hand, the structures of retail sectors differ from country to country, and thus results and conclusions on the impacts of deregulation made on one country may not be accurate in another country. One clear example of differences between countries is double-time payments for Sunday work. In Finland, Sunday trading is relatively expensive for retailers because double-time payment on Sundays is guaranteed in legislation for any work. In Britain and in the United States, for example, there is no such guarantee for double-time payment, and in practice the extra compensations for Sunday work are much lower than in Finland (IRS Employment Review 1995; Keen 1994; Statutes of Finland 1996; Walsh 1993). On the other hand, there are universal features in the retail industry and shopping behaviour, and, therefore, the impacts of deregulation might be in some respects universal, and findings of studies could be applied to other countries. To conclude, it seems appropriate to review the studies on the impacts of deregulation even though they were based on data from different countries. However, there is a need for caution in applying the findings directly to another country. And, as Lamdin (2001) concluded, if two researchers were to independently study the same regulatory event there are numerous dimensions on which they could differ in implementation, and therefore, findings. The data on the impacts of deregulation of trading hours in Finland showed that most stores had changed their trading hours after the deregulation. About half of the stores had at least tried late night trading until 9 pm on weekdays and 87% had tried Sunday trading. Staying open until 9 pm from Monday to Friday and opening regularly on Sundays when it was allowed were also common. One third of the grocery stores were open until 9 pm on weekdays and in summer 1998 two thirds opened on Sundays. The data also shows that some retail chains have extended their trading hours more rapidly Distribution and Logistics Issues in Marketing Track 760

6 than others attempting to gain competitive advantage by extended trading hours. Moreover, the data suggests that more stores will adopt new trading hours, and in the case of further deregulation trading hours would extend even further. Suggestions for Future Research There are several research objects to focus on in order to internalize the multifaceted nature and the actual impacts of deregulation. When dealing with impacts on the retail trade, more research is needed on the various impacts on various types of retail trade, and even contradictory impacts on the same types of store. Moreover, there have been relatively few serious efforts to study empirically the impact of deregulation on, for example, the structure of the retail sector. Also, the cultural impacts, for example, on the traditional character of Sunday are still to be studied. Even though this study may answer many questions related to the adoption and usefulness of extended trading hours in grocery store retailing, these issues should be studied in other sectors of retailing, for example, in non-food retailing, and among kiosk and petrol station trade. Moreover, the issue in future studies should be more closely linked to other developments, such as structural changes in the retail sector and consumers shopping behaviour. ANZMAC 2003 Conference Proceedings Adelaide 1-3 December

7 References Baker, RGV 2000, Towards a dynamic aggregate shopping model and its application to retail trading hour and market area analysis, Papers in Regional Science, vol. 79, no. 4, pp Baker, RGV 2002, The impact of deregulation of retail hours on shopping trip patterns in a mall hierarchy: An application of the rastt model to the Sydney project ( ) and the global vacant shop problem, Journal of Retailing and Consumer Services, vol. 9, no. 3, pp Burke, T & Shackleton, JR 1989, Sunday, Sunday: The issues in Sunday trading, Adam Smith Institute, London. Clemenz, G 1990, Non-sequential consumer search and the consequences of a deregulation of opening hours, European Economic Review, vol. 34, no. 7, pp Grünhagen, M & Mittelstaedt, RA 2001, The impact of store hours and redistributive income effects on the retailing industry: Some projections for Germany, International Review of Rtail, Distribution and Consumer Research, vol. 11, no. 1, pp Ingene, CA 1986, The effect of "blue laws" on consumer expenditures at retail, Journal of Macromarketing, Fall, pp IRS Employment Review 1995, Sunday working in retail - drifting away from double-time, vol. IRS Employment Review, no. 580, pp Jaffer, SM & Kay, JA 1986, The regulation of shop opening hours in the United Kingdom in: Law and economics and the economics of legal regulation, ed. JM Graf von der Schulenberg & G Skogh, Kluwer Academic, Dordrecht. Jaffer, SM & Morris, CN 1984, A simulation model of retailing costs, The Institute for Fiscal Studies, London. Jaffer, SM & Morris, CN 1986, The economic effects of Sunday trading in: The distributive trades. An international perspective, ed. L Pellegrini & SK Reddy, Franco Angeli, Milan. Kajalo, S 2002, Deregulation of retail hours in Finland: Historical and empirical perspectives, Acta universitatis oeconomicae helsingiensis, A-210,Helsinki School of Economics, Helsinki. Kay, JA & Morris, CN 1987, The economic efficiency of Sunday trading restrictions, The Journal of Industrial Economics, vol. 36, December, pp Kay, JA, Morris, CN, Jaffer, SM & Meadowcroft, SA 1984, The regulation of retail opening hours, The Institute for Fiscal Studies, London. Keen, S 1994, Big stores set standards for wider Sunday trading, Personnel Management, vol. 26, no. 1, pp. 19. Distribution and Logistics Issues in Marketing Track 762

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